ECONOMIC ANALYSIS


Economic Modeling of Small Scale Wind

wind analyticsMJB developed a multi-state financial model to assess the economics of customer sited wind generation for Wind Products LLC. The model focused on evaluating the value to the customer of a customer-sited wind turbine in New York, New Jersey, Connecticut. The model captured all areas of values including renewable incentives, the avoided cost of purchasing power from the local utility and revenues from net metering. The model also provides the user with the capability to adjust a variety of inputs including annual consumption (amount and distribution), wholesale power prices, delivery charges, inflation, and cost of capital and financing terms as well as inputs related to the cost and output characteristics of a turbine. Wind Products LLC supplied cost and output data.

Gas-Fired Power Plant Valuation

northern star generationMJB, in partnership with Webb, Scott & Quinn, Inc. (WS&Q), was retained by Northern Star Generation (NSG) to value its Front Range generating plant, a 480 MW gas-fired combined cycle power plant located in Colorado, as part of a mediation required by the plant’s co-owner.

The project required the development of a detailed financial model of Front Range’s current and expected performance over the life of the asset. As part of the valuation and due diligence process, MJB analyzed the plant’s outstanding power purchase, service, credit, operations and maintenance, power marketing, and gas supply agreements for (a) sources of operational and cash flow risk and (b) refinancing options that would impact the valuation. The MJB/WS&Q team also researched historical deal information for comparable transactions involving partial ownership acquisitions in similar facilities in the geographic region. The final product, an assessment of the plant’s sale value, was used by NSG in formal proceedings with the co-owner who had exercised an option to consider purchasing the portion of the plant owned by NSG.

Multi-State Solar Financial Model

MJBFor a solar power developer, MJB built a multi-state financial model showing the investment returns on a portfolio of solar power development projects.

The model was custom build to client specifications under an extremely short time period (one week) and included a supplemental presentation on the investment environment 11 states agreed with the client as having highest investment potential. That presentation included a qualitative description of renewable incentives and other market characteristics in each state, including financial and practical challenges of investing in solar projects. The model itself allowed the client to build a theoretical portfolio of projects on a staggered timeframe showing both individual and overall portfolio returns and cash flows. A single input and output page displayed returns in each state reflecting state specific incentives, construction costs and prevailing retail power prices.

Valuation of Generating Assets in Constrained Area

vinelandThe City of Vineland, NJ Municipal Electric Utility (VMEU) required an evaluation of power generation economics associated with its generating assets to determine the best course of action to meet future energy and environmental requirements at the least cost.

VMEU’s annual energy requirements and peak load were expected to continue to increase given forecasted economic growth. (e.g., peak demand growth at 4-5 percent per year). This growth, along with the operating challenges of VMEU’s generating units, prompted the City to seek MJB’s assistance in evaluating the economic viability of its generating fleet. MJB evaluated which option, among a series of potential alternatives, provides VMEU with the most cost effective long term energy supply plan to meet system load growth in a manner commensurate with its risk profile.

The scope of the project included: 1) an overview of the physical condition of each asset; 2) market modeling of PJM including 10 year energy and capacity price forecasts at the Vineland hub, and 10 year cost forecasts for each asset; 3) net present value analyses (10 year) for each asset based on base, high and low forecasts of fuel prices, energy prices and future demand growth; and 4) development of recommendations for each asset based on the analyses.

Economic Modeling of Gas Turbine Cycling

MJBMJB assisted a Mid Atlantic utility to evaluate the financial impact on depreciation and O&M costs of cycling its portfolio of gas fired power plants during off peak periods.

The study provided the utility with insight into the cost implications of operating decisions above and beyond a conventional Spark Spread calculation. Unlike operating costs the relationship between plant operation and maintenance costs is less clear. In cooperation with the client, the MJB team developed coefficients for six drivers of maintenance costs by collecting historical and projected operating data along with corresponding maintenance expenditures and budgets. These coefficients were then included in an economic model developed by MJB which allowed the company’s energy traders and plant managers to choose the optimal run/shut-down decision based on a clearer picture of the plant’s costs of operations.

Strategic Options Review

LIPAMJB, in partnership with The Brattle Group, prepared a strategic assessment of the Long Island Power Authority’s (LIPA’s) options regarding its long-term organizational structure.

