Power & Utilities

You're in good company if renewable energy is at the top of your agenda. Admittedly, there has been a slowdown of activity in Australia recently due to factors such as the GFC, policy uncertainty and structural market issues. However, with the Federal Government policy and legislation now clear on both carbon pricing and renewable energy targets, the future outlook is positive.

The challenge of where tomorrow's cleaner energy is coming from and the associated concerns of emission regulation and energy efficiency are big issues in the conversations we have with governments, power and utility companies.

We're busy helping with the considerable investment, project and technological challenges involved in the delivery of cleaner and renewable energy.

Huge uncertainties accompany these challenges. Developments such as geothermal, wind and large scale solar generation involve considerable project and market risk.

There's also the balance to be struck between investing in new renewable sources and investing in ways of making existing fossil fuel generation cleaner. To ensure that new technologies are implemented, continued support from the government, and the industry as a whole, is crucial.

PwC can help you

• Make the right investment decisions – We're able to give you the business planning and market analysis that you need. We can map your strategic and project choices. We can bring clarity to a complex array of current and future variables such as the impact of different fuel price and carbon market scenarios.
• Choosing technological partners or forming alliances – New technological areas and new markets require careful selection of project and, in some cases, strategic partners. We can help with contractor and partner selection. We can also advise on the best frameworks for matters such as joint investment, project design and delivery, governance and risk management.
• Making the most of tax and other incentive regimes – If you're investing in renewable energy, you need to be on top of the rapidly changing grant and incentive opportunities as well as emissions trading markets around the world. Our network of tax and regulatory specialists is on hand to provide advice and guidance to help you understand and make the best of tax and incentive regimes.
• Venturing into new renewable areas – We're on hand to help you extend the frontiers of renewable energy. Whether it is harnessing solar energy on a large-scale or exploring other technological possibilities, we can help you investigate the viability of such ventures.

The scale of capital project investment in the utilities sector is immense. Many companies are managing the biggest capex programmes they've ever undertaken.

It's not only the scale that is bigger but the nature of capital projects is very different from earlier periods of capital project expansion in the sector.

Projects are more likely to be managed in a range of territories. They have to be delivered against the background of significant and often volatile market change. And the rate of technological change means you have to allow for technology and software moving on by the time the project is completed.

There's also the sheer variety of requirements. Grid infrastructure, new transmission networks, better interconnectors, replacement of ageing assets are all pressing concerns quite apart from investment in new renewable, and fossil fuel generation capacity.

An example of new infrastructure is the roll out of charging and changing stations once electric vehicles are introduced. This is expected to have an impact on the nature of investments in the grid generally.

PwC can help you:

We're able to help right through the capital project cycle:

• Effective project appraisal – Sound project definition and effective decision making at the outset of a capital project are critical to a successful outcome. We can assist you in taking the right actions early to avoid costly errors later.
• Deciding on the right finance and the right contract – We can help you with a series of critical choices that you face on funding options, contractor selection and management, and project and quality management arrangements.
• Keeping projects on or ahead of course – We can help you put in place and review the things you need to stay on course, including budgeting and forecasting processes, project cost and schedule systems, reporting procedures, open book contract control and project audit.
• Getting projects back on track – If things go wrong, we understand the steps that need to be taken to recover projects quickly and effectively. Better still, we can help with a range of preventative measures to avoid projects going wrong to start with.

In an era of high energy prices, the pressure on power and utility companies to deliver greater efficiency and operational effectiveness is more important than ever.

Higher input costs, stretched supply lines and the need to invest in expanded and diversified infrastructure are putting significant additional cost into the value chain.

But there are limits to how far costs can be passed on to end-users. This means that internal efficiency and performance are even more vital. Smart asset management is becoming increasingly important, especially at a time when so much infrastructure needs to be built.

Developing new infrastructure has to run alongside the challenge of getting the most out of aging assets. Mature systems and software often add to the task. Maximising the value of both the new and the old is the name of the game. Companies need to balance cost effectiveness versus risk while developing regional and global structures. Sourcing, procurement and inventory management have to be of the highest order.

