Performance Measurement and Cost Benchmarking

Performance Measurement and Cost Benchmarking

July 15, 2021 | Online :: Central Time

“This course was relevant and thought provoking. Time very well spent!” – Manager, Rates and Finance, BC Hydro

“Great speakers, thorough coverage of topics, knowledgeable presenters.” – Staff Rate Analyst, PSE&G

Retail electricity services integrates largely competitive generation services with regulated delivery services, including transmission and distribution (T&D). Contemporary electricity markets reflect many entities operating under ever-widening regulatory arrangements to accommodate stakeholders participating from all corners. Yet, at the end of the day it comes down to performance for utilities: have the changes put in place over recent years obtained net benefits? What is performance and how is it gauged? This course addresses essential elements of these questions and provides plausible answers.

Utilities, intervenors, and regulators all use benchmarking to appraise the reasonableness of historical costs and forecasts of future costs. Focusing on service quality and cost metrics, this course presents fundamental performance concepts and works through the details of cost benchmarks. The course explores regulatory implications and addresses the core issue: can the performance of service providers be incorporated within the conventional regulatory framework?

Learning Outcomes

  • Discuss the definition of performance as well as its attributes and features
  • Review how to distinguish electricity from conventional markets as non-regulated markets have significant competition
  • Discuss performance-based regulations (PBR) impact on performance
  • Review the regulatory standards at work and their impacts on the competitive market process
  • Explore performance benchmarking within cost-based regulation as an alternative approach
  • Review the measurement of cost performance by selecting comparable peer groups
  • Review the measuring of service quality performance
  • Discuss the current reliability measures

 

Agenda

Thursday, July 15, 2021 : Central Time

8:45 – 9:00 a.m.
Log In

9:00 – 9:10 a.m.
Opening Announcements

12:30 – 1:15 p.m.
Lunch Break

9:00 a.m. – 5:00 p.m.
Course Timing

Short breaks will be taken in the morning and afternoon

Introduction

  • Performance—what is it?
    • A plausible definition
      • The multiple dimensions/attributes of products and services
    • Attributes and features are differentiated across the product and service lines
      • Similarities within individual lines of products and services
      • Relevance of attributes is a matter of consumer preferences
    • Electricity services, viewed as a special case
      • Electricity itself is well-defined, with precisely measurable quantities
      • Electricity service is a service package attached to the provision of electricity
        • Multiple service attributes are present in electricity services
        • A core function and capability necessary for the workings of macroeconomies

Distinguishing Electricity from Conventional Markets

    • Supply side of non-regulated markets often have significant levels of competition
      • Suppliers face potential loss of market share
        • Competition tends to discipline suppliers: get things reasonably right or incur market entry and lost market share
    • Electricity service providers face considerably less competitive pressure
      • Regulatory authorities serve as surrogates for competitive market processes
        • Regulatory standards at work and impacts
          1. Resource adequacy criteria; how much capacity is needed
          2. Measured service quality covering high-valued attributes including reliability, customer services, service interconnection
      • Performance-based regulations (PBR) real impact on performance
        • Explicit penalties for substandard performance, observed and measured
        • Is PBR the best governance structure within the context cost-based regulation?
      • No apparent alternative to cost-based regulation
        • Substantial economies of scale and scope within electricity services
        • Firm-level knowledge harbored by incumbent electricity suppliers
        • Models of competition (e.g., Demsetz franchise competition) can work effectively in the key functions of T&D
    • Electricity services are likely to remain in place, largely unchanged
      • Ongoing scale economies in power delivery (T&D) services
        • Costly to evolve and overhaul incumbency toward a workably competitive construct
        • Evolution to workable competition high risk gambit for regional economies
          1. End result could significantly underperform expectations
          2. Relevant case example: February ’21 experience in ERCOT

Alternative Approach: Performance Benchmarking Within Cost-Based Regulation

  • The performance of incumbent electricity service providers compared to that of selected peer group
    • Set prices subject to performance
    • Yardstick Competition by another name
  • Suggested performance metrics to gauge incumbency performance
    • Cost level
    • Total factor productivity (TFP), as realized over time
    • Survey-based service quality
      • Customer call performance; responsiveness to on-site service inquiries; responsiveness to new-service requests; power supply reliability/quality

Measuring Cost Performance

  • Selection of comparable peer group
    • Determining the relevant characteristics that underlie peer group selection
      • Pooled time series-cross sectional analysis to quantify the relationship between costs and factors that explain cost differences.
        • Addresses the question: just why is electric distribution services in midtown Manhattan threefold higher than Des Moines Iowa?
  • Cost measurement
    • All-in cost metrics
      • Cost elements according to function (generation, transmission, distribution, customers services)
      • Capital-related cost components according to function
      • Fuel costs and purchased power
      • Operations and maintenance costs according to function, including indirect cost elements and ancillary service costs
      • Weighted average cost of capital including observed capital structure, interest costs, and equity market-based rate of return
    • Output quantities including production quantities, peak loads, retail and wholesale sales
  • Productivity measurement, based on cost indexes
    • Productivity metrics based on methodology used by the Bureau of Economic Analysis (BEA) and applied by regulatory authorities in index-based PBR
    • Output quantities including number of customers served, energy production quantities, peak loads, and retail & wholesale sales
    • Input quantities including:
      • Christensen-Jorgenson based measures of capital
      • Highly differentiated cost indexes reflect ongoing inflation of cost inputs through time
      • Industry-specific regional labor compensation including wage and salaries, and labor benefits
      • Marginal cost of capital
      • Market-based fuel costs