LIPA outsources much of its transmission and distribution operations and management to National Grid under a comprehensive Management Services Agreement (MSA). With the MSA due to expire in 2013, LIPA requested a review of its available organizational options; Privatization, full Municipalization, or a continuation, under a more self-contained organizational contract, of its existing structure. The MJB/Brattle team conducted a quantitative and qualitative analysis of these options, including the development of detailed financial model, and specific operational impacts attendant to each alternative. This project included the analysis of historic performance reports, financial statements, benchmarking, and the review of MSA contract documents to understand the impact on cost and performance of moving away from the status quo. Regular presentations and reports were delivered to the Operating Committee of LIPA Board of Trustees, as well as to the full Board.

Financial Analysis – Plant Demolition

MJBThe client required a financial analysis of the legal, environmental, tax and financial impacts underlying the potential demolition of certain retired or soon-to-be retired generation units.

The client, a large northeastern power producer, has a number of sites with both active and retired units on various facility footprints. Along with safety and environmental issues associated with retired units, the client’s strategic considerations regarding portfolio expansion – and the use of existing footprints – drove it to retain MJB to assist in evaluating the financial effects of single or multi-plant demolition. MJB and the client team considered a number of issues, including accounting and tax concerns, insurance and taxes effects, necessary remedial actions (e.g., transformer relocation), along with salvage value and deconstruction costs.

Financial Analysis – Commercial Service Agreement (CSA)

MJBA large integrated utility required a financial analysis of alternatives to the a Commercial Services Agreement (CSA) in place for the maintenance and repair of a fleet of gas-fired combined cycle generating plants.

The client’s CSA with the OEM is a long-term agreement providing for combustion inspections, hot gas path inspections, and major inspections for a multi-unit fleet of large frame machines. The possibility existed for the client to self-manage the maintenance of the machines and retained MJB to work with client staff to evaluate the economics of that approach compared to the CSA. The MJB-client team identified the cost impacts and risks of self management under scenarios associated with using alternative parts suppliers, heavy and light parts repair assumptions, and revised outage schedules. The analysis required addressing several interdependent parameters for each covered machine, including unit operating profile and maintenance schedule, and pricing for parts and services.

International Solar DG Modeling

MJBMJB worked with the Iraq Engineering Enhancement Program (IEEP) to develop an initial analysis of the cost and potential for distributed solar generation in Iraq.

At the time, the Iraqi power grid supplied roughly half of the daily demanded electricity. On a local level, households were forced to run generators to bridge the gap between power demand and supply. Given the absence of reliable grid power, the potential for solar, was compared to the diesel/gasoline generator alternative. MJB built a financial model which considered both the upfront capital cost and the lifetime (levelized) cost per kWh. Country specific issues such as challenges involved in importation of necessary materials and access to a skilled workforce were also considered as part of the analysis. Findings were provided in a narrative report and panel presentation.


STRATEGIC ANALYSIS


Changing Utility Business Models

PGEPacific Gas & Electric’s (PG&E’s) Regulation and Rates Group was interested in having an industry expert present to the organization a view of the changing nature of the utility business model.

In conjunction with an annual review of organizational progress and future needs, PG&E retained MJB to present a view of factors and drivers that will impact, and likely change, the utility industry business model. The study identified a variety of cost and technology pressures, as well as drawing an analogy to the massive changes seen, and still underway, in the telecommunications industry.

Market Policies

USPowerGenUS PowerGen (USPG), a merchant generator with almost 3000 MWs of capacity in New York City, was interested in a detailed review of the NYISO’s Load Forecasting Task Force’s (LFTF) development of the official coincident peak load forecast, particularly as it pertained to Zone J (i.e., New York City).

MJB’s primary objective was to review the LFTF process supporting the development of the coincident peak load forecast and to suggest enhancements to the process to better reflect more sophisticated econometric considerations, as well as other market conditions. The load forecast has a direct impact on the Installed Capacity (ICAP) requirements for NYC, hence on capacity prices. MJB tested many of the assumptions used to establish the coincident peak load forecast, specifically peak demand for Zone J (i.e., the location of USPG’s facilities), examined the processes by which the final values were derived, and recommended enhancements to those processes.

Multi-City Energy Fundamentals

GasPromMJB was engaged by GazProm-Promgaz to support the development of an energy strategy for the City of Moscow, Russia.

