12/27/2010

2012-04-0003 | YOUSAF HASHIM KHAN

 2012-04-0003 EMBA2012 MBD-PROJECT

EXECUTIVE SUMMARY

A sub-division is an area of jurisdiction usually catering for and

rendering electricity service to a population of around 20,000 different
LAHORE
consumers (Domestic, Commercial, Agricultural and Industrial ).The
ELECTRI
ENERGY
difference between CONSUMPTION
the energy units(in kilo watt FORECAST-MBD
hours) received from the
C SUPPLY
supply source(Grid station) and the energy units recorded/billed/sold through
CO. the energy recording meters , as a percentage of units received are the
distribution Line losses of the subdivision within a period of a month.
Improper planning, deteriorated and sluggish Low and High Tension system,
pilferage of energy and lack of adaptability to modern technology are causes
of Line Losses. As a sub-divisional Officer in LESCO/WAPDA, it is my primary
duty to keep the monthly distribution Line Losses of the sub-division within
permissible limits or to reduce them relative to corresponding month of the
preceding year.

I was uncertain about the Line Losses of June 2011, which is going to be an
important determinant of my performance and subsequently a criterion for
my accelerated promotion. The objective was to determine the factors which
greatly influence the consumption/recording of energy units(Units Sold) and
the risk and uncertainty involved in their estimation. Once identified, I will
not only be able to improvise the strongly associated parameters but will
also be able to forecast the energy that will be sold to the consumers of my
subdivision in the forthcoming months.

A model has been developed to forecast the ‘Units Sold’(response variable)

in June 2011 and to what extent it is influenced by explanatory variables with
the help of available historical data.

The regression analysis technique is used to identify the relationships and to

provide a process-based working tool for forecasting rather than resorting to
stereotype gut based decision-making.

Moreover the time series has also been employed for forecasting the ‘units
sold’ future values by using only past values and for that matter exponential
smoothing with trend and cyclical factors are incorporated.

Afterwards, I introduced the inherent uncertainty in the factors by

incorporating standard deviation and tried to reach the best guess of the
response variable(Units Sold).

1. THE PROBLEM:-

Units Sold= The Energy consumed by the consumers which is recorded on

the meters and noted by the WAPDA staff and subsequently
billed to the consumer for its payment.

Units Received = The Energy received from the Supply Source(Grid) through
High and Low Tension lines to the consumer end.

Units lost= Units Received –Units Sold

%age Line Losses= Units Received-Units Sold × 100

 Units Received
The objective is to bridge the gap between ‘units received from Grid’ and
‘units sold/ recorded’ or to reduce the number of units lost by identifying
those strongly associated factors which may be improvised to enhance the
energy units sold or to reduce the gap. The greater the units sold relative to
units received, the lesser will be the quantum of energy unit loss.

1.1 Breakup of Units Sold: It consists of units recorded from 3 different

categories(tariffs) of consumers as shoen in Excel Sheet:Tariff Categories.

1.General Tariff (Domestic & Commercial Consumers)

2.Agricultural Tariff (Tubewell Connections),

3.Industrial Tariff: a)Small Cottage Industry(upto 40kw), b)Medium Size

Industry(41kw- 500kw), c)Bulk Supply Industry( above 500Kw)

2.APPROACH: IDENTIFYING EXPLANATORY FACTORS & THEIR

CORRELATION:

Among the various factors ,following parameters are considered to be more

influencing on ‘Units Sold’ and can be quantified for applying regression
analysis.Before figuring out the importance and solution, it is necessary to
draw an influence chart(as shown in Sheet:Influence Chart) and to find the
correlation of the individual factors with the Units Sold.

CORRELATION
LOAD STEELBILLET NEW IND
UNITS RECV SHEDDING PRICE RICE CONN DETECTION TOU AMR TARRIFF Promotion

73.78% -43.61% -26.60% 68.89% 96.91% 97.37% 48.38% 79.52% 23.35% 84.80%

From the above table, it is obvious that ‘New Industrial Connections’ and
‘Detection of theft of energy’ are most relevant factors than others as
shown in Sheet:DataCorrelation.

