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ELECTRIC UTILITY MANAGEMENT LEARNING OBJECTIVES

TABLE OF CONTENT

7601: The Electricity Business

7602: Management Organization

7603: Customer Services

7604: Electric Utility Accounting

7605: Electric Utility Rates & Rate Setting

7606: Electric Utility Financing

7607: De-Regulation & Competition

7608: De-Regulation in Practice

7601: The Electricity Business

The objective of this videotape is to introduce the overall task of managing the business of an electric utility company. In particular, as the first video in the series, it aims to show the major technical demands that must be met in running such an enterprise. In addition to providing a technical overview for all personnel, the level of presentation is designed to provide useful information to non-technical participants such as administrative staff, non-technical managers, Public Utility Members, and interested members of the lay people. Upon completion of the videotape and workbook exercises, the participant should be able to understand and apply the following concepts:

  • The overall management task
  • Features of the electricity business
  • Capacity requirements to meet peak demand
  • Long term pay back to investors
  • The monopolistic nature of electricity supply
  • The utility company’s obligations
  • The need for regulation of rates
  • Potential for competition to control rates
  • Significance of IPPs and NUGs
  • Divisions of the electricity business; generation, transmission, distribution
  • Types of utility company, composition
  • Utility company ownership
  • Characteristics of Hydro Power Generation
  • Characteristics of Steam Power Generation
  • Characteristics of Gas Turbines and Diesels
  • Characteristics of Co-Generation and Combined Cycle
  • The high voltage grid system
  • Power system operation, the matching of generation to load
  • The system operator’s responsibilities, economic dispatch, system security, frequency and voltage control
  • Interconnection between control areas
  • Load shedding
  • Function of the distribution system
  • Distribution system layout and equipment
  • Customer voltage level
  • Management concerns - reliability, quality, planning

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7602: Management Organization

The objective of this videotape is to examine the organization of typical utility companies, both large and small. The presentation also draws attention to the wide range of tasks and activities, which must be performed by the company to meet its objectives. Upon completion of the video and associated workbook, the participant should be able to understand and apply the following concepts:

  • The need for the organization to be structured in such a way as to meet the company’s objectives and obligations
  • The function of the Board of Directors (or other similar group), representing the owners of the company, whether private of public
  • The responsibilities of the Chief Executive Officer (CEO); day-to-day operation of the company, implementing the board’s directives, and reporting back to the board
  • The split of company activities into functional divisions such as Power Generation, Transmission and Distribution, Customer Service, Finance and Administration, and Human Resources
  • Additional corporate services such as legal council, strategic planning, and corporate communications
  • The organization and general responsibilities of the power generation division
  • The organization and responsibilities of the transmission grid division
  • The organization and responsibilities of the distribution division
  • Organization and responsibilities of the customer service division
  • Organization and responsibilities of the power system operations group which may be located in one of the above divisions. Responsibilities of this department include: Power dispatch, system security, control of frequency, purchase of power from IPP and neighboring utilities
  • Organization and responsibilities of the financial and administration division
  • Organization and responsibilities of the human resources division
  • The objectives and responsibilities of management
  • The company’s mission statement and objectives
  • The setting of goals and tasks by managers at all levels
  • Co-operation of subordinates in setting goals and tasks
  • The measurement of task performance
  • Manager’s authority
  • Motivation of personnel by involvement, including ownership and commitment
  • The need for management to be seen as fair and just
  • Maintenance of good communications between all personnel
  • Management control of departmental costs
  • Legal requirements for different departments

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7603: Customer Services

The objective of this videotape is to present and discuss the essential role of "Customer Service" in the current day electric utility company. Particular attention is given to the need for "marketing" and improving service in order to meet impending competition in power supply as a result of de-regulation. After completion of this module and associated workbook, the participant should be able to understand and apply the following concepts:

