Date post: | 11-May-2015 |
Category: |
Business |
Upload: | scottmadden-inc |
View: | 345 times |
Download: | 0 times |
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
Natural Gas Benchmarking
Overview and Example Report
December 2013
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
Why Engage in Benchmarking
Example Report
ScottMadden – Who We Are
1
Contents
Why Engage in Benchmarking
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
Energy companies face increasing challenges
Aging infrastructure Declining ROE and increasing regulatory scrutiny Ongoing cost control pressure Industry uncertainty
Benefits
Provides insight on performance and helps identify improvement opportunities Enables companies to set stretch goals and learn from best performers through external, objective reviews Serves as an integral part of managing the business
3
Why Engage in Benchmarking?
Assessing business performance through benchmarking can help identify performance gaps and improvement opportunities. Benchmarking is a key part of the business management process.
Growth potential Environmental compliance demands Aging labor force External impacts on business operations
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
Much of U.S. pipeline infrastructure is aging; over a third is 40 years or older
Pipeline safety, a top priority for the gas industry, is driving investments to improve system integrity
Recent high-profile incidents have highlighted the need for such improvements
As a result, capital expenditures among gas utilities have increased significantly The growth rate in CapEx for this group was 22% higher
in 2012 than in 2011 Forecasts indicate this trend continuing in 2013
4
Example Industry Challenge: Aging Infrastructure
0
50,000
100,000
150,000
200,000
250,000
Pre-
1940
1940
-19
49
1950
-19
59
1960
-19
69
1970
-19
79
1980
-19
89
1990
-19
99
2000
-20
09
2010
-pr
esen
t
Unk
now
n
Mile
s of
Pip
elin
e
Onshore Gas Distribution PipelineConstruction by Decade and Region (miles)
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2005 2006 2007 2008 2009 2010 2011 2012
$ M
illio
ns
Annual Capital Expenditures – 15 Publicly-Traded Gas Utilities
MEDIAN
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Pre
-194
0
1940
-19
49
1950
-19
59
1960
-19
69
1970
-19
79
1980
-19
89
1990
-19
99
2000
-20
09
2010
-pr
esen
t
Unk
now
n
Mile
s of
Pip
elin
e
Onshore Gas Transmission PipelineConstruction by Decade and Region (miles)
Source: PHMSASource: PHMSA~31% ~55%
Source: SNL
WesternSoutheastNortheastMidwestGulf
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
Rate cases have increased consistently since 2000, but authorized ROEs continue to decline
In 2012, rate case filings were at the second highest point in 14 years
Gas allowed ROEs are at the lowest point in 14 years. 2012 median authorized ROEs are 150 basis points below those reported in1998
Contributing factors for this trend include: Increased levels of planned capital expenditures for
renewal of aging infrastructure Declining natural gas consumption Increasing energy efficiency in homes
Earning authorized returns is challenging
Two-thirds of gas utilities’ earned ROEs are below what is authorized
The median of earned ROE as a percentage of allowed ROE is 91%
5
Example Industry Challenge: Declining ROE
Sources: ScottMadden analysis; Regulatory Research Associates; SNL Financial
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
Our benchmarking analysis is based on publicly available data with metrics and peer groups developed based on ScottMadden insight and client input
The analysis can take three to six weeks to complete depending on the level of client involvement and input needed. We tailor the schedule to our clients’ requirements. An illustrative timeline is below.
6
Our Benchmarking Approach
Objectives and Planning
Confirm objectives of study
Define plan and schedule Select metrics based on
objectives Develop benchmarking
panel and vet with client
Data Gathering and Analysis
Assemble benchmarking data
Develop analyses and conduct additional research as needed
Insight Development
Develop findings Highlight leading and
lagging areas of performance
Presentation of Results
Review results Validate opportunities for
improvement Identify areas for more
detailed assessment
Phase Week 1 Week 2 Week 3 Week 4
Objectives and Planning
Data Gathering and Analysis
Insight Development
Presentation of Results
Typical fees for this effort are approximately
$25,000
Example Report
7
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
Introduction
Summary of Initial Observations
Overview of Panel Companies
Financial Performance
Operational Performance
Potential Improvement Opportunities
Report Contents
An example report with illustrative data follows
8
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
Overview
The objective of this review is to provide high-level financial and operating comparisons that will help the Company* management identify potential opportunities for improvement
While benchmarking can point to good practices and best-of-class results, it is not “the answer.” Instead, the benchmarking process itself provides a platform for dialogue about key management questions: What are the appropriate measures
of performance? Where do we stand relative to
those measures, and who are the “best”?
