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HomeMy WebLinkAboutStrategic Planning Copper Valley Electric Association 1996 Strategic Planning Analysis of Strategic Threats and Opportunities Facing Copper Valley Electric Association 9 Rewdu ce + Wen ws November 4, 1996 Prepared by: Robert A. Wilkinson, CPA Interim General Manager and Michael E. Easley, PE Manager Engineering Services Planning Efforts @ In January of 1994 the CVEA Board of Directors started a strategic planning process. Focus was given on Strengths, Weaknesses, Opportunities, and Threats (SWOT Analysis) @ On June 23, 1996 the CVEA Board of Directors adopted three main goals. m Reduce Rates m Improve Public Relations m Develop a Five Year Plan @ We have taken this analysis and used it as a basis for focusing on the important issues facing CVEA. Analysis of Threats Summary of Threats noses poo Loss of Study Cost for SGL e Loss of Load Project e Planned Retirements Loss of Petro Star e@ Sale of Four Dam Pool Loss of Intertie Loan for SGL @ Loss of RUS Hardship or Alternate Project Financing City of Valdez @ intertie Open Access Member Dissent e@ Retail Wheeling Merger @ Increased Regulation Alaska Power Systems e ACSI Loss of Fisheries and Related e@ Natural Disasters and Jobs Avalanches Staudenmaier Cost Impact of Next Increment of Generation CVEA Assessment of Threats Notes @ The risk of losing the opportunity to recover study costs increases under a do nothing scenario. e Certain actions may be required to enhance recoverability of study costs. CVEA Assessment of Threats Notes Loss of Petro Star @ The loss of Petro Star has more than just “bottom line” consequences. @ Investigation and exploration of opportunities to work with Petro Star may result in benefits to CVEA. @ Petro Star has publicly announced they are an “energy company”, and as such are a COMPETITOR of CVEA. CVEA Assessment of Threats Notes Loss of Intertie Loan for SGL or Alternate Project @ The $35 million may not last another legislative session. Legislative activity may be necessary to prevent re-appropriation for a purpose which does not benefit CVEA. e@ Development of a fall back position is necessary in order to re-appropriate the money for other CVEA energy projects should the Intertie not go forward. @ The SGL appropriation sunsets in 1998. CVEA Assessment of Threats Notes City of Valdez @ An adversarial relationship with the City of Valdez is counterproductive and shortsighted. The City has the resources and the means to make things very difficult for CVEA. @ City of Valdez has discussed forcing a sale to CEA which may not be in the best interest of our members. e@ Proposed advisory committee. CVEA Assessment of Threats Notes Member Dissent e@ Member dissent is the result of poor communication, lack of trust, and real or perceived lack of direction by the Association. e@ Member unrest wastes Association resources and is counter productive to CVEA’s mission. CVEA Assessment of Threats Notes Merger @ Merger for the sake of merger may not result in adequate benefits to the Association's members and may foreclose future opportunities otherwise available to CVEA members. e@ Merger offers must be carefully researched and objectively evaluated to ensure current and future benefits to the CVEA membership. CVEA Assessment of Threats 10 Notes 10 Alaska Power Systems e@ APS appears to be viable option to central station electric service for certain customers. @ APS generation modules pose a potential threat to existing and future large commercial loads ranging from 100 to 750 KW with waste heat needs. e@ CVEA awareness of APS activities could prevent future surprises and adverse impacts. CVEA Assessment of Threats 11 Notes dy Pe Loss of Fisheries and Related Jobs e Downturns in the fisheries economy impacts CVEA by reduced energy sales. e Revisiting the rate structures for fish processors to ensure we are more competitive than on-site generation helps maintain a competitive edge. CVEA Assessment of Threats 12 Notes 12 -—-sfkfccT SS Staudenmaier e@ Staudenmaier fosters member unrest by spreading misinformation. e Countering Mr. Staudenmaier’s releases with correct information may minimize member unrest. CVEA Assessment of Threats 13 Notes 13 Cost Impact of Next Increment of Generation e@ Capital expenditures for new generation may foreclose other possibilities. @ Rate increases may occur unless offsets in labor and O&M can be achieved. @ The unit cost of the next increment of generation can be favorably affected by the financing package. Availability of State financial assistance in any project can have a significant impact on delivered unit cost. CVEA Assessment of Threats 14 Notes 14 stages snaanncnesnnaseconesnastonnetess Loss of Load | Reduced oil flows and associated closing of Pump