Measuring Service Quality Performance

    • Survey-based measures of service quality
      • Example analysis and filed service quality reports before regulatory authorities

Measuring Reliability

    • Current reliability measures
      • System Average Interruption Duration Index (SAIDI); Customer Average Interruption Duration Index (CAIDI); Momentary Average Interruption Frequency Index (MAIFI)
      • IEEE standard 1366
    • Example analysis and filed reliability quality reports before DOE regulatory authorities

Concluding Comments

Instructors

Robert Camfield, Senior Regulatory Consultant, Christensen Associates

Robert Camfield is Senior Regulatory Consultant at Christensen Associates.  He has extensive experience in the energy industry and the economics of regulation, including resource decisions, regulatory governance and incentive plans, market restructuring, cost allocation, energy contracts, cost of capital, and performance benchmarking. Mr. Camfield has managed numerous projects involving wholesale and retail markets, including market restructuring in Central Europe.  He served as the program director for EEI’s Transmission and Wholesale Markets summer program from 1999 – 2008 and is credited with innovations related to web-based energy services, cost analysis, and two-part tariffs for transmission. Prior to joining Christensen Associates, he served as system economist for Southern Company and chief economist for New Hampshire Public Utilities Commission.

Nick Crowley, Economist, Christensen Associates

Nicholas Crowley, MS (University of Wisconsin–Madison) is an Economist at Christensen Associates.  His professional work is primarily with natural gas pipeline and electricity regulation, including wholesale and retail markets. For electricity, he has participated in numerous costing and pricing projects, which involve computational analytics and econometrics, performance-based ratemaking, marginal cost estimation, total factor productivity estimates, and load response with respect to efficient time-of-use tariff options within retail markets. Mr. Crowley’s analyses and study results have been summarized in major reports and formal studies filed with regulatory authorities in Canada and the U.S. Prior to joining CA Energy Consulting,  he served as an economist with the Federal Energy Regulatory Commission, where his work experience was concentrated in natural gas pipeline regulation and assessment of electricity markets. Mr. Crowley was also involved in FERC’s performance-based regulation of oil pipeline rates.

Online Delivery

We will be using Microsoft Teams to facilitate your participation in the upcoming event. You do not need to have an existing Teams account in order to participate in the broadcast – the course will play in your browser and you will have the option of using a microphone to speak with the room and ask questions, or type any questions in via the chat window and our on-site representative will relay your question to the instructor.

  • IMPORTANT NOTE: After November 30 you will not be able to join a Teams meeting using Internet Explorer 11. Microsoft recommends downloading and installing the Teams app if possible. You may also use the Edge browser or Chrome.
  • You will receive a meeting invitation will include a link to join the meeting.
  • Separate meeting invitations will be sent for the morning and afternoon sessions of the course.
    • You will need to join the appropriate meeting at the appropriate time.
  • If you are using a microphone, please ensure that it is muted until such time as you need to ask a question.
  • The remote meeting connection will be open approximately 30 minutes before the start of the course. We encourage you to connect as early as possible in case you experience any unforeseen problems.

Register

Please Note: This event is being conducted entirely online. All attendees will connect and attend from their computer, one connection per purchase. For details please see our FAQ

If you are unable to attend at the scheduled date and time, we make recordings available to all registrants for three business days after the event

Event Standard RateAttendees
Single Connection - Performance Measurement and Cost Benchmarking US $ 795.00
Pack of 5 connectionsUS $ 3,180.00
Pack of 10 ConnectionsUS $ 5,565.00
Pack of 20 ConnectionsUS $ 9,540.00
Call us at 303.770.8800 if you have any specific questions on the volume discounts
* all other discounts do not apply to license packs

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Cancellation Policy

Your registration may be transferred to a member of your organization up to 24 hours in advance of the event. Cancellations must be received on or before June 11, 2021 in order to be refunded and will be subject to a US $195.00 processing fee per registrant. No refunds will be made after this date. Cancellations received after this date will create a credit of the tuition (less processing fee) good toward any other EUCI event. This credit will be good for six months from the cancellation date. In the event of non-attendance, all registration fees will be forfeited. In case of conference cancellation, EUCIs liability is limited to refund of the event registration fee only. For more information regarding administrative policies, such as complaints and refunds, please contact our offices at 303-770-8800

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Credits

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EUCI has been accredited as an Authorized Provider by the International Association for Continuing Education and Training (IACET).  In obtaining this accreditation, EUCI has demonstrated that it  complies with the ANSI/IACET Standard which is recognized internationally as a standard of good practice. As a result of their Authorized Provider status, EUCI is authorized to offer IACET CEUs for its programs that qualify under the ANSI/IACET Standard.

EUCI is authorized by IACET to offer 0.7 CEUs for this event.

Who Should Attend

This conference was developed for:

  • Utility executives
  • Corporate communication professionals
  • Contact center management professionals
  • Commissioners
  • Commission staff
  • Attorneys
  • Regulatory affairs managers
  • Pricing and load research managers
  • Customer representatives and organizations
  • Cost of service analysts
  • Financial analysts
  • Rate design, product development and customer strategy professionals

Requirements for Successful Completion of Program

Participants must sign in/out each day and be in attendance for the entirety of the course to be eligible for continuing education credit.

Instructional Methods

Case Studies and PowerPoint presentations

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