traci l. bender nebraska public power district appa business & financial conference september...
TRANSCRIPT
Traci L. BenderNebraska Public Power District
APPA Business & Financial ConferenceSeptember 15, 2009
Risk Analysis
• “Risk is good, if you do not properly manage it though, you take a dangerous leap.”
Evel Knievel
2Copyright © 2009 Nebraska Public Power District. All rights reserved.
Nebraska Public Power District• Political subdivision of the State• Operates an integrated electric utility system,
including facilities for generation, transmission, and distribution
• Serves all or part of 91 of 93 Counties in State• Sells to 77 Wholesale Municipalities and Rural
Public Power Districts and distributes to 80 Retail Municipalities
• In total, approximately 380,000 End-Use Customers
3Copyright © 2009 Nebraska Public Power District. All rights reserved.
Nebraska Public Power District• Owns and maintains 14 generating plants with
combined capacity of 2,913 MWs• Owns and operates 5,000 miles of
Transmission & Sub-transmission line and related substation facilities
• Operates distribution systems for 87 Municipalities primarily through Lease and Operations & Maintenance Agreements
4Copyright © 2009 Nebraska Public Power District. All rights reserved.
Risk Analysis – How Has It Changed?• Traditional Business Risk Management– Event-driven– Focus within individual business units– Specific risk issues addressed individually
• Enterprise-Wide Risk Management (EWRM)–Portfolio approach – very broad– Focus corporate-wide – integrated–Optimize use of resources to manage risks
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NPPD’s Risk Management Process
Manage
Assess
Identify
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EWRM – NPPD Approach Roles & Responsibilities
• Resource Planning & Risk Management– Facilitate the process
• Risk Working Group (RWG)– Assist with developing and implementing risk
management processes and procedures Structured approach
– Cascade risk awareness Getting all employees engaged
– Training and education of employees Developing a risk-aware culture
7Copyright © 2009 Nebraska Public Power District. All rights reserved.
EWRM – NPPD Approach Roles & Responsibilities
• Risk Oversight Committee (ROC)– Responsible for high-level risk management
oversight and program support• Business Units
– Proactive and forward looking in risk identification, assessment, and management
• Have the third eye perspective– Integrate risk management into existing
processes
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NPPD Experiences withRisk Quantification
• Utilized Qualitative Scales with Definitions that aligned with 1 (Low) through 10 (High) Ratings to assess Probability & Impact of various risks– Used for Enterprise-Wide Risk Analysis
Developed “Top 20” risk profile with action plans and risk owners
– Used for Project Risk Analysis
• Integrated Risk Analysis into major Strategic Initiatives– Cooper Nuclear Station Options Study– 2008 Integrated Resource Plan– Other
9Copyright © 2009 Nebraska Public Power District. All rights reserved.
Cooper Nuclear Station (CNS) Options Study - Risk Analysis
• Quantitatively analyze future possible operating scenarios for our Cooper Nuclear Station
• Utilized consultants from Strategic Decisions Group (SDG), an industry recognized expert in analytical decision methodologies
• Utilized Stochastic modeling, which includes assigning a probability distribution for selected key inputs and provides a probability distribution for your outputs– Inputs – values assigned for all major uncertainties at the
10th, 50th, and 90th percentile points 10th percentile one in ten the value will be lower 90th percentile one in ten the value will be higher
10Copyright © 2009 Nebraska Public Power District. All rights reserved.
CNS Options Study – Risk Analysis• The bar charts on the following page identify an
Expected Value (EV) for each of the future operating scenarios– The EV is the probability-weighted average outcome
of each option, given the many combinations where each data input is taken at the 10th, 50th, and 90th percentile points
• The width of the bar illustrates the “range of uncertainty” or risk associated with Operating Scenario– A narrower or smaller bar width around the Expected
Value indicates less risk or a more certain outcome when comparing to other scenarios
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Present Value of Wholesale Revenue Requirements over 10 Years ($ Millions)3100 3200 3300 3400 3500 3600 3700 3800 3900 4000
Base Case
Case 1
Case 2
Case 3
Case 4
Case 5
Case 6
Case 7
Rate Track(3321)
3411
3356
3331
3294
3252
3359
3633
3563
10%ile Expected Value
90%ile
Summary of Project Findings
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Understanding Risk
• Tornado Diagrams were then used to understand what was contributing to the uncertainty or risk associated with the various operating scenarios– Additional cases were added with strategies to
reduce the risk
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Base Case Risk Profile PV of Wholesale Revenue Requirements
Risk Profile Comparisons:Base Case
10%-ile
10%-ile
10%-ile
10%-ile
10%-ile
10%-ile
10%-ile
10%-ile
10%-ile
10%-ile
90%-ile
90%-ile
90%-ile
90%-ile
90%-ile
90%-ile
90%-ile
90%-ile
90%-ile
90%-ile
-150 -100 -50 0 50 100 150
CNS Staffing
CNS Contractor / Consultant Budget
Market Price
CNS Refueling Outage
CNS Forced / Extended Outage
RFP Sales Price
CNS Addition / Improvement Capital
CNS Renewal / Replacement Capital
Expansion Units Cost Scenario
Cost of Debt for CNS Capital Projects
10%-ile90%-ile
Supplemental Project Analysis and Information
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Are We Satisfied With Our Program? No!• How can we improve?– Engaged ownership of the process (champion)– Maintain focus on top risks
Periodic updates to ensure validity– Quantify the value added for risk mitigation efforts
Present a business case for the process– Incorporation of risk management and analysis into
corporate goals, strategic plan, business unit planning and performance indicators Drive home the message that risk analysis will be a part
of our every day business
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Closing
• Risk analysis has become a critical tool at NPPD
• Risk Analysis does not replace management judgment, but can assist greatly in thoroughly evaluating various courses of action and increasing the probability of successful outcomes.
16Copyright © 2009 Nebraska Public Power District. All rights reserved.