Issues in Power Supply Pro Forma Statements Pro Forma Statements - - PowerPoint PPT Presentation

Issues in Power Supply

Pro Forma Statements Pro Forma Statements – – the What, the Why, the How the What, the Why, the How

Washington EMC Board Briefing January 26, 2012 Mark Hackett, Energy Perception, LLC

404-291-0204 cell, mark.hackett@gmail.com

2 2

Why is this relevant?

• Several of Georgia’s EMCs facing

critical power supply decisions

– Expiring power supply contracts – Plans for large new generating facilities – Inconsistent demand growth

3 3

Mark Hackett ‐ Introduction

• 25 year Power Industry Career

– Strategic Planning Analyst, Florida Power & Light – Head of Generation Planning and Power Trading, Oglethorpe Power – Chief Technology Officer & Partner, New Energy Associates, LLC

• Power System Planning Consulting
• Utility Planning & Operations Software
• Expert Witness Testimony –

Federal Energy Regulatory Commission

But most of all – concerned Cobb EMC Member!

4 4

Pro Formas – the What?

• Definition depends on subject area

– Legal: court rulings to move things along – Accounting: earnings adjusted for extraordinary events

• In Business…

5 5

Pro Forma – Business Definition

“A financial statement prepared on the basis of some assumed events and transactions that have not yet

• ccurred." *

* Ralph Estes's Dictionary of Accounting (MIT, Cambridge, 1981, p. 105)

6 6

Key Elements

• Pro forma statements are a forecast ‐

by definition they will be wrong

• Require forecasts of underlying non‐

financial data

• Present forecasts of variables of

greatest concern

– Revenues, rates, earnings/losses, cash position, debt forecast, etc.

• Are frequently presented on a multi‐

year basis

7 7

Common Examples – Budget*

* From fictitious company – numbers all made up

8 8

Common Examples – Rating Agency Forecast*

* From November 28, 2011 Investor Briefing

9 9

Common Examples – Load Forecast*

* From 2010 Year End Investor Briefing

10 10

Pro Formas – the Why?

• Georgia EMCs are facing significant power

supply decisions

• Owners typically “on the hook”

for closely held affiliates

• Pro formas are standard tools to evaluate

risk and alternatives

• No pro forma performed on Plant

Washington

“Sam Kelly, an EMC vice president, also admitted that Cobb EMC has not done a pro forma cost estimate regarding Plant Washington, though supporters say it would cost $2 billion to build.” Kim Isaza, Marietta Daily Journal, January 12, 2012

Read more: The Marietta Daily Journal - Cobb EMC’s pursuit cools on coal fired power plant

11 11

Pro Formas ‐ Key Uses

• Pro forma statements are a forecast ‐

by definition they will be wrong – but…

• They are used to provide insights

regarding likely or possible outcomes

• Allow for examination of risk and

alternatives

12 12

Pro Formas – the How?

• Demand forecast
• Inventory of existing supply resources

– Evaluation of current need

• Enumeration of potential alternatives
• Cost simulation of alternatives against

expected demand (including transmission implications)

• Development of key financial statement and

customer rate impact forecasts

Cost simulation should occur prior to committing funds for contracts or project development!

13 13

Multiple Scenarios are Important

• Forecasts are always wrong
• Multiple pro formas should be

developed on multiple assumption scenarios

– Optimistic/pessimistic capital costs – Optimistic/pessimistic interest rates – Optimistic/pessimistic demand growth

14 14

Pro Formas – the How?

• Optimistic/pessimistic pro formas

should be created for the Power4Georgians development

• Resulting forecast for cost of power to

Washington EMC should be examined

• Pro forma should then be performed

for Washington EMC to assess rate impact

15 15

Two Perspectives

• n Demand vs.

Resources

16 16

Load Shape is Important

Not all your resources run all the time

• but you make the mortgage payment all year
• gas mileage may vary

Megawatt Demand Months in Year

17 17

Two Coal Plants Don’t Stack Up

Even one coal plant equals the entire base load requirement of all 5 participants!

Megawatt Demand Months in Year

18 18

Alternatives available to Washington EMC

• Washington EMC has a host of options
• utside of self build

– Oglethorpe Power – RFP’s in power supply market – Demand side management

• Assuming build is the right choice

– What to build: gas, coal, renewable? – Who will operate? – Management of fuel procurement?

19 19

Wrap‐up

• Pro formas

are standard forecast tools used to evaluate critical decisions

• Pro formas

have not been performed with respect to Plant Washington

• Optimistic/pessimistic pro formas

should be developed to evaluate risk and rate impacts

• Washington EMC has numerous supply

alternatives – pro formas can help