3.REGRESSION ANALYSIS ON THE DATA:

The relationship among response variable(Units Sold) and explanatory
variables can be determined through regression as shown in Excel
Sheet:Regression1. By applying regression analysis on the whole data(Excel
Sheet), the regression parameters come out to be:

R²= 0.97 adjusted R²=0.96 Significance F= 9.37E-10

R² and adjusted R² depicts that 97% of the variation in the factors can be
explained by variation in Units Sold. It tells us that the regression model fits
the data very well. The low value of significance F suggests that the
probability of observing this R² or higher when all the true coefficients are
zero is negligible. It also suggests that there is a negligible chance that the
R² is by luck. The p-values give us the probability that the coefficients are by
luck i.e how likely the coefficients we determined could be wrong.

➢ Loadshedding: It has the highest p-value of 0.85 among the

explanatory variables which suggests that the estimated coefficient
-7036 would be likely to occur randomly. The variation in load shedding
hours has no significant influence on the ‘Units Sold’.
➢ Rice Cultivation: It has the 2nd highest p-value of 0.80 and there is
80% chance that estimated coefficient of 49386 is by luck. Earlier, it
appears that in peddy season (April-August), massive cultivation of rice
due to good support price by Govt. will require more irrigation through
tube-wells and consequently more energy units will be consumed/sold
but the p-value depicted that this factor has less influence on the
response variable(Units Sold).

Eliminating Variables With High-P Values:

Therefore , by eliminating Loadshedding & Rice Cultivation variables, the fit

of the model was improved to the following statistics(as shown inExcel
Sheet: RefinedData & RegImproved).
R²=0.9771 adjusted R²=0.9657
SignificanceF= 1.13E-11

➢ TOU(Time of Use) meters: It has the lowest p-value of 0.025 which

suggests that the estimate coefficients 7450 would be unlikely to occur
randomly if the true was zero. These are the digital meters installed
on Tube wells connections located in remote areas and where the theft
of energy is rampant and it is likely to determine the time of maximum
use because of the subsidy extended by Govt. to agriculture sectors in
the off-peak hours of the day. The greater the number of old
mechanical meters are replaced with these TOU , the better is the
‘Units Sold’. The confidence interval varies from 1023 to 13877.
➢ Tariff Increase: The increase in the Energy unit rate/tariff by Govt.
under IMF standby programme with 2nd lowest p-value of 0.04 has also
significant influence on ‘Units Sold’. This suggests that its estimated
coefficient 169853.1 would be unlikely to occur randomly if the true
coefficient was zero and the probability of happening this randomly is
only 4%.The model is confident about its influence on the ‘Units Sold’.
The confidence interval varies from 5904 to 333801.

➢ Steel Billet Price/tonne(in $): The nature of Industry in my

subdivision’Mehmood Booti’ is Steel Furnaces and Re-rolling mills.
Their load factor(working Hours) & Energy Consumption are strongly
associated with the International & National Steel Billet Prices($)/tonne
which is also depicted by the less p-value of 0.07. This suggests that
its estimated coefficient -2553 would be unlikely to occur randomly if
the true coefficient was zero and the probability of happening this
randomly is only 7%.The model is confident about its influence on the
‘Units Sold’. The confidence interval varies from -5419 to 312.9.
➢ Detection of theft/lost units: These are the recovered units in the
form of penalty imposed on the consumers involved in theft of energy,
which are detected by launching periodic checking, raids with the
police in day & night which require extra effort & energy. Sometimes, a
trade-off is to be made between Detection and the Project
Development works of the area. The less p-value of 0.08 is truly
reflective of its influence on the response variable which suggests that
its estimated coefficient 7.927 would be unlikely to occur randomly if
the true coefficient was zero and the probability of happening this
randomly is only 8%.The model is confident about its influence on the
‘Units Sold’. The confidence interval varies from -1.32 to 17.1.