Station 12 will have an adverse impact on energy sales of CVEA. CVEA TAPS Contract expires in 2004. Reductions in revenues will occur. Alyeska is expected to reevaluate the energy needs supplied by CVEA. Petro Star, Harborview, Copper River School District may be potential load losses for CVEA. Load loss will result in higher rates which causes reduced sales and the vicious circle continues CVEA Assessment of Threats 15 Notes 15 Planned Retirements e CVEA stands to lose several long tenured, experienced, and valued employees in the next three years. e A staffing plan could prepare CVEA for the impending change in the workforce. CVEA Assessment of Threats 16 Notes 16 Sale of Four Dam Pool @ The sale of the Four Dam Pool could create operational and financial concerns for CVEA. e@ Outside offers have been received at AEA. Whitewater Engineers, The Energy Group, and others have been talking to the AEA about purchasing the Four Dam Pool. CVEA Assessment of Threats 17 Notes 17 Loss of RUS H ardship Financing @ CVEA is a RUS Hardship Borrower which qualifies us for 5% financing. e@ In recent years the availability of hardship dollars has been declining, which has created a backlog for funding hardship loans. e@ Based on future expected financing needs CVEA should carefully balance availability and economics of financing alternatives. CVEA Assessment of Threats 18 Notes 18 Intertie Open Access e@ Deregulation of the Generation and Transmission Utility industry by FERC poses severe economic threats to electric utilities across America. e Vigilance and participation in State proceedings on this issue may have future benefits to CVEA. CVEA Assessment of Threats 19 Notes 19 Retail Wheeling @ Regulations for retail wheeling have been adopted by several States. @ Alaska’s 19th Legislature had a bill before it concerning strengthening territorial integrity which did not pass. @ Protection of our franchised service territory is important to our long term interests to ensure that economic benefits of future opportunities are preserved for CVEA’s members. CVEA Assessment of Threats 20 Notes 20 Increased Regulation RE e@ Regulation is time consuming and costly. @ Keeping current on new regulations and striving to maintain compliance is more cost effective than playing catch up. e@ Exploration of any and all opportunities to minimize the time consuming and costly impacts of regulation is desirable. CVEA Assessment of Threats 21 Notes 21 ACSI e@ CVEA has expended considerable resources in defending itself against ACSI actions. CVEA Assessment of Threats Notes 22 22 Natural Disasters and Avalanches e Preparation and planning for impacts to our electrical system due to avalanches and other natural disasters mitigates the risk. CVEA Assessment of Threats 23 Notes 23 Analysis of Opportunities 24 Summary of Opportunities e@ Secure Return of SGL Study @ Deregulation Costs @ Financial Planning @ State Financial Assistance for © Marketing an Alternate Power Supply @ Dispersed Generation Option a @ Trans Alaska Gas Pipeline @ Petro Star ’ ; e@ PNC Divestiture e@ City of Valdez e@ Seasonal Plant Operators e@ Alyeska Intertie e@ Diversification - @ SCADA Efficiencies @ Key Accounts Management @ Natural Gas Development in @ HAARP CRB e@ Acquisition and Expansion CVEA Assessment of Opportunity 25 Notes 25 eocenonnnaty Secure Return of SGL Study e@ CVEA has invested approximately $1,300,000 in study costs and related expenses on this project. e@ Recovery of study costs is important regardless of the power supply option selected. CVEA Assessment of Opportuniy 26 Notes 26 State Financial Assistance for an Alternate Power Supply Option @ Dialogue with the Administration could be useful in determining financing options for power supply alternatives. CVEA Assessment of Opportunity Notes 27 e@ Meaningful communication with Petro Star can establish common ground and identify ways to work together for mutual benefit. e Air quality permitting difficulties have impacted the schedule and economics of the proposed on-site generation. e@ Summer months cogeneration could be eliminated through possible excess sales of summer spill. CVEA Assessment of Opportunity Notes 28 City of Valdez @ The City of Valdez will make a better ally than an adversary. A process for a regularand reasonable exchange of information should be established. e Enlisting the City of Valdez to suppat CVEA strategic goals could be beneficial. e Encouraging the City to allow CVEAto make its own decisions could improve relations. e Consider the City of Valdez as a passible financier in new economic development opporzunities. CVEA Assessment of Opportunity Notes 29 Alyeska e Productive dialogue with Alyeska is important so that new opportunities are not missed. e Assessment of new developments is