The project incorporated detailed analysis of the infrastructure and energy strategies of six international cities (New York, Chicago, Toronto, Paris, London, and Copenhagen) providing the client with an understanding of the challenges that similar cities faced and how they were being addressed. The analysis included significant focus on city strategies in regard to renewable and distributed generation technologies in meeting their energy needs. The project included analysis of each city’s heat and power production, review of electric and gas infrastructure, reliability, and use of tri-generation. Additionally, for each city, each of the organizations that regulate energy consumption were analyzed as was the focus of the work of city government in the energy sector.

New York City Energy Fundamentals (PlaNYC 2.0)

NYCEDCMJB worked with New York City’s Department of Environmental Protection (DEP) and its Office of Long Term Planning & Sustainability (OLTPS) in updating the energy chapter of PlaNYC, the City’s long term sustainability plan.

The scope of the project included reviewing the major energy related areas of PlaNYC associated with the city’s energy supply portfolio and demand reduction initiatives. The MJB team assigned to this project included experts on various aspects of the energy industry including energy efficiency, demand response, energy markets, policy and regulation. MJB’s experience in New York State placed the firm in a strong position to offer insight and innovative solutions that reflect the unique characteristics of the city’s energy environment. The results of the MJB effort were included in the updated plan (PlaNYC 2.0) released on April 22, 2011 (Earth Day).

Capital Projects Group Management Review (Transmission)

MJBThe client, the Capital Projects organization of a large Mid-Atlantic utility responsible for a multi-year capital program exceeding $5 billion, required a detailed examination of pre-program implementation operational procedures and policies, organizational structure, reporting and communication protocols, and performance metrics and service agreements.

MJB conducted a detailed examination of operational procedures and policies, organizational structure concerns, and reporting and communication protocols, as well as performing a detailed analysis of the performance metrics and service agreements. MJB also conducted operational and performance benchmarking comparing the client’s staffing and project management approach to comparable utilities. MJB was further responsible for data analysis of the historical, current and projected capital projects portfolio, which included progress against metrics related to Schedule, Cost and Project Objectives. A final recommendation for the adoption of a Program Management Office (PMO) to oversee the project portfolio, as well as coordinate with Engineering Asset Management, and other corporate groups was accepted and rapidly implemented.

ISO Development in Europe

GazdeFranceThe client, one of the largest natural gas companies in the world, was interested in determining the impact of the implementation of an Independent System Operator (ISO) model, as used in the US electricity industry, in the European Union.

The client engaged MJB to prepare a report providing background, perspective and discussion on key issues associated with ISO formation, role, governance, regulation, operation, investment and impact. The study evaluated the consequences (both challenges and opportunities) of ISO formation to the client and its subsidiaries. The scope of the engagement included the seven US-based ISOs (i.e., ISO-NE, NYISO, PJM, MISO, CAISO, ERCOT, and SPP) and, to the extent deemed relevant by MJB, two Canadian-based ISOs (i.e., AESO, IESO). The study addressed the strategic questions posed by the client and provided insight and strategic that allowed the client to properly understand and evaluate the impacts and consequences of ISO formation in its market.

Strategic Options Review

LIPAMJB, in partnership with The Brattle Group, prepared a strategic assessment of the Long Island Power Authority’s (LIPA’s) options regarding its long-term organizational structure.

LIPA outsources much of its transmission and distribution operations and management to National Grid under a comprehensive Management Services Agreement (MSA). With the MSA due to expire in 2013, LIPA requested a review of its available organizational options; Privatization, full Municipalization, or a continuation, under a more self-contained organizational contract, of its existing structure. The MJB/Brattle team conducted a quantitative and qualitative analysis of these options, including the development of detailed financial model, and specific operational impacts attendant to each alternative. This project included the analysis of historic performance reports, financial statements, benchmarking, and the review of MSA contract documents to understand the impact on cost and performance of moving away from the status quo. Regular presentations and reports were delivered to the Operating Committee of LIPA Board of Trustees, as well as to the full Board.


OPERATIONS ANALYSIS


Renewable Portfolio Standard Technical Assistance

nyserdaIn early 2011, MJB were selected to provide technical assistance to the New York State Energy Research and Development Authority (NYSERDA) under RFP 2087, “Renewable Portfolio Standard (RPS) Technical Assistance”.

Under this contract, MJB is on-call to assist NYSERDA with the development of technical content on the RPS Program and projects, annual program reports, and website content. Also included under this relationship are education related activities regarding the RPS program, its goals, relation to voluntary markets and power markets in general, program accomplishments and future plans. MJB was selected for this project based in part on our in-house database of RPS programs (the RPS EDGETM), and writings on the design challenges and impact of RPS programs in the US and overseas.