PwC can help you

• Deliver operational excellence – We can help across a wide range of operational excellence initiatives, including introducing learnings from other sectors that can lead to breakthroughs that save time, improve quality, lower costs, and increase revenue.
• Customer retention and growth – We can measure and improve the performance of your contact strategies and customer-facing systems and operations. We make sure you are maximising the effectiveness of your customer insight and pricing strategies. And help you prepare for the challenges of smart meter implementation which has the potential of being a ‘make or break' moment for customers.
• Improve financial and performance management – You can improve management information and prospective visibility through the alignment of financial, operational and regulatory metrics that drive accountabilities, decision support and operational execution. We help clients with planning and forecasting optimisation, CPM tool deployment, dashboards, scorecards and KPI development, change management and HR programmes.
• Get the most from technology – We can help companies on the best approach to decisions on applications and sourcing. We can also help with the transformation and culture change challenges that come with new markets and operations. Our experience in contract negotiation and independent quality assurance reviews make certain that your project is on track for success and to budget.

PwC provides assurance and internal audit services to power and utility companies in all the main sectors – gas, electricity, water, renewables and other services. We help clients improve their risk management and internal control frameworks.

PwC can help you:

• Insight into your sector – We pride ourselves on matching our assurance and internal audit skills with knowledge of your sector. One of the big challenges of any financial reporting standard is how best to interpret and implement it in the context of a specific company or industry.
• Handling complexity – We have the knowledge and experience necessary to help you with complex financial accounting issues related to matters such as valuations, pensions and share plans, listings, International Financial Reporting Standards (IFRS) conversions, and corporate treasury and company secretarial functions.
• Best practice methodologies – We use globally developed methodologies, fully compliant with International Auditing Standards and applicable national standards. Our globally consistent approach means that regardless of location, PwC people can understand and evaluate your business using a single language and common methods. In turn, that gives you a uniform level of quality.
• Able to respond to your needs – Our methodology also enables us to quickly organise and deploy a team that meets the needs of power & utilities companies.
• Non-financial reporting - We are leaders in the development of non-financial performance reporting, helping our clients respond to the need for greater transparency, improved corporate governance, and business models based on the principles of sustainability.

Deal activity in the power and utilities sector has been limited, with those of note being largely distressed situations resulting from previous over-leverage. Privatisations of state-owned utilities however loom as a theme for 2012 and beyond.

Strong interest from the Japanese, Korean and Chinese markets, as well as local institutional investors, will ensure that capital support for deals activity within Australia will exist. The need to fund significant growth in capital investment in both power generation and infrastructure, will be another driver for deals within the power and utilities sector. Furthermore, partnership opportunities with capital constrained state owned enterprises are expected to present themselves.

PwC can help you

We help you do better deals and create value through mergers, acquisitions, disposals, restructuring and joint ventures.

Before and during the deal, we work with you to develop the right strategy, identify the right target, negotiate terms and finance and get the best deal structure. We are able to do this to a high standard because of our close networks and strong understanding of the major players in the industry. We can help execute the deal seamlessly and identify issues and points of negotiation and value.

After the deal, we're on hand to implement changes to deliver synergies and improvements. We're able to help you manage the post-deal integration process, carve out non-core assets, and make changes to realise improvements in long-term performance.

Joint ventures and strategic alliances are becoming increasingly important in the utilities sector. We can help with a detailed examination of risks and how the structure can reflect the fact that different parties will be contributing different components to the venture.

From approval of future investment plans all the way through to how energy is sold to customers, regulation plays a central part in power and utility companies'.

Alongside financial reporting requirements, they must respond to energy policy goals, climate change and emissions targets, price and tariff requirements and a range of minimum service obligations. Increasingly, issues such as data regulation and security are also important considerations.

Perhaps more than in any other industry, how power and utility companies shape and respond to the regulatory environment determines the value that can be returned to shareholders or other stakeholders.