important to identify potential benefits. e@ Keeping the ball in Alyeska’s court may have political and strategic importance to CVEA. CVEA Assessment of Opportunity 30 Notes 30 Intertie @ The decision to proceed or give up on the Intertie should be a deliberate decision, and not one of omission. e An Intertie is the best long term solution for power supply provided it is: affordable, able to be constructed, and that it will continue to meet our needs into the future. CVEA Assessment of Opportunity 31 Notes 31 K tP | ey Accounts Management Program e Establish a Key Accounts Management Program. @ Key account programs should be developed to foster positive relationships, to protect revenues and investments, to attract new customers, and to pro-actively prepare for competition. CVEA Assessment of Opportunity 32 Notes 32 e Current proposal is limited in ability to transfer significant blocks of power to or from CVEA’s system. e@ Reevaluation of HAARP as a potential power supply option, and as a very large consumer may result in increased benefit. CVEA Assessment of Opportunity 33 Notes 33 Deregulation @ Deregulation from RUS and APUC may provide for opportunities to improve competitiveness and reduce costs. @ Studying the process of deregulation to identify the costs, benefits, and future opportunities of deregulation may be desirable. e@ A thorough discussion of the merits of deregulation would assist the Board in making an informed policy decision. CVEA Assessment of Opportunity 34 Notes 34 Fina e Cost of Service Study, Financial Forecast, and other planning tools are necessary to effect a creative and competitive rate structure. e TIER, Equity , and Asset management plans are essential to sound financial planning. e Creative capital credit retirement programs may build member loyalty and support for CVEA’s strategic mission. CVEA Assessment of Opportunity 35 Notes 35 Marketing sauoauuenemaaenmnanseine @ A proactive approach to serving new loads improves the chance of successfully landing new load. e@ New business can be attracted with creative and competitive ratemaking. e@ Opportunities for creative ratemaking include zero margin rates, incremental pricing, marginal pricing, negotiated rates, seasonal rates, and rates based on different classes of service. CVEA Assessment of Threats 36 Notes 36 ——_—___—_— Dispersed Generation e Investigation of dispersed generation at Lake Louise, Tsaina Lodge, Tiekel area, and Hidden View Subdivision may show positive benefits to CVEA. e@ A thorough understanding of the APS arctic pak modules is important to determine applicability to CVEA large loads. @ |t may be possible to work with Petro Star ona win-win scenario using planned APS generation. CVEA Assessment of Opportunity 37 Notes 37 Trans Alaska Gas Pipeline seeomapanannsaat _@ Reports from ARCO and BP establish that the pipeline construction will exhaust the State’s available construction resources by 2005. @ |t is important to identify the needed infrastructure as well as the opportunities associated with this project. @ The TAGS project has major implications on CVEA’s generation situation and the type of interconnection to the Railbelt. CVEA Assessment of Opportunity 38 Notes 38 PMC Divestiture e@ Favorable divestiture agreements will result in the lowest possible power costs with minimal financial and operational risk to CVEA members. e@ AEA has recently indicated they would consider selling the four dam pool hydro projects to the individual utilities. This change in position could benefit CVEA. CVEA Assessment of Opportunity Notes 39 Seasonal Plant Operators | e It may be possible to develop a 9 month schedule for existing year round operator positions to reduce labor costs. e Use of contract maintenance could be investigated as well as a roving CVEA maintenance crew. CVEA Assessment of Opportunity 40 Notes 40 Diversification @ Careful consideration of any and all economic opportunities for our members furthers the mission of the Association and enhances our image and value to the members. CVEA Assessment of Opportunity 41 Notes 41 SCADA Efficiencies e@ Enhancements in technology may improve service reliability and reduce costs. — e@ SCADA options exist for older units as well as for new units. CVEA Assessment of Opportunity 42 Notes 42 Natural Gas Development in CRB e An informed position on any new developments in the potential of natural gas in the CRB ensures that opportunities are not missed. CVEA Assessment of Opportunity 43 Notes 43 Acquisition and Expansion @ Awareness and consideration of opportunities to expand our service to presently unserved areas is important. @ Acquisition of other electrical systems may be considered as a means to reduce costs and further the coop mission. CVEA Assessment of Opportunity Notes 44