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Traci L. Bender Nebraska Public Power District APPA Business & Financial Conference September 15, 2009 Risk Analysis
“Risk is good, if you do not properly manage it though, you take a dangerous leap.” Evel Knievel 2 Copyright © 2009 Nebraska Public Power District. All rights reserved.
Nebraska Public Power District Political subdivision of the State Operates an integrated electric utility system, including facilities for generation, transmission, and distribution Serves all or part of 91 of 93 Counties in State Sells to 77 Wholesale Municipalities and Rural Public Power Districts and distributes to 80 Retail Municipalities In total, approximately 380,000 End-Use Customers 3 Copyright © 2009 Nebraska Public Power District. All rights reserved.
Nebraska Public Power District Owns and maintains 14 generating plants with combined capacity of 2,913 MWs Owns and operates 5,000 miles of Transmission & Sub-transmission line and related substation facilities Operates distribution systems for 87 Municipalities primarily through Lease and Operations & Maintenance Agreements 4 Copyright © 2009 Nebraska Public Power District. All rights reserved.
Risk Analysis – How Has It Changed? Traditional Business Risk Management – Event-driven – Focus within individual business units – Specific risk issues addressed individually Enterprise-Wide Risk Management (EWRM) – Portfolio approach – very broad – Focus corporate-wide – integrated – Optimize use of resources to manage risks 5 Copyright © 2009 Nebraska Public Power District. All rights reserved.
NPPD’s Risk Management Process Manage Assess Identify 6 Copyright © 2009 Nebraska Public Power District. All rights reserved.
EWRM – NPPD Approach Roles & Responsibilities Resource Planning & Risk Management –Facilitate the process Risk Working Group (RWG) –Assist with developing and implementing risk management processes and procedures Structured approach –Cascade risk awareness Getting all employees engaged –Training and education of employees Developing a risk-aware culture 7 Copyright © 2009 Nebraska Public Power District. All rights reserved.
EWRM – NPPD Approach Roles & Responsibilities Risk Oversight Committee (ROC) –Responsible for high-level risk management oversight and program support Business Units –Proactive and forward looking in risk identification, assessment, and management Have the third eye perspective –Integrate risk management into existing processes 8 Copyright © 2009 Nebraska Public Power District. All rights reserved.
NPPD Experiences with Risk Quantification Utilized Qualitative Scales with Definitions that aligned with 1 (Low) through 10 (High) Ratings to assess Probability & Impact of various risks – Used for Enterprise-Wide Risk Analysis Developed “Top 20” risk profile with action plans and risk owners – Used for Project Risk Analysis Integrated Risk Analysis into major Strategic Initiatives – Cooper Nuclear Station Options Study – 2008 Integrated Resource Plan – Other 9 Copyright © 2009 Nebraska Public Power District. All rights reserved.
Cooper Nuclear Station (CNS) Options Study - Risk Analysis Quantitatively analyze future possible operating scenarios for our Cooper Nuclear Station Utilized consultants from Strategic Decisions Group (SDG), an industry recognized expert in analytical decision methodologies Utilized Stochastic modeling, which includes assigning a probability distribution for selected key inputs and provides a probability distribution for your outputs – Inputs – values assigned for all major uncertainties at the 10 th, 50 th, and 90 th percentile points 10 th percentile one in ten the value will be lower 90 th percentile one in ten the value will be higher 10 Copyright © 2009 Nebraska Public Power District. All rights reserved.
CNS Options Study – Risk Analysis The bar charts on the following page identify an Expected Value (EV) for each of the future operating scenarios – The EV is the probability-weighted average outcome of each option, given the many combinations where each data input is taken at the 10 th, 50 th, and 90 th percentile points The width of the bar illustrates the “range of uncertainty” or risk associated with Operating Scenario – A narrower or smaller bar width around the Expected Value indicates less risk or a more certain outcome when comparing to other scenarios 11 Copyright © 2009 Nebraska Public Power District. All rights reserved.
Present Value of Wholesale Revenue Requirements over 10 Years ($ Millions) Base Case Case 1 Case 2 Case 3 Case 4 Case 5 Case 6 Case 7 Rate Track (3321) %ile Expected Value 90%ile Summary of Project Findings 12 Copyright © 2009 Nebraska Public Power District. All rights reserved.
Understanding Risk Tornado Diagrams were then used to understand what was contributing to the uncertainty or risk associated with the various operating scenarios – Additional cases were added with strategies to reduce the risk 13 Copyright © 2009 Nebraska Public Power District. All rights reserved.
Base Case Risk Profile PV of Wholesale Revenue Requirements Risk Profile Comparisons: Base Case 10%-ile 90%-ile CNS Staffing CNS Contractor / Consultant Budget Market Price CNS Refueling Outage CNS Forced / Extended Outage RFP Sales Price CNS Addition / Improvement Capital CNS Renewal / Replacement Capital Expansion Units Cost Scenario Cost of Debt for CNS Capital Projects 10%-ile 90%-ile Supplemental Project Analysis and Information 14 Copyright © 2009 Nebraska Public Power District. All rights reserved.
Are We Satisfied With Our Program? No! How can we improve? – Engaged ownership of the process (champion) – Maintain focus on top risks Periodic updates to ensure validity –Quantify the value added for risk mitigation efforts Present a business case for the process –Incorporation of risk management and analysis into corporate goals, strategic plan, business unit planning and performance indicators Drive home the message that risk analysis will be a part of our every day business 15 Copyright © 2009 Nebraska Public Power District. All rights reserved.
Closing Risk analysis has become a critical tool at NPPD Risk Analysis does not replace management judgment, but can assist greatly in thoroughly evaluating various courses of action and increasing the probability of successful outcomes. 16 Copyright © 2009 Nebraska Public Power District. All rights reserved.
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