ENERGY CONSULTING SERVICES

Morrison & Co has provided Hydro Tasmania with consultancy support in the context of their impending entry into the Australian National Electricity Market by way of Basslink. Morrison & Co has:

reviewed Hydro Tasmania’s proposed approach to water valuation. The assignment included advising on the practical requirements of offering hydro into a spot market, and fitting the development programme to those requirements;
performed an audit and risk assessment of Hydro Tasmania’s proposed production plan to assess whether it met statutory obligations for the security of supply; and
built a spreadsheet based model of Hydro Tasmania’s operation and revenue risks which was calibrated from more detailed models run by Hydro Tasmania. This model provides a multi-scenario view of the optimal risk minimising contract strategy.

South Australian Wind Farm

Morrison & Co was engaged by ANZ Infrastructure Services to undertake a due diligence review of a proposed 55MW wind farm project in South Australia. The review considered issues such as energy capture potential, O&M, construction, network connection, power purchase agreements and financing arrangements.

Townsville Gas Project Submissions to Queensland Government

Morrison & Co was engaged by Enertrade to prepare its submissions to the Queensland Government on options for gas-fired generation at Townsville. Morrison & Co advised on Enertrade’s strategic approach and undertook financial and economic analyses of combined cycle and co-generation options as well as new CCGT options and appropriate timing and assistance packages for these options.

Advisory Assignment to a consortium of Victorian Generators on the Operation and Trading of the Victorian Vesting Contracts

Morrison & Co was engaged on a retainer and success fee basis to identify areas where there could be value loss to generators in the detailed implementation and trading of the mechanisms in the Victorian vesting contracts. Recalculations and revisions resulted in material gains to the generators.

PNG Pipeline Project, Queensland

Morrison & Co was engaged by the Queensland Government to undertake a due diligence review of the proposed project and the Queensland GOC’s involvement in that project. Morrison & Co coordinated the overall due diligence including gas market analysis and investment appraisal analyses.

Isolated Power System Development, Western Australia

Morrison & Co provided a range of services to StateWest Power, a specialist electricity supplier to the mining sector, in their development of an interconnected power system in the northeast goldfields province of Western Australia. These services include:

Initial commercial assessment of a variety of electricity and steam supply alternatives to the gold mining operations and nickel refinery;
Debt arranging and financial advice for the project; and
Preparation of project information memoranda and subsequent documentation including specialist advice in drafting the energy purchase agreements.

Competitive Tender Process for New Generation Capacity, Queensland

Morrison & Co acted as economic and financial advisor to the Queensland Transmission and Supply Corporation (QTSC) for the competitive sourcing of new capacity from independent power producers. The tender culminated in contracts with three producers for a total of 700MW. The role involved substantial liaison and interaction with various government agencies.

Key aspects of the role included:

Development of an economic evaluation methodology, which was suitable for the unrestricted eligibility of different plant types, while being achievable in the time available;
Assistance with the preparation of tender documents and proposed contracts;
Providing advice during the development of evaluation procedures and software design;
Evaluation of financial viability for tendered proposals;
Economic assessment for non-standard tenders e.g. pumped storage;
Oversight for QTSC of evaluation results and strategic advice on their implications; and
Assistance with the negotiation and finalisation of power purchase contracts.

Use of Systems Agreement and Embedded Generation Agreements for Distribution Networks, New Zealand

Morrison & Co assisted TrustPower with reviewing and negotiating to completion the key Use of System and Embedded Generation Agreements as part of acquisition mandates for the retail and generation businesses being sold by New Zealand regional distribution companies.

Morrison & Co also established the conceptual approach to the Embedded Generation and Use of System Agreements that TrustPower established for the sale of its wires business.

Morrison & Co has been both poacher and gamekeeper, and has an in-depth understanding of the risk allocation, regulatory and commercial issues associated with these agreements.

ECNZ Split - Competitive Market Analysis, New Zealand

Morrison & Co was engaged by the Electricity Reform Transition Unit to advise on issues relating to the establishment of three new state generating companies. The study included detailed analysis of the likely bidding behaviour of the three new generation entities and potential competitive impact on the electricity market.