  • The significance of competition in the power supply business
  • The need to retain existing customers
  • Opportunities to attract new customers
  • Definition of "wholesale" and "retail" customers
  • Classification of retail customers
  • Components of the "rate" charged for power supply
  • Customer Service strategy and objectives
  • Standard power supply connections
  • Additional services
  • Installation inspection and approval
  • Metering installations, and meter testing
  • Billing practices
  • Procedures for disconnection due to non-payment of bills
  • Demand Side Management programs (DSM)
  • DSM incentives
  • Time-of-day-rates
  • Seasonal rates
  • Interruptible rates
  • Peal-load shifting
  • Load management by remote control
  • Load factor
  • Environmental management objectives
  • Customer requirements and customer relations
  • Maintaining the company image
  • Marketing activities
  • Quality of service to provide customer satisfaction
  • Communication with the customer
  • Dealing with customer complaints
  • Public relations
  • Company internal communications
  • Company personnel morale

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7604: Electric Utility Accounting

The objective of this videotape is to present and discuss the major features of accounting systems as used in electric utility companies. The important role of accounting in managing a company is highlighted, plus the need for presentation for financial information to various outside parties such as regulators, government agencies, customers, investors, banks, etc.. Upon completion of this videotape and associated workbook, the participant should be able to understand and apply the following concepts:

  • What can be learned from financial statements and by whom
  • Financial statements and their make up
  • Interpretation of the balance sheet, the income statement, and the cash flow statement
  • Basic accounting rules
  • Applications of accounting information including:
      1.Calculation of taxes
      2.Investor and shareholder appraisal
      3.Approval of rates by the regulator
      4.Management information services such as budgetary control
      5.Control of cash flow
  • Balance sheet entries; definition of assets, liabilities, and equity
  • The balance sheet equation, equity = assets - liabilities
  • The effect of retained earnings on equity
  • Income statement entries
  • Sources of revenue, treatment of accounts receivable
  • Costs associated with electrical utility company operation
  • Classification of expenditures to "assets" or "operating expenses"
  • Capitalization of financing charges (interest) during construction of a facility
  • The effect of bringing an asset into service after completion of construction
  • The uniform system of accounts, code of accounts, chart of accounts
  • The need for correct allocation of charges to the correct account throughout the company
  • Fixed asset accounting. The principle and application of depreciation
  • The effect of depreciation on:
      1.Asset value
      2.The income statement
      3.The balance sheet

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7605: Electric Utility Rates & Rate Setting

The objective of this videotape is to present and discuss the principal factors which must be taken into consideration when setting rate schedules for different classes of customer. Attention is also paid to the regulatory process and its significance in rate setting. Upon completion of this module, the participant should be able to understand and apply the following concepts:

  • Rate setting based on cost of service regulation
  • The objectives of the rate setting process
  • The calculation of revenue requirement
  • The need for R.O.I. (Return On Investment)
  • Components of the rate base
  • Allowable components of operating cost
  • The load forecast, short term and long term
  • Planning new plant installation and its associated capital investment requirements
  • The balance between customer and shareholder interests
  • Objectives of the cost of service study (cost allocation study)
  • Different customer requirements
  • Functionalization and classification of cost
  • The components of demand cost, energy costs, and customer service costs
  • Allocation of demand costs, energy costs, and customer service costs between different classes of customer
  • Embedded cost (average accounting cost) versus marginal costs
  • The use of marginal costs to provide price signals to customers reflected in time of day rates
  • The determination of rate schedules so as to recover revenue requirements
  • The characteristics of commonly used rate schedules, including flat rate, flat rate plus, fixed
  • charge, declining block rates, inverted block rates, two part tariff with demand charge, seasonal and time of day rates
  • Characteristics of Interruptible rates
  • The responsibility of the regulatory commission
  • The rate hearing process
  • Participants in the rate hearing
  • Common areas to controversy which arise during rate hearings
  • Information to be included in the utility’s rate application
  • Interrogatories, cross examinations, summary and decision
  • The importance of effective presentation of the utilities case to the regulatory commission
  • The move to competition instead of cost of service regulation
  • Types of incentive regulations

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7606: Electric Utility Financing

The objective of this videotape is to present the major features of electric utility financing form the perspective of both the investor and the utility company. Different methods of raising funds are discussed, including the issue of bonds, debentures, and common and preferred shares, with reference to their relative security. Financial performance ratios are also presented. Upon completion of this module and associated workbook, the participant should be able to understand and apply the following concepts:

