Electric Utility Load Analysis: The CFO Use Case Story

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Load analysis is critical for a utility CFO to understand what’s driving current and future revenues. Load impacts nearly every aspect of their business, including asset planning, energy procurement, rate case negotiations, and the ability to articulate what’s driving financial performance to Wall Street – all of which impact their bottom line.

Let’s dive into an example from the perspective of the CFO of a publicly traded electric utility. His or her market experienced an unusually hot summer, which translated to higher than expected revenues.

But what percent of overall revenue growth was truly weather driven, and what was attributable to changes in consumer behavior, energy efficiency, and growth? What’s the tipping point where we should stop encouraging heat, and start worrying about overloading our infrastructure?

Today, CFOs aren’t armed with the data and analytical tools they need to answer these questions, and that’s costing their organizations millions.

That’s why Utegration teamed up with one of the world’s preeminent data scientists for load analysis to develop Clear Insight - Enterprise Load Analysis, a comprehensive solution to analyze and forecast load that runs on SAP HANA.

By combining data from smart meters, along with historical load and weather data for different rate classes, we help normalize the effects of each individual factor by region to help complete more comprehensive load studies for rate case filings, regulatory reports, and improve long-term forecasts in the process.

In the coming weeks, we’ll be posting updates to walk through how Clear Insight helps utilities:

  • Increase investor confidence
  • Improve long-term forecasts for asset planning
  • Reduce the amount of blackouts and outages
  • Reduce energy procurement costs
  • Improve scenario modeling to analyze and forecast key risk factors  

Our first post will focus on how CFO’s benefit from higher investor confidence.

Investor confidence in a CFO relies on the ability to deliver forecasts, and meet those projections quarter after quarter. Wall Street wants them to be as accurate as possible, and if companies don’t meet projections, they want to know why.

  • A recent Duke University survey of top CFOs showed that over 86.3% of participants believed that meeting benchmarks builds credibility with capital market participants, and more than 80% agree that meeting benchmarks helps or maintain the firms stock price.
  • Said another way, better forecasts translate into better stock prices.

It goes without saying that although shareholders are important, in the utilities industry, happy shareholders come from happy regulators. Better forecasts, greater insights, and faster responses to inquiries all increase regulators’ confidence in a utility, which makes everyone happy. 

So you’re the CFO, and this sounds great.

Why hasn’t a better forecasting solution been developed yet?

  • Most load forecasts are done on a “top-down” approach, which looks at historical load patterns for customers of the same rate class in aggregate, then normalizes each class for weather, economic trends, etc.
  • It’s quick, easy for a CFO to understand, but it’s widely known to be less accurate, since every customer in a rate class is aggregated together – even if two customers are miles away, where their markets are experiencing much different climates and energy efficiency trends.
  • Even though bottom up forecasts are more accurate, they are more labor intensive, harder to replicate year after year, and end up with biases from local market management. When a CFO or regulator has a question on where a number came from, it’s costly to answer.

That’s why we created a hybrid approach for load analysis and forecasting that runs on SAP HANA. It gives CFOs the granularity and improved accuracy of local analysis, without all the inconsistencies and inefficiencies.

So the next time CFOs get in front of investors and regulators, they’ll be able to provide more accurate insights as to how changes like weather, demographic trends, and energy efficiency trends are impacting their business, along with the comfort that comes from being able to easily explain how those figures were developed. 

Visit Utegration at SAP for Utilities on October 9th - 12th and let us show you how ClearInsight - load analysis and forecasting solution will transform your business. In the meantime, stay tuned for our upcoming post, when we discuss how better long-term forecasts can impact asset-planning process.