Energy companies are encountering exciting opportunities for new revenue streams as well as regulatory and strategic challenges as they move from traditional networks to the digital world. We assist clients with strategies and policies, and advise on technical aspects associated with the regulation of energy companies. We are adept at forecasting capital, operating and maintenance costs using statistical and econometric analysis.
With many years’ experience in developing business cases for both large scale and smaller initiatives we offer economic and financial analysis to support strategic decision-making. In addition we review business cases for clients, providing additional validation and assessing the validity of assumptions and results.
Advantages of modern smart grids over the traditional networks include fewer outages, faster restoration, reduced costs as well as better access to information. Smart grids also facilitate the entry of electric utilities into the broadband market. We examined utilities’ experiences in deploying fibre alongside their existing networks to offer broadband services, drawing on existing experience in the deployment and operation of infrastructure. We found that not only has this resulted in economic growth for the utility company from an additional revenue stream, it has also powered widespread benefits to the communities served, via the potential for transformative change through access to fibre services.
Econometric modelling for electricity opex and revenue
In a review of the New Zealand Commerce Commission’s opex and revenue growth econometric models proposed for default price-quality path (DPP) reset for Electricity Distribution Boards, we examined the econometric modelling methodologies, the data and assumptions and results. We identified options for improving the methodology and strengthening the analysis.
We delivered an independent assessment of an energy company’s proposed strategic positioning, including a review of its market assumptions, advice on pricing strategies and the potential impact of forthcoming regulatory change. The results of our review were presented to the Board.
A regulated electricity distribution business developed its own spreadsheet model which was based on the regulator’s Return on Investment (ROI) methodology. We were asked to review the model and found that the methodology was generally consistent with that of the regulator, however we also evaluated key inputs and assumptions, identifying some errors in inputs, and highlighting potential refinements to improve accuracy.
Economic models for electricity regulation
We examined the need for regulation and explored economic models used for regulating service providers in the electricity industry. The objective of this study was to analyse the role of regulation in balancing obligations to both customers and service providers. To that end two types of regulation methods – cost-based and incentive-based – were reviewed with examples from different jurisdictions. We analysed the advantages and disadvantages of the different models in the light of emerging trends and technologies.
We assessed a proposed Indefeasible Rights of Use (IRU) transaction on behalf of an electricity distributor, encompassing strategic, regulatory and financial analysis. We also provided an appropriate approach for estimating the weighted average cost of capital. The results of our assessment were presented to the Board.