Electric Reliability Audit Preparation

Iberdrola USAMJB was engaged by Iberdrola USA to help prepare for a NYPSC audit of the electric reliability tracking and reporting processes of NYSEG and RG&E. The primary objective of the evaluation was to review the companies’ reliability and reporting processes, describe areas of compliance and non-compliance with PSC regulations, identify areas for improvement and perform a general risk assessment.

On this project, delivered on an accelerated four week schedule, MJB applied a multi-pronged approach that included (a) interviews with key employees, (b) statistical sampling & analysis of outage data, and (c) qualitative analysis of the companies’ processes & systems. The project team spent time on-site at NYSEG and RG&E locations to collect data and interview key individuals involved in the outage management and reporting function. For both companies, MJB undertook statistical sampling of outage records to determine both accuracy and completeness in the companies’ outage reporting. Additionally, the sampling process was used to verify that a ‘cradle-to-grave’ audit trail existed for outage data.

Project Management Support

RentechA renewable technology company, seeking to develop a ~55MW power plant as a commercially viable flagship for its biomass gasification technology engaged MJB to assist in managing the project to financial close. Project specific challenges included multiple client and vendor locations, the use of a new technology, a tight timescale to meet DOE loan guarantee and cash grant deadlines and a corporate culture not accustomed to project based work.

MJB provided a senior consultant to support client staff with project schedules, risk and issues identification, running of project meetings and reporting to board. Doing so brought increased visibility and accountability to the project, improving the likelihood of success. In addition, the MJB consultant worked with senior staff to help implement a project culture and approach throughout the organization designed to increase the likelihood of success of future projects.

Knowledge Management Process Implementation

PJM.pngPJM Interconnection, the mid-Atlantic regional transmission organization (RTO) that coordinates the movement of wholesale electricity in all or parts of 13 states and the District of Columbia, retained MJB to develop a knowledge capture and knowledge management (i.e., KM) approach/system for its Compliance Management Department.

PJM wanted to quickly deploy a pilot KM system that could serve as a proving ground for the effective use of inexpensive Web 2.0 tools to improve knowledge/content management and retrieval, and capture, systematize, and incorporate existing expert knowledge as an offset to attrition and as a supplement to training. PJM wanted a low-budget solution requiring no additional headcount space and minimal capital. MJB reviewed the current KM tools/processes/systems used by or accessible to Compliance staff and worked with the Compliance staff to ascertain the degree of current use of systems and tools and identify deficiencies, gaps, and needs. MJB then suggested approaches and solutions, including redesigned processes and simple off-the-shelf tools (e.g., note capture, microblogs, collaboration tools, link tagging, that were rapidly adopted by Compliance staff.

Project Management of Nodal Pricing Implementation

TErcot.pnghe Electric Reliability Council of Texas (ERCOT) undertook a multi-year project to convert from zonal to nodal (i.e., locational) pricing and required project management assistance during a critical stage of development.

ERCOT engaged MJB to work closely with the Executive Director – Nodal, responsible for all aspects of the $500+ million program implementation, during the lead up to the anticipated go-live implementation. MJB responsibilities included coordinating with all work groups, assessing and preparing progress reports, developing monthly updates for the ERCOT Board of Directors, and working with representatives of the Technical Advisory Committee to ensure that nodal protocols were being developed in accordance with procedures and schedules.

Capital Projects Group Management Review (Transmission)

MJBThe client, the Capital Projects organization of a large Mid-Atlantic utility responsible for a multi-year capital program exceeding $5 billion, required a detailed examination of pre-program implementation operational procedures and policies, organizational structure, reporting and communication protocols, and performance metrics and service agreements.

MJB conducted a detailed examination of operational procedures and policies, organizational structure concerns, and reporting and communication protocols, as well as performing a detailed analysis of the performance metrics and service agreements. MJB also conducted operational and performance benchmarking comparing the client’s staffing and project management approach to comparable utilities. MJB was further responsible for data analysis of the historical, current and projected capital projects portfolio, which included progress against metrics related to Schedule, Cost and Project Objectives. A final recommendation for the adoption of a Program Management Office (PMO) to oversee the project portfolio, as well as coordinate with Engineering Asset Management, and other corporate groups was accepted and rapidly implemented.