  • Sources of funds
  • Debt financing
  • Features of bonds, debentures, and mortgage bonds
  • The influence of bank interest rates on yield and market price
  • Equity financing
  • Dividend payout ratio
  • Features of common stock and preferred stock
  • Security of investment
  • Payout priority
  • Balance of equity and debt
  • Significance of debt ratio to investors
  • Difference between capital structure of government owned and privately owned utilities
  • Lease financing
  • Project financing
  • Examples of financial performance ratios
  • Interest coverage
  • Profitability ratios, ROI, and ROE
  • Project evaluation - financial assessment
  • Present value concept, discounted cash flow
  • Project assumptions, alternatives, timing
  • Sensitivity analysis

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7607: De-Regulation & Competition

The objective of this videotape is to present and discuss the many changes which are currently taking place in the electric utility business, as a result of the thrust to deregulation and competition in the generation sector. Although the rules, regulations and legislation quoted refer to North American practice, the general principles and concerns are similar in all areas. Upon completion of this videotape and associated workbook, the participant should be able to understand and apply the following concepts:

  • The aim of deregulation - competitive generation, customer choice
  • Operation of the pool system; shared cost saving
  • Spot market price = pool price = marginal price
  • Charge for transmission including ancillary services
  • Charge for start-up, shut down, standby, spinning reserve
  • System operation of combined transmission network by: GRIDCO; ISO (Independent System Operator); RTG (Regional Transmission Group)
  • Wholesale customers, private and municipal DISCOs, exporters and importers
  • Hedging contracts through brokers and marketers
  • Load aggregators
  • U.S.A. Legislation - PURPA 1978, ETA 1992, PUCHA 1935
  • Definition of co-generators, NUGs and IPPs
  • Stranded assets
  • F.E.R.C. rulings 1994, 1996, mandate Open transmission access
      1.Transmission tariff approval
      2.Unbundling generation, transmission, distribution, marketing
      3.Recovery of stranded asset costs
      4.Open access to information
      5.State utility commission concerns
  • Separation of system operation and commercial transactions
  • Responsibility of the power exchange group
  • Available transfer capacity (ATC), firm and recallable
  • OASIS - Open Access Information System
  • Power flow path, parallel flows
  • Tracking of power flows for accounting and financial settlement
  • Futures commodity trading
  • System reliability, N.E.R.C. initiatives

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7608: De-Regulation in Practice

The objective of this module is to look at the various issues involved in operation of the competitive power system and see how these problems have been tracked through the rules and regulations set up in different locations. The previous module in this series presented the objectives and principles of deregulation and we now move on to look at the practicalities involved in operating such a system. Upon completion of this videotape and associated workbook, the participant should be able to understand and apply the following concepts:

  • The characteristics of electrical power supply that make if different from trading in other commodities
  • The need for support services required to stabilize system operation i.e. provision of imbalance energy, voltage control etc.
  • Issues, which must be allowed for in the design of payment schemes for competitive electricity such as: availability, stand-by, spinning reserve, etc..
  • Comparison of incentives to invest capital in new plant under the competitive regime, compared with the situation under the traditional regulatory regime
  • The need to provide incentives to build new transmission capacity
  • Open transmission access allowing competitive supply of wholesale power
  • Distribution access allowing supply of competitive retail power
  • The major players in the competitive market and their functions
  • Functions of the system operator and market operator
  • Operation of the power pool in Britain, including pricing structure
  • The bidding process and development on SMP (System Marginal Price) for half hourly periods throughout the day
  • Allocation of start-up cost, no load cost, and incremental cost
  • The effect of heavy load periods and light load periods on pricing
  • Allowance for genset characteristics, i.e. inflexibility
  • Calculation of payment for availability
  • Payment for spinning reserve capacity
  • Compensation to generators for constraints on the transmission system
  • Addition of system operation support costs to arrive at the pool selling price (uplift)
  • Payment for use of transmission system
  • Billing for transmission system losses
  • Arrangement for settlement and payments
  • The function of bilateral financial contracts which operate outside of the pool (i.e. hedging against fluctuating pool price by a contract for differences)
  • The general effect of deregulation in the UK on generation and distribution companies
  • The rules and regulations being adopted in USA and Canada to develop competition (the California model, the Alberta Power Pool, and B.C. Hydro