Modelling Infrastructure for Electricity Distribution: A Case Study

Electricity North West, UK.

ENW (www.enw.co.uk) is one of 14 distribution network operators in the UK regulated by Ofgem with the majority of electricity entering its network from the National Grid.

ENW is responsible for maintaining and upgrading 13,000 km of overhead power lines and more than 44,000 km of underground electricity cables.  This covers the diverse communities between the beautiful Lake District landscapes to the bustling city of Manchester and all the wonderful towns and villages located in-between.

Investment: £1.5bn

Challenge

ENW is a new company, and there is a lack of a common language, both internally and with the new investors, shareholders, lenders and the regulator.

As a consequence of the acquisition, ENW has a complex legal company structure, with split operations, financing and holding entities each requiring accounting flows and cash flows.

ENW has a complicated operational structure, as is normal for a regulated business.  Partly due to the acquisition and partly due to the nature of large, regulated entities, ENW’s financing structure is also extensive.

ENW needs to allocate responsibility internally to deal with operations, the regulatory complexities, and financing.  Similarly, ENW needs to allocate responsibility to deal with the new external relationships with the regulator, the lenders, the shareholders and investors.

ENW is not able to formulate a long-term strategic plan because the overall picture is unclear.  Furthermore, the acquisition price needs to be referenced by an enterprise valuation agreed between the stakeholders.

Solution

Lazuli Solutions specifies and builds a strategic operating model in Excel for ENW.

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.

Accounting flows and cash flows now satisfy the various legal entities that make up ENW through a system of intercompany loans.  The plan agreed with the UK regulator is described in the model, as are the many tranches of finance.  This gives ENW 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 ENW the opportunity to start allocating responsibility internally.  This process is by no means instant, but rather an evolution that will enable ENW to invest in people for better long-term relationships with investors, shareholders, lenders and the regulator.

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