Generation Project Feasibility Study - Price Forecast, Queensland

Morrison & Co advised Austa Electric and the Shell Company of Australia on the feasibility of a new generation project within Queensland. Morrison & Co’s advisory activities included:

Independent preparation of pool price forecasts for Queensland including detailed modelling of the effects of New South Wales interconnection, forced plant outages, pumped storage plant operation and the dispatch offering strategies of the generation companies;
Investigation into the effects of commissioning large generating unit on the Queensland grid including the potential for near term price dips as well as ongoing effects such as the adverse correlation between plant outages and pool prices; and
Assessment of competitive benchmarks for various gas and coal based new entry projects.

Ancillary Services Framework, New Zealand

Morrison & Co was the economic and technical advisor to Concept Consulting who were engaged by the Grid Security Committee to define the ancillary services component of the multilateral agreement on common qualities. This covered the areas of voltage support, frequency management and black start capability, and involved:

Defining the relevant quality standards and establishing responsibilities for the future setting of those standards;
Establishing the commercial arrangements for the supply of the ancillary services to meet those standards; and
Determining the basis of any cost allocations.

Commercial Analysis of Vesting Contracts, Victoria

Morrison & Co, in partnership with the New Zealand Institute of Economic Research, undertook an intensive review of the Master Vesting Contract documents being proposed for the Victorian electricity reforms for Southern Hydro Pty Limited. The assignment involved:

Analysis of the variable quantity mechanisms in the one and two way contracts and the implications for generators; and
Assessment of Southern Hydro’s revenue variability arising from the combined effects of hydro inflow uncertainty, storage reserves and contract obligations.

Morrison & Co has since advised a consortium of Victorian generators reviewing the past operation of the vesting contracts, identifying commercial issues for the generators and developing responses to those issues.

Market Reform and Transition Management, Queensland

Morrison & Co was appointed as Strategic Financial Advisor to advise and assist the Queensland Transmission and Supply Corporation (QTSC) as follows:

Advise on a wholesale market development strategy for Queensland;
Advise on the assignment of roles and risk allocations between QTSC, as a holding company, and its transmission and distribution subsidiaries;
Advise on the appropriate penalty and bonus arrangements in Power Purchase Agreements;
Assist with negotiations for power purchases from New South Wales over a proposed interconnector; and
Establish consolidated financial models for QTSC and analyse the relationship between power purchase contract price levels, transmission and distribution company asset values and costs of capital for under various wholesale and retail price paths.

Power Generation and Purchasing Strategy for BHP, Australia

Morrison & Co was appointed to advise and assist Broken Hill Proprietary Pty Limited, BHP Power, on a wide range of strategic issues associated with BHP’s broad interests as a fuel supplier to electricity generation, as a potential generator and as a major purchaser of electricity.

Specific aspects of this assignment have included assessing:

New entry costs and fuel supply options across various states;
Power purchase strategy options, given BHP’s position as a major power consumer;
Competitive market dynamics and the potential impact of a competitive generation market on the development of power generation facilities utilising BHP’s own fuel resources; and
Recommendations for BHP to optimise cost of capital advantages and to divest itself of generation facilities.

Hydro Power Station Economics, Queensland

Morrison & Co in association with Tonkin & Taylor, consultant hydrologists, advised the Department of Natural Resources (State Water Projects) on the commercial viability of exploiting Queensland's existing water control infrastructure for the development of hydro power stations. The project included:

Assessing hydrological and engineering cost data from a large number of sites to identify the best economic prospects;
Developing strategies to improve commercial viability, such as formalised water rights, green power and peaking operation;
Devising an implementation process where the private sector provides the development capital and the benefits to the Department are maximised; and
Providing a generic financial model to enable the client to evaluate particular schemes.