Analysis of Internal Service Organization

MJBThe client, a large power producer, required an organizational assessment of the need for and scope of an internal service organization providing a variety of field support functions for its nuclear and fossil operations.

MJB developed a highly confidential solution to the right-sizing and cost structure of the organization in question. This included presentation and cost analytics development, and regular client interfacing. Results were presented to client senior management up to and including the president of the multi-billion dollar company. Client elected to maintain and re-size internal service organization in accordance with MJB recommendations.

Market Policies

USPowerGenUS PowerGen (USPG), a merchant generator with almost 3000 MWs of capacity in New York City, was interested in a detailed review of the NYISO’s Load Forecasting Task Force’s (LFTF) development of the official coincident peak load forecast, particularly as it pertained to Zone J (i.e., New York City).

MJB’s primary objective was to review the LFTF process supporting the development of the coincident peak load forecast and to suggest enhancements to the process to better reflect more sophisticated econometric considerations, as well as other market conditions. The load forecast has a direct impact on the Installed Capacity (ICAP) requirements for NYC, hence on capacity prices. MJB tested many of the assumptions used to establish the coincident peak load forecast, specifically peak demand for Zone J (i.e., the location of USPG’s facilities), examined the processes by which the final values were derived, and recommended enhancements to those processes.

Industry Standards Development – Market Clearing

CCROThe Committee of Chief Risk Officers (CCRO), an independent non-profit corporation of member companies dedicated to the advancement of a broad range of best practices in the field of risk management, regularly develops and issues White Papers on a variety of topical areas of interest relevant to the energy industry, facilitated by consulting expertise.

The CCRO, whose members include companies of all types and sizes engaged in the energy industry, engaged MJB to facilitate the development of a White Paper on Market Clearing in the Energy Industry. The purpose of this paper was to advance the use of financial as well as physical clearing in the energy industry by: contributing to a common understanding and definition of clearing; identifying its benefits to the market; identifying hurdles and challenges still present; and presenting recommendations that promote its appropriate application and development. The paper also provided a summary description of each of the major vendors offering clearing solutions and a side-by-side comparison of them versus desired clearing attributes. The paper has been one of the more widely quoted White Papers that the CCRO has issued.

Program Management for Corporate Separation

MJBFor a global financial institution, MJB in conjunction with a partner firm provided project management support for the separation of its Global Merchant Services Division. Within the Program Management Office, MJB managed the weekly reporting and tracking of actual versus budget performance for 10 work streams and over 40 projects, totaling >$10MM. The role required coordinating with project managers to track performance against cost and schedule and report on progress on a weekly basis.

As a result of MJB’s and our partner’s involvement, client senior management regained visibility into separation-related cost and schedule activity and forecasts. Overall, the corporate separation occurred under-budget by approximately $3MM.

Project Management Support

In conjunction with a partner firm, MJB provided Project Management support to a Financial Services company seeking to complete a complex and high profile internal project that involved both organizational and technology change. The client was looking to extend its existing U.S. Corporate Actions processing business to support a new Algorithmic Trading Business. An MJB consultant acted as a full time on-site project manager, successfully driving the project to meet its objectives.

The project required the project manager to oversee the following, (a) Gather and document functional requirements from client employees and stakeholders (b) Construct an IT architecture that satisfies multiple business units (c) Put together and execute a project plan that delivers all functional requirements (project team across three time zones) (d) Prepare a plan to outsource much of the day-to-day work to a third party, and write supervisory procedures around this.

Strategic Options Review

LIPAMJB, in partnership with The Brattle Group, prepared a strategic assessment of the Long Island Power Authority’s (LIPA’s) options regarding its long-term organizational structure.

LIPA outsources much of its transmission and distribution operations and management to National Grid under a comprehensive Management Services Agreement (MSA). With the MSA due to expire in 2013, LIPA requested a review of its available organizational options; Privatization, full Municipalization, or a continuation, under a more self-contained organizational contract, of its existing structure. The MJB/Brattle team conducted a quantitative and qualitative analysis of these options, including the development of detailed financial model, and specific operational impacts attendant to each alternative. This project included the analysis of historic performance reports, financial statements, benchmarking, and the review of MSA contract documents to understand the impact on cost and performance of moving away from the status quo. Regular presentations and reports were delivered to the Operating Committee of LIPA Board of Trustees, as well as to the full Board.