What are others doing, and what should we be doing to improve?
How will we institute those improvement initiatives, and how will we measure success?
9
IntroductionApproach
A panel of 12 natural gas companies, including the Company, was selected as the benchmarking peer group for comparison purposes Company size, location, and system characteristics are the
primary considerations for peer companies This report is focused on key measures that provide a snapshot of
financial and operational performance compared to peers Financial metrics were obtained from FERC Form 2 reports or
annual reports submitted to state commissions Operational data (e.g., miles of main, number of services,
leaks repaired) were obtained from Department of Transportation (DOT) annual operator reports
Potential focus areas for improvement can be derived from the benchmarking results Where applicable, key industry trends, compiled from
ScottMadden observations and research, provide context to the benchmarking comparison
* The “Company” is the subject of the benchmarking effort
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
Revenue (net of production) per customer is slightly below comparable peers. While customer growth is relatively flat, the Company is keeping pace with the peer companies
The Company is near the median in terms of level of investment in its system
Results for Operation and Maintenance (O&M) expenses are mixed Non-production O&M expense is relatively high on a per customer basis but relatively low on a per mile and per employee basis Administrative and General (A&G) expense per customer is relatively high while Distribution expenses are low when compared to
the peer panel
The Company’s distribution system is ranked high in the peer panel, with its relatively high percentage of protected steel and plastic mains and services
10
Summary of Initial Observations*Benchmarking Results
* The initial observations throughout this report can be refined after discussion with management to better understand the context (i.e., the “why’s” and the “so what’s”)
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
A group of comparable peer utilities was selected based on similarities in scale, region, organization structure, and other system operational and design characteristics (e.g., multiple opcos under one holding company, whether or not the service territories were contiguous, whether or not they own upstream assets, pipe constructed of one predominant material, etc.) to the degree possible to ensure a like-in-kind basis of comparison for the benchmarking analysis.
11
Overview of Panel Companies
Company Customers Throughput (Mcf 000s)
Operating Revenue ($000s)
Utility A 694,391 68,938 644,474
Utility B 1,198,791 70,562 241,798
Utility C 918,283 80,535 1,178,102
Utility D 1,471,249 191,566 1,550,240
Utility E 544,205 48,138 380,935
Utility F 1,048,626 101,729 808,334
Utility G 431,181 12,656 369,353
Utility H 427,483 38,319 480,854
Utility I 1,881,576 210,244 1,064,301
Utility J 426,078 46,644 446,201
Utility K 656,743 79,349 909,192
The Company 686,256 85,644 424,256
NOTE: Customers, Throughput, and Operating Revenue reflect year-end 2012 data
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
Overall, growth rates for the panel companies are fairly flat, and reflect the challenging economy
The customer growth rate for the Company is at the median of the panel (about 0.2%)
Revenue net of production reflects what is received for the delivery of gas; commodity costs have been removed from this number Note: quartiles and median based on revenue net of
production
The Company was below most of the peer companies on a revenue net of production per customer basis
12
Gas Revenue per Customer and GrowthBenchmarking Results – Revenue and Growth
Top QuartileMedianBottom Quartile
Better
Revenue Net of Production Production Expense
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
Net utility plant reflects end-of-year total plant less accumulated depreciation expense
The Company was slightly above comparable peers in net plant per mile of main and per customer
The Company is just below the median for 5 Year CAGR, which indicates that the company has been investing less in its infrastructure than the peer panel
13
Net Utility PlantBenchmarking Results – Revenue and Growth
Top QuartileMedianBottom Quartile
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
The Company was above most comparable peers based on total non-production O&M expense per customer. A&G cost appears to be a driver for this metric
However, the Company was below most comparable peers on a per mile of main basis
The Company was one of the lowest to comparable peers based on total non-production O&M expense per employee
14
Total Non-Production O&MBenchmarking Results – Cost
Transmission Sales ExpenseDistribution Admin & GeneralCustomer Accounts StorageCustomer Service & Info
BetterNote: Main data not available for Utility E
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
We provide more detailed analyses of Administrative and General (A&G) expenses, as this is one of the largest components of total non-production O&M. These charts break down total A&G expense by FERC line item
The relatively high A&G expense per customer for the Company is driven primarily by Employee Pensions and Benefits, Outside Services, and Salaries
Administrative and General O&M expense per employee for the Company was considerably below the median and comparable peers
15
Administrative and General O&MBenchmarking Results – Cost
BetterNote: Administrative Expenses Transferred and Duplicate Charges are recorded as credits
Top QuartileMedianBottom Quartile
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
Distribution is another major component of non-production O&M expense The Company’s distribution O&M expense per mile of main and per customer are lower than the majority of the panel, likely because of
the Company’s high percentage of newer pipe (see following page)
16
Distribution O&MBenchmarking Results – Cost
Top QuartileMedianBottom Quartile
Note: Main data was not available for Company EBetter
Note: Main data not available for Utility E
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
The Company also ranks high in the peer panel for services. Virtually all of its services are made up of plastic and protected steel
Like mains, the composition of services is a determinant of system performance and maintenance expenses
The Company has a high percentage of plastic and protected steel. The Company has no cast iron and very little unprotected steel, indicating that its system is relatively new
The composition of distribution mains can drive system performance and maintenance expenses (leaks, etc.)