Requirements are ever-changing and the volatility and complexity of energy markets themselves are increasingly the focus for regulatory attention. Market structures vary widely and are constantly evolving. Companies have a role to play in shaping that evolution alongside policy-makers.

PwC can help you:

• Anticipate and implement regulatory changes – When regulations are being considered, we can help you to assess the impact on your company and input to the consultation on the final shape of the regulation. We can then assist with the change projects and capital programmes that may be necessary for compliance.
• Assistance and support with tariff reviews – We can put in place effective systems for measuring and modelling revenues and costs and translating this into an effective dialogue with the regulator. Further to this, our expert advice on a range of finance issues (such as cost of capital and regulatory asset valuation) will also assist to conduct a dialogue with the regulator. We can advise you, whether you are preparing for a rate case or tariff review, assembling volume, investment and cost forecasts, or examining the timing and capital structure of an investment to make the most of a particular regulatory framework.
• Evaluating the impact of regulatory regimes – We provide due diligence advice on how regulation may impact a utility business and what it means for valuations.
• Ensuring compliance with regulatory requirements – Whether it is financial reporting, industry regulation or meeting other requirements such as emissions or commodity market regulation, we can help your company put the internal systems in place to audit and ensure compliance.

Behind the hype, there is the reality. We've all heard about the immense potential of smart energy but, if you are part of delivering this future, you'll know the transformation won't be easy.

Smart grids and smart metering need substantial capital investment. They require a complete overhaul of the grid from an electromechanical to a fully digital system.

If you are to get the full potential of smart energy, you have to make a lot happen on many different fronts. You need to judge the timing of investment and the best choice of technology partners. Changes in regulation may also be necessary to support utilisation of information gathered from smart meters.

You also need to get the right balance between the cost-benefit to your company as well as the wider grid and society. On top of all this, there is the big challenge of delivering the necessary upgrades efficiently and on time.

PwC can help you

Whatever the stage of your thinking and roll-out of smart grid initiatives, PwC can help give you momentum.

Our approach focuses on the full lifecycle of smart grid initiatives and touches all aspects of what needs to be considered.

We help regulators and utility companies alike handle risk and ensure that the design of regulatory frameworks supports the development of smart grids.

We are on hand to help with the business and investment case and we have significant project expertise of the roll-out of smart grid programmes in all major power markets.

We can also help you plan carefully your customer relations strategy. Because all the technological innovation in the world can be undermined if customers don't buy into the opportunities that smart metering and smart grids bring.

The hard-hat world of the power & utility industries and the hard-ball world of financial trading have progressively become more intertwined.

Greater liquidity, increased participation of financial players, new types of exchanges and new types of commodities, such as emission rights, have all contributed to the growing importance of the use of financial instruments and, in some sectors, trading.

Companies are increasingly engaging in trading to improve and add more flexibility to their asset position. The increase in commodity trading in markets affecting power & utility companies has an impact on short- and long-term contract prices, on price volatility, on the choices faced by end-customers and on the regulatory landscape governing markets.

These changes are producing new types of risk for companies that require a re-examination of their risk strategies and the way they conduct their risk management.

PwC can help you:

PwC has a global expert team dealing with commodity trading and risk management within the power & utilities industries.

• Setting the right strategy – We can help you develop clear policies and strategies, articulate your risk appetite, to align your energy trading strategies in ways that are consistent with your commercial imperatives and capacity for risk. We can help you align your activities to fit with market changes and new developments.
• Measuring risk & return on capital - we can help you develop appropriate methodologies for measuring risk and quantifying the returns on the "risk" capital employed by your trading activities.
• Managing risk effectively – We can advise on development of appropriate risk and governance frameworks, controls and systems that need to be in place to manage risks and opportunities effectively.
• Implementing trading processes and systems – We can design and assist with the implementation of trading processes, support selection and roll-out of the best trading systems, improve the effectiveness and efficiency of trading execution and test/audit trading control frameworks.
• Governance, accounting and compliance – We advise on a wide range of requirements to ensure you are compliant with regulatory requirements, have effective governance in place and understand and manage the accounting and tax impact of any trading or use of financial instruments.