➢ Units Received from Grid: The greater the energy demand of the
consumers, the greater the transmitted units from Grid thereby
increasing the likelihood of increase in Units Sold but here the p-value
of 0.13 do depict the strong influence and the -0.1093 coefficient
shows decrease in Unit Sold with increase in Units received. It is true in
reality, because with great/high demand of energy comes an increase
in frequency of theft & transmission loss, which usually reduces the
Unit Sold/Billed.
➢ Automated Meter Reading(AMR): This is the cutting-edge
technology which does not involve meter-reading by human staff
rather it transmits data through RF signal and has significantly
eliminated the probability of theft(unit loss) where installed. We have
been gradually shifting towards this technology by replacing old
electromechanical meters with AMR meters. The less p-value of 0.15
suggests that its estimated coefficient 11069 would be unlikely to
occur randomly if the true coefficient was zero and the probability of
 happening this randomly is only 15%. The confidence interval varies
from -4525 to 26663.
➢ Promotion: This is the prerogative of the officer to introduce a
promotion for new industrial connections to be installed on urgent
basis whenever the workload is not stressing. In this way, the addition
of new bulk consumers is encouraged and their energy consumption
increases the ‘Units Sold’. The p-value of 0.21 suggests that its
estimated coefficient 333155 would be unlikely to occur randomly if
the true coefficient was zero and the probability of happening this
randomly is 21%.The confidence interval varies from -210285 to
876597.
➢ New Industrial Connections: The p-value of 0.31 suggests that it
estimated coefficient 40546 would be unlikely to occur randomly. In a
bid to increase the number of industrial connections and total
industrial units sold, new feeders or infrastructure near the industrial
area has been proposed, planned and got it sanctioned for project
execution.

4.4. DETERMINING MOST IMPORTANT CONTROLLABLE FACTORS:

Before bringing Modeling Business Decisions into practical use in real life, it
was long upheld in our department that load shedding, Rice cultivation
period and increase in tariff by Govt. are most influencing factors which
greatly affect the consumption of energy units and it has become a practice
to blame Govt. for upheaval in the explanatory variables beyond our control.

4.1 Helping Decision-Making: But a process based regression analysis as

shown in Excel Sheet:Model &ModelForecast has ascertained that installing
more new TOU ,AMR meters, promoting and planning new Industrial
Connections and Carrying out campaign for Detection of energy theft are the
most striking controllable factors which have strong association with ‘Units
sold’ and by putting extra energies in achieving the high set targets for these
variables will truly yield results.

4.2 Risk & Uncertainty Involved in Uncontrollable Significant

Factors: On the other hand, Increase in Tariff, Units received from Grid and
Steel Billet prices although have great influence on ‘Units Sold’ but these
explanatory variables are beyond our control. The Govt policies, market
trend and other extraneous factors determine the risk and uncertainty
embedded in these variables as shown at the bottom of
ExcelSheet:RefinedData. However, a best guess can be made about them
through optimization in simulation.

5.5 FORECASTING UNIT SOLD WITH TIME SERIES:

By using Holt-Winters method(multiplicative with trend), I carried out

exponential smoothing by incorporating the trend with the help of
smoothing formulas. I started with the history of four monthly observations
of the ‘Units Sold’. Based on the first cycle of observations, the components
of the forecast are initialized as follows as shown in Excel Sheet:
TimeSeriesForecast.

