Traci L. Bender Nebraska Public Power District APPA Business & Financial Conference September 15, 2009 Risk Analysis.

Traci L. BenderNebraska Public Power District

APPA Business & Financial ConferenceSeptember 15, 2009

Risk Analysis

• “Risk is good, if you do not properly manage it though, you take a dangerous leap.”

Evel Knievel

2Copyright © 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


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


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


NPPD’s Risk Management Process

Manage

Assess

Identify


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


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


NPPD Experiences withRisk 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


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

10th, 50th, and 90th percentile points 10th percentile one in ten the value will be lower 90th percentile one in ten the value will be higher


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 10th, 50th, and 90th 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


Present Value of Wholesale Revenue Requirements over 10 Years ($ Millions)3100 3200 3300 3400 3500 3600 3700 3800 3900 4000

Base Case

Case 1

Case 2

Case 3

Case 4

Case 5

Case 6

Case 7

Rate Track(3321)

3411

3356

3331

3294

3252

3359

3633

3563

10%ile Expected Value

90%ile

Summary of Project Findings


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


Base Case Risk Profile PV of Wholesale Revenue Requirements

Risk Profile Comparisons:Base Case

10%-ile

10%-ile

10%-ile

10%-ile

10%-ile

10%-ile

10%-ile

10%-ile

10%-ile

10%-ile

90%-ile

90%-ile

90%-ile

90%-ile

90%-ile

90%-ile

90%-ile

90%-ile

90%-ile

90%-ile

-150 -100 -50 0 50 100 150

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%-ile90%-ile

Supplemental Project Analysis and Information


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


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.


Traci L. Bender Nebraska Public Power District APPA Business & Financial Conference September 15, 2009 Risk Analysis.

Documents

risk analysis slide

process risk

risk owners

risk profile

risk quantification

risk identification

risk management processes

enterprisewide risk