17
Composition of Gas Distribution SystemBenchmarking Results – Operational
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
The Company is close to the median in each measure related to leaks
The Company’s position in the peer panel is relatively high, given that its distribution system has one of the highest percentages of plastic and protected steel
18
Leaks Repaired and Scheduled for RepairBenchmarking Results – Operational
Top QuartileMedianBottom Quartile
Better
BetterBetter
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
The Company experienced three significant incidents in 2012 while Utility H and Utility G did not experience any
19
Pipeline Incidents by CauseBenchmarking Results – Operational
NOTE: Significant incidents meet one or more of the following criteria • Fatality or injury requiring in-patient
hospitalization• $50,000 or more in total costs• Highly volatile liquid releases of five barrels
or more or other liquid releases of 50 barrels or more
• Liquid releases resulting in an unintentional fire or explosion
Better
Source: PHMSA
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
The Company’s customer satisfaction rating is just above the median among the peer panel companies
20
J.D. Power Customer SatisfactionBenchmarking Results – Customer
Top QuartileMedianBottom Quartile
Better
Note: JD Power data not available for Utility I
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
Review results with management and key stakeholders
Validate opportunities for improvement (e.g., identify gaps with leading practices)
Identify areas for more detailed assessment
21
Next Steps
ScottMadden – Who We Are
22
Copyright © 2013 by ScottMadden, Inc. All rights reserved.23
Who We AreScottMadden is a management consulting firm with more than 30 years of deep, hands-on experience.
We deliver a broad array of consulting services—from strategic planning through implementation—across many industries, business units, and functions.
WHAT IT TAKESW E D O
TO GET IT DONER I G H T
More than 2,400 projects
More than 300 clients including 20 of the top 20 energy utilities
Every business unit, every function
EN
ER
GY
More than 1,100 projects
Clients range from entertainment to energy to high tech
Unmatched experience with more clients and more solutionsC
OR
PO
RAT
E &
SH
AR
ED
SE
RV
ICE
S Unique perspective built on 30 years of
energy experience
Solutions for clean and renewable sources of energy, smart energy management, and sustainabilityC
LEA
N T
EC
H &
S
US
TAIN
AB
ILIT
Y
Copyright © 2013 by ScottMadden, Inc. All rights reserved.24
We believe that client success is the best measure of our own success.
We listen carefully to our clients’ challenges, concerns, and goals sowe can personalize our work and focus on the things most important to their success.
We don’t solve problems with canned methodologies—we help our clients solve the right problem in the right way.
We do what we say we are going to do with genuine passion, tenacity, and integrity throughout the entire process.
S c o t t M a d d e n :
SMART. FOCUSED.
DONE RIGHT.
“They were able to offer more customization vs. a cookie-
cutter consulting project plan or proposal. Exactly what
we’re looking for.”
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
Our energy utility expertise was built over more than 30 years. It is experience based, not theoretical. Our capabilities are broad and deep. Chances are we have seen and solved a similar problem.
E X P E R I E N C E
We have helped our clients develop strategies, improve operations, reorganize companies, and implement initiatives.
S E R V I C E S
We perform projects across every energy utility industry business unit and in every function. Since 1983, we have served more than 300 clients and completed more than 2,400 projects.
S C O P E
20 OF THE TOP 20ENERGY UTILITIES HAVE ENGAGED
SCOTTMADDEN.