For t=1 to 4 S(t)= (x(1)+x(2)+x(3)+x(4))/4 , T(t)=0 , C(t)=

4x(1)/( (x(1)+x(2)+x(3)+x(4))

Then, starting with second cycle(period 5),following formulas are used to

compute new values of S(t),T(t)&C(t) each time a new observation is made.
 ➢ S(t)= α(x(t)/C(t-p)) +(1-α)(S(t-1)+T(t-1)) produces the
smoothed value.
➢ T(t)= β(S(t)-S(t-1)+(1-β)T(t-1) produces the trend estimate.
➢ C(t)= γ(x(t)/S(t))+(1-γ)C(t-p) produces the estimated cyclical
(seasonal) factor.

I took three smoothing constants to be α=0.2,β=0.5 & γ=0.6.I used a

relatively large value of β because the initial trend estimate is zero, and we
can expect that the forecasting procedure will have to respond to the data
to produce a good trend estimate. I also used large value of γ because I have
an opportunity to update my estimate of the individual cyclical factors only
once for every four observations. In this way, our forecasts for the
forthcoming months are as follows.

F(26)=(S(25)+T(25))*C(19) , F(27)=(S(25)+T(25))*C(20),
F(28)=(S(25)+T(25))*C(21)

F(29)=(S(25)+T(25))*C(22), F(30)=(S(25)+T(25))*C(23),
F(31)=(S(25)+T(25))*C(24) & F(32)=(S(25)+T(25))*C(25)

This set of formulas provides a general and powerful way to create forecasts
with exponential smoothing. The Unit Sold forecast in June 2011 is going to
be 13088219 energy units. The Chart Output between Forecast and
Observed values also gives a fair approximation.

6. ACCOUNTING FOR THE UNCERTAINTY FACTORS:

Although Units received, Steel Billet Prices/tonne and Increase in Tariff are
the significant uncontrollable factors and the uncertainty involved therein
needs to be accounted for better estimation of ‘Unit Sold’ in the model. The
other controllable significant factors have been kept at their maximum
values as shown in Sheet: Uncertainty.

➢ Units Received: With the help of historical data, it has a mean of

14439915 with standard deviation of ±1210184.The uncertainty is
incorporated and the best guess lies between 13600000 and 14100000
by plotting frequency distribution of 100 iterations as shown in Sheet
Uncertainty.
➢ Steel Billet Price: It has a mean of 392 with standard deviation of
±62 over the period of 25 months. The best guess lies between 330
and 360 by plotting the frequency distribution of 100 iterations as
shown in Sheet Uncertainty.
➢ Tariff Increase: The government has decided to increase the tariff of
electricity from 19% to 32% @ of 2%-3% per month uptil June 2011 in
order to meet with the IMF standby programme. Therefore, a random
increase in tariff has been generated to incorporate the expected rise
in tariff. The best guess lies between Rs.8.9/- to Rs.9.0/-
➢ Units Sold: Plotting frequency distribution of ‘Units Sold’ by keeping
the controllable significant factors at their maximum values attained so
far, the best guess lies between 15200000 and 15400000.

-----------------------------------

8219
Detect
ion

Detect
ion
 INFLUENCE CHART

EXHIBIT 2: REGRESSION STATISTICS

Regression Statistics
0.98853263 Significan
Multiple R 9 ce F
0.97719677 1.13444E-
R Square 8 11
Adjusted R 0.96579516
Square 8
Standard Error 224531.262
Observations 25

Coefficien
ts
11790571
Intercept .75
-
0.109734
UNITS RECV 951
-
2553.271
STEELBILLET PRICE 591
40546.25
NEW IND CONN 151
7.927327
DETECTION 003
7450.653
TOU 187
11069.14
AMR 907
169853.1
TARRIFF 048
333155.6
Promotion 464
 MODEL FORECAST

P-value
1.6494E-
09
0.133218
12
0.077237
29
0.316313
69
0.087973
91
0.025779
42
0.151876
78
0.043158
5
EXHIBIT 3: TIME SERIES FORECASTING 0.212150
61

TIME SERIES FORECAST

EXHIBIT 4: ACCOUNTING FOR UNCERTAINTY