Benchmarking Strategy for Competitive Generation

1
Benchmarking Strategy for Competitive Generation

• EPGA Power Generation Committee Conference
• October 29, 2003
• Baltimore, MD
• Scott Stallard Vice PresidentEnergy Services
  Division

2
Benchmarking Performance

• Traditional Industry Viewpoint
• Focus on the Technical Quality of Plant
  Operations
• Plant Heat Rate
• Forced Outage Rate
• Availability
• Information Technology Systems Focused on These
  Factors
• Annual Planning Cycle the Norm

3
The New Performance Metric Measuring Success
in Terms of Profits
4
Performance Goals (and Metrics) Must Be Tied to
the Market

• The New Performance Goal Financial Excellence
• Cost Management Extended to Revenue and Profit
  Orientation
• Compete Against a Wider Variety of Participants
• Altered Risk / Reward Framework
• Sound Risk Management Practices
• Financial Implications Drive Participants to
  Evolve/Protect Underlying Business Strategy
• Opportunity to Leverage Assets in New Ways
• Must Have the Capability to Respond to Market
  Dynamics / Opportunities

5
A Closer Look at the Opportunity Window

• Sources of Opportunity Linked to Multiple Time
  Dimensions
• Real-Time Advanced Controls, Combustion
  Optimization
• Short-Term Efficiency, Load Capability,
  Response, Availability, Ties between Plant
  Performance and Dispatch
• Mid-Term Operations Focus
• Goals for Participating in Market
• Ramping, Capability, Fuel(s) Strategy, etc.
• Environmental Compliance and Allowance Management
• By-product Utilization
• Maintenance Outage Optimization
• Longer-Term
• Capital Modifications / Multiple Targets Thermal
  Performance, Capability, Reliability,
  Environmental
• Opportunities are Linked Across Time Dimensions

6
A Closer Look at the Opportunity Window

• Processes Are Key
• Planning/Commitment
• Operations
• Maintenance
• Fuels
• Environmental Compliance and By-Products
  Management
• Energy and Allowance Trading
• Must be a means for sharing and applying
  information across processes
• Technology Enables Optimization
• Local Optimums vs. Global or Distributed
  Optimization

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The Optimization Challenge
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TECHNICAL vs. COMMERCIAL AVAILABILITY

• Technical
• Traditional View of Availability.
• Considers Entire Period Irrespective of Whether
  or Not Unit is Actually Required
• Good Measure for Baseloaded Units

• Commercial
• Considers Availability Only When Unit is Demanded
• Good Measure for Peaking, Cycling, and Baseload
  Units
• Reflects the Nature of Competitive Market

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COMMERCIAL AVAILABILITY

• Focuses Ones Attention on Periods When Unit
  Operation Could be Profitable
• Generating Units Are Maintained Only to Meet
  Market and Not the Overall Obligation of Supply
• Currently Being Applied within wide variety of
  ways in wide variety of markets
• Extend Concept of Commercial Availability
• Measure Units Availability During Periods of
  Demand, and also Give Weight to the Amount of
  Value During Those Periods.
• Provides Clear Signals to Plant Management

10
Its All About the Rewards
Benchmarking is Great But What/Who to
Benchmark Against?

• Know thy Market (Upside Opportunity vs. Downside
  Risk)
• Markets Change (power, fuel, )
• Answers Change
• Know thy Neighbor
• Regulated vs. Deregulated
• Fuel Pass-Through?
• Environmental Stewardship vs. Environmental
  Compliance vs. Economically-Driven Environmental
  Practices
• Know thy Options

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Competitive Generation Benchmarking Framework
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Utilizing Fuels as
Flexible Assets
Dont Burn Up Your Hard Earned Cash By Buying the
Wrong Fuel
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Taking A Closer Look At the Fuels Opportunity
Allowance Management
Mill Maintenance Schedule
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Competitive Generation Benchmarking Framework
?Scope of Fuel- Related Activities
Present? ?Fuel-Related Activities Linked
Within Processes ?Fuel-Related Activities
Linked Across Processes
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Competitive Generation Benchmarking Framework
?Ability to Respond to Changes in Power or
Fuel Market ?Ability to Influence Operations
Based on Changing Priorities ?Feedback from Plant
to Dispatch and Bulk Trading
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Measuring the Value of the Gap
Gap
? Degree of Competition ? Fuel
Diversity ?Region/Technology Diversity
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Asset Optimization

• Performance Is Ultimately the Ability to
  Derive Value From the Plant and Corporate Assets
• The Target -- the True Measure of Value
• Profits -- Energy, Capacity, Ancillary Services,
  Trading?
• Risk, Avoided Costs, Hedging
• Opportunity or Profit Potential Being Prepared
  to Extract Value From Market
• In a broad sense, Performance needs to
  encompass both S-T, and L-T strategies, tactics,
  and use of capital (i.e., Asset Optimization)