Transmission Pricing, New Zealand

Morrison & Co was asked by three Electricity Supply Companies (ESCs), Northpower/ Top Energy / Eastland Energy, to assist with issues arising with Trans Power, the New Zealand transmission company. Morrison & Co’s role was to:

Analyse transmission pricing issues facing the ESCs in relation to loss factors and the regional impacts of Trans Power's cost allocation procedures;
Prepare reports detailing the main issues and the case for alternative applications of Trans Power’s pricing principles;
Consult with the ESCs to determine an agreed strategy for interacting with Trans Power; and
Assist the ESCs with presentations and negotiations with Trans Power.

Gas Valuation, North West Shelf Gas, Western Australia

Morrison & Co provided advice to the North West Shelf Gas Partners in respect of the gas price re-opener provisions and arbitration process in their gas supply contract with Western Power Corporation. Morrison & Co’s advisory activities included:

Development of gas valuation methodologies based on the value of gas to an electricity generator that incorporated Morrison & Co’s forecasts for medium and long term price outlooks in Western Australia;
Interpretation of the arbitration’s Pricing Principles given the deregulation and electricity market reform underway in Western Australia; and
Comparison of the strengths and weakness of various gas valuation methodologies in relation to possible outcomes and with respect to consistency with the arbitration’s Pricing Principles.

United Energy, Strategic Planning, Victoria

Following the privatisation of United Energy, Morrison & Co was engaged to undertake a series of presentations for senior management on medium term strategic objectives for core business activities. Focal points for analysis and discussion included:

The desirability or otherwise of vertical integration from electricity retailing or electricity distribution into generation;
Competitive strategies and an analytical/valuation framework for electricity retailing and contracting in the deregulated electricity market;
Managing regulatory issues present in electricity distribution; and
Strategic analysis of horizontal integration for electricity distribution and/or electricity retailing into gas distribution and retailing.

This project provided a significant contribution to the development of United Energy’s medium term strategic plan.

Power Planning and Power Purchasing Strategy, Queensland

Morrison & Co was lead manager, in association with NM Rothschild & Sons (London), Rothschild Australia and Ernst & Young, in a major advisory project for the Queensland Electricity Commission (QEC). The QEC was moving to complete generation separation with a new Corporation being established to competitively purchase all future power requirements. The project involved a full independent review of QEC's power purchase plans through to the year 2005 and assistance with a number of competitive sourcing processes. Key aspects of the project were:

Financial analysis of independent power producers for a wide range of QEC’s power purchase options, including project financing structures and taxation treatment;
Advice on the evaluation of short listed bidders for power purchase contracts and negotiations with the Collinsville Power Station;
Financial analysis of the proposed interconnection with New South Wales and its impact on the Queensland power system; and
Advice on whether QEC should commit to a purchase of gas pipeline capacity given the gas supply cost structures and the timing of QEC’s need for new capacity. This involved analysis of gas pipeline cost structures and the incremental and average costs of increasing pipeline delivery capacity.

Key technical components of the project included:

Review of QEC demand forecasts, reserve plant policy, system simulation models, demand side management forecasts and assumptions for price elasticity responses; and
Advice on methodologies for the integration of transmission costs into the system planning and bid evaluation procedures.

Bidding Strategy Analysis and Price Forecasting Electricity Market Model, New Zealand

Morrison & Co was engaged by TrustPower to develop an Electricity Market Model to forecast the distribution of New Zealand electricity pool prices.

The pool prices were used to derive net operating income or expenditure both before and after financial contracts. This provides the basis for:

Valuing financial contracts;
Valuing changes to demand or supply;
Optimising generation dispatch; and
Assessing financial risk.

The model simulates the outcome for each of a number of years of historical hydro system inflow data. The market clearance problem is solved using a linear programming formulation. The model has significantly improved TrustPower’s understanding of wholesale price drivers and its management of trading risks.

Transmission Pricing, Australia

Morrison & Co was engaged by the Generator Forum to conduct a joint review of the transmission provisions in the electricity code as part of a review process initiated by the Australian National Electricity Code Administrator (NECA). The result of the assignment was a series of modifications to the code.