M keynote 820_mc_cue_jones

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M keynote 820_mc_cue_jones

  1. 1. Change the Equation John McCue and Ben Jones Deloitte LLP September, 2013
  2. 2. Copyright © 2013 Deloitte Development LLC. All rights reserved.1 What will the U.S. power industry look like in the future? “The Math” Source: ‘The Math Does Not Lie: Factoring the Future of the US Electric Power Industry’ – Deloitte Energy & Resources Dbriefs, Jan 2013 Cost per kWh Sold ($/kWh) • Generation, Transmission, Distribution additions • Environmental and safety compliance • Renewable portfolio standards • Nuclear regulations • Cost of capital / Interest rates Capital Costs • Cost of fuel • Incremental operating costs of environmental compliance retrofits • New operating technologies Operating Costs • Weather • New sources of demand • Changes in the economy • Technological advances in energy efficiency • Customer behavior and attitudes kWh Consumed “The Numerator” “The Denominator”
  3. 3. Copyright © 2013 Deloitte Development LLC. All rights reserved.2 What will the U.S. power industry look like in the future? The Denominator (kWh Demand) New sources of demand Impact of recession Efficiency technology advances Distributed generation The Numerator Operating Costs Fuel • (Natural gas at historic lows) Emissions retrofits New technologies The Numerator Capital Costs New Generation • Aging plants • Early retirements New Transmission and Distribution • Reliability • Smart grid • Integrating renewables and distributed generation Environmental — Emissions Restrictions • Capital retrofits • Parasitic load Renewable Portfolio Standards Interest rates “The math” — Major trends Forecasting the Variables
  4. 4. Copyright © 2013 Deloitte Development LLC. All rights reserved.3 What will the U.S. power industry look like in the future? • Achieving the promise of AMI – Reduced field visits – Distribution Management and Transmission Enhancement – Improved Outage Management – Reduced Theft and Fraud • Mobile-enabled field service • Customer mobility applications Technology to Reduce Operating Costs
  5. 5. Copyright © 2013 Deloitte Development LLC. All rights reserved.4 What will the U.S. power industry look like in the future? The Denominator (kWh Demand) New sources of demand Impact of recession Efficiency technology advances Distributed generation The Numerator Operating Costs Fuel • (Natural gas at historic lows) Emissions retrofits New technologies The Numerator Capital Costs New Generation • Aging plants • Early retirements New Transmission and Distribution • Reliability • Smart grid • Integrating renewables and distributed generation Environmental — Emissions Restrictions • Capital retrofits • Parasitic load Renewable Portfolio Standards Interest rates “The math” — Major trends Forecasting the Variables
  6. 6. 5 Copyright © 2013 Deloitte Development LLC. All rights reserved.What will the U.S. power industry look like in the future? “The Three Rules” Deloitte’s research shows how certain exceptional companies deliver superior performance over the long run despite facing similar constraints About the Study • Reviewed more than 25,000 companies spanning 45 years • Focused on cash flow return on assets, an objective measure of strong, stable performance • Identified 344 exceptional companies – either Miracle Workers or Long Runners • Used rigorous statistical methods to identify and analyze the common characteristics of long term excellence and found only three The Three Rules for Success 1. Better before cheaper – compete on differentiators not price 2. Revenue before cost – prioritize increasing revenues over reducing costs 3. There are no other rules – change anything/everything in order to abide by the first two rules
  7. 7. Copyright © 2013 Deloitte Development LLC. All rights reserved.6 What will the U.S. power industry look like in the future? • Enhanced support for Energy Efficiency • Extend Demand Response programs • Leverage “Big Data” through advanced Analytics: – Develop innovative rate plans to incent behavior – Provide energy management as a service – React to real-time customer feedback to improve satisfaction Cracking the Code – Customer Needs
  8. 8. 7 Copyright © 2013 Deloitte Development LLC. All rights reserved.What will the U.S. power industry look like in the future? “The Math” - Avenues to Evaluate • Reduce, restructure, defer controllable costs • Leverage technology for efficiency, effectiveness and connectivity • M&A for scale & scope economies • Rate reform to reflect the reality of “The Math” Reduce numerator • Increase electricity demand – Electrification – Attract new load • Identify new regulated or unregulated revenue streams – Energy efficiency products & services – Acquire new revenue streams – Alternative business models Grow denominator

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