Modelling Infrastructure for Electricity Distribution: A Case Study

Caruna Oy, Finland.

Caruna (www.caruna.fi) is the largest company dedicated to the retail distribution of electricity in Finland, providing power to approximately 650,000 private and corporate customers in southern, southwestern and western Finland, the city of Joensuu and the regions of Koillismaa, Lapland and Satakunta.

Caruna's electricity network is nearly 79,000 kilometres long; nearly twice the circumference of the earth.

Investment: € 2.5bn

The story

Caruna is created by divestment from the Finnish energy company, Fortum, to a consortium of four companies, the Finnish employment pension companies Keva (12.5%) and Elo (7.5%), as well as international infrastructure investors First State Investments (40%) (now First Sentier Investments), and Borealis Infrastructure (40%) (now Omers Infrastructure Partners).

https://www.fortum.com/media/2014/03/fortum-completes-divestment-its-finnish-electricity-distribution-business

Caruna’s operations are regulated by the Finnish Energy Authority, in charge of monitoring the electricity network business in Finland.

The challenge

Caruna is a new enterprise, and as such it lacks a common language to communicate internally and externally. As is normal for regulated infrastructure, it is complex legally, operationally and financially. Responsibility will need to be validated through the companies and until these issues are solved a strategic plan will be hard to implement.

Furthermore, the acquisition price will need to be referenced by an enterprise valuation agreed between the stakeholders.

The solution

Lazuli specifies and builds a strategic operating model in Excel for Caruna Oy.

The results

The model brings together the operational complexities, the financing requirements, the basis for the negotiations with the regulator and the strategic plan, all within a common agreed language and enterprise valuation.

The new model also creates a common vocabulary for efficient discourse both internally and externally with investors, shareholders, lenders and the regulator.

The plan agreed with the Finnish regulator is described within the model, as are the many tranches of finance and internal flows.  This gives Caruna the time and clarity to plot the refinancing of the enterprise, both in terms of quantum and optimisation through type and time.

The model build process gives Caruna the opportunity to start allocating responsibility internally.  This process is by no means instant, but rather an evolution that will enable Caruna to invest in people for better long-term relationships with investors, shareholders, lenders and the regulator.

The model also allows Caruna to formulate a strategic vision for the enterprise, through use of the long term forecast and in conjunction with the external stakeholders.  The agreed enterprise valuation is the ultimate gauge of the efficiency of the strategic vision.