25
ScottMadden Knows Energy
Copyright © 2013 by ScottMadden, Inc. All rights reserved.26
Representative Capabilities Strategic planning
Business planning
Operational excellence and best practices
Playbook and management model
Process improvement
Organization design and staffing
Smart Grid
Renewables
Environmental
Regulatory
M&A
Benchmarking
Corporate and shared services
Clean tech and sustainability
“I’ve used many consulting services during my career, and no other firm ever delivered on the
promises they made better than ScottMadden.”G E N E R A T I O N C O M P A N Y
P R E S I D E N T
Copyright © 2013 by ScottMadden, Inc. All rights reserved.27
Areas of Focus
GENERATION
Our practical expertise in nuclear, fossil, and renewables helps clients implement leading practices for fleets and individual plants to improve and sustain results.
DISTRIBUTION/SMART GRID
We help our clients manage their distribution businesses in this changing environment with a continued focus on managing cost and ensuring reliability.
TRANSMISSION
We provide broad, deep energy expertise coupled with practical business acumen to help companies navigate transmission challenges with solid business advice.
VERTICALLY INTEGRATED UTILITIES/PUBLIC POWER, MUNICIPALS, AND COOPERATIVES
We have performed numerous projects for leading players in every area of the business.
REGULATION AND RATES
We offer extensive experience in addressing the strategic and operational challenges posed by energy regulation to help our clients succeed in today’s turbulent times.
GAS
We help companies adapt to rapid change in the natural gas industry by providing strategic and operational improvements that deliver value to clients.
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
Consulting Approach
C O N T E N T D E E PWe know energy and have worked across every energy utility business unit and every function for more than 30 years.
P E R S O N A L I Z E DWe begin by listening to our clients’ situation, challenges, and goals; then we personalize our work to help them succeed.
C O N T E X T U A LWe don’t solve problems with canned methodologies—we help our clients solve the right problem in the right way.
C O L L A B O R AT I V E We engage with our clients like no other firm does, working side by side to produce results.
R E A L R E S U LT S
Our work is practical and can be put into play immediately. We excel at helping internal stakeholders take ownership to continue producing results after our work is done.
28
Copyright © 2013 by ScottMadden, Inc. All rights reserved.29
Representative ClientsTransmission Delivery Utilities Regulation GasGeneration
Note: Representative sample; not all-inclusive of clients served. Excludes numerous well-known clients due to confidentiality agreements
Copyright © 2013 by ScottMadden, Inc. All rights reserved.30
More than 30 years in the energy industry gives us unmatched experience
More than 2,400 projects means most likely we’ve seen a similar issue or solved a similar problem
D E E P E X P E R T I S E
Before we begin any project, we sit down and listen to our clients’ needs and challenges
We engage with our clients like no other firm does, working side by side to create practical, real results
We don’t employ canned methodologies or cookie-cutter solutions. We work to solve the right problem in the right way
P E R S O N A L I Z E D A P P R O A C H
P H I L O S O P H Y We are personally invested in every project and measure our
success by our clients’ success
We listen to our clients’ needs and put their best interests ahead of our own
We work with integrity, tenacity, and a genuine passion for what we do
We do what it takes to get it done right
More than 30 years later, our very first client is still
with us today.
Why ScottMadden?
“Outstanding job of selecting really good people that have the experience, knowledge,
and insights.”
Copyright © 2013 by ScottMadden, Inc. All rights reserved.
Diversified UtilityGas Industry Briefing and Benchmarking AnalysisScottMadden worked with a diversified utility after a recent acquisition of three LDCs to develop an executive primer on the natural gas industry and the business model for a typical LDC. This engagement also involved a detailed benchmarking analysis that compared the acquired LDCs to regional and national peer panels.
Multiple Gas LDCsBusiness Process ImprovementScottMadden managed large multi-team projects to assess LDCs’ current state processes, functions, and organizations and led teams through developing future state designs and business cases to support implementation. ScottMadden provided the methodology, supported project management, facilitated and performed analysis, offered best practices, supported communications and change management, and helped to develop deliverables. Projects improved business results, service levels, and operating efficiencies, increased employee engagement, and helped develop a new culture of continuous improvement. The project was cited in the client’s subsequent Wall Street analyst presentations and annual reports.
Gas LDCOrganization AnalysisScottMadden conducted an organizational structure analysis for a large gas LDC by comparing current state practices to best practice benchmarks, including spans of control, layers, and cost to manage. The analysis resulted in identification of potential areas of improvement. These opportunities would result in a structure aligned with corporate strategy, efficient decision making, clear accountabilities, increased morale, and the potential for significant savings.G A S
GasRepresentative Qualifications
31