 Financial Model Establishes Value of New Subsidiary between $300 & $400 Million
Company engineers were developing a new technology for air cleanup. However, the cash required to create an economic model by an outside entity and to perform economic analyses and sensitivities was cost-prohibitive.
In light of this knowledge, volunteered to create a model that would allow company president to determine discounted value of new subsidiary. This model established project value between $300 and $400 million, in today’s dollars.
Pricing Methodologies Foster Understanding of True Cost of Power
Several underdeveloped countries were in need of electric infrastructure but had no means to provide it without Western technical knowledge and financing capabilities. However, beginning negotiations with these governments presented difficulties due to their lack of understanding of the true cost of power.
To bring clarity to the negotiations, used Excel to develop electric pricing methodologies that allowed the customers, the governments, to opt for front-end loading, level, or back-end pricing schemes. The result was that no matter which pricing scheme they chose, the company as seller was indifferent. In addition, graphed methodologies for easy understanding during presentations.
In the end, these pricing schemes were integral to securing $130 million power sales agreement with government of Yemen for a 300 MW power plant.
Economic Model Determines Winning Bid for $400 Million Indonesian Power Plant Project
The government of Indonesia was seeking bids to build, own, and operate a 1,200 MW coal-fired power plant. A Japanese trading company emerged as a potential partner and wanted all of the bid preparation to be done in Tokyo.
Served as member of the three-person lead team that went to Tokyo and set up a “war room” with the necessary communication and computer systems to create an economic model to determine the bid price for power. This effort involved more than two weeks of in-depth analysis with major partners.
Team’s diligence paid off; company awarded the $400 million project NPV.
Large Recap Model Provides Management with Revenue & Cash Needs Forecasts
Company had numerous power projects either operating, under construction, or in the financing stage, but there was no single location to determine company’s future revenue, expenses, or income. Modeling all projects would remedy the situation, but the biggest hurdle was linking the projects via file references.
Directed one of the modelers to create a large model by linking all results from individual project models to a recap model that would reflect any changes to individual project files.
In addition to providing senior management with forecasts of revenues and future cash needs, used this model to run various sensitivity analyses of company’s expansion rate.
Lotus Notes Shaves Weeks Off Completion Process for Power Sales Agreements
Company stretched throughout Europe, North America, Australia, and Asia, with operations running in all of these areas. However, with such a wide-sweeping, global business in place, communication was becoming more and more difficult. At the time, the Internet and e-mail were in their infancy.
As a result, the Financial Planning & Analysis Group began investigating and eventually adopted Lotus Notes. This software enabled group to draft contracts in one part of the world, send them to other parts for finalization, and then return them to the originator again, all electronically.
Productivity soared. Software shaved weeks off time previously needed to complete power sales agreements.
Attentive Due Diligence Review Saves Company from Problematic Acquisition
The company was negotiating power sales agreements with the Palestinian Authority and the government of Yemen. Specifically, the company was looking for assets to buy to generate cash flow as quickly as possible. However, company had no cash for acquisitions of any kind.
In response, researched existing projects in final stages of construction or already operating throughout Asia. In the process, identified a small hydro-project in Nepal and began negotiating the asset’s acquisition using a highly leveraged scheme.
After purchase price was agreed upon, conducted an in-depth due diligence review and discovered that selling company had cross collateralized the potential asset with future assets in China. Subsequently, deal fell through, saving company from a problematic acquisition.
Qualified Progress Expenditure Provision Enables Company to Sell Tax Credits to Parent
As a modeler of the first independent cogeneration plant for an SCE subsidiary, it was observed that company was making capital investments but would not realize a positive cash flow for two to two-and-one-half years. In addition, parent corporation was using equity to fund the construction program. The situation was complicated further by the fact that the company had no way to generate cash flow on its own.
After researching tax credit regulations, determined the company qualified for "Qualified Progress Expenditure," which enabled it to sell its tax credits to the parent corporation to fund equity needs of the construction program.
By capitalizing on the "Qualified Progress Expenditure," the parent corporation no longer needed to fund the company’s $19 million equity requirements.
Company’s Geographic Impact Expands with 50% Share of East Coast Power Plant
Mission Energy was a local company that built, owned, and operated gas-fired cogeneration projects in California. However, the company needed to expand its geographic incursion as well as its technology.
To accomplish these objectives, identified, assisted negotiation, and closed the purchase of a 50% share of an independent coal-fired power plant on the east coast of the U.S., which added $60 million NPV to the company’s coffers.
Project Prioritization Matrix Procures More Resources for R&D Department
ZERO-based budgeting documentation was unwieldy and confusing to executive management. Specifically, a new corporate budget director had implemented ZERO-based budgeting company-wide with extremely rigid rules for submittal documentation.
Since Research & Development was a program/project series of activities, developed a matrix, prioritizing the department’s programs from highest priorities at the top to lower priorities toward the bottom. Each program had discreet projects within it, and prioritized these projects from left to right.
After its creation, the matrix was the one piece of documentation presented to executive management. It not only showed them what activities were proposed, but also showed what projects were not proposed for the upcoming year. Every year the Research & Development department presented this matrix; executive management would see a “pet” project left out of the recommendation and tell the department to include it. In effect, executive management always gave the department more resources than it had originally requested.
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