6. STATISTICS IN THE ENERGY INDUSTRY Tony Haws Business Planning Manager, British Gas plc, (Northern)
6.1 Introduction
The energy sector generally consists of processes which are capital intensive and where the close matching of supply and demand is critical. For most fuels, storage is either impossible or very expensive as well as being environmentally unacceptable. These characteristics of the sector enable statisticians to provide a valuable and interesting contribution to the core activities of the companies engaged in the production and distribution of energy.
Some of the major companies in the energy sector are:
British Gas;
National Power;
PowerGen;
Regional Electricity Companies;
British Nuclear Power;
British Coal;
Major oil companies such as BP, Shell, Mobil and Texaco.
Each have their individual priorities, but questions of capacity, efficiency and safety in the production and distribution systems figure largely amongst them all.
6.2 Statistical Applications
Statistics is used to support strategic planning and market forecasts. Its application in this area is heavily tempered by judgement and the knowledge of other disciplines. Fairly sophisticated statistical models are frequently embedded within a general understanding of the business and its environment.
Business performance monitoring is essential to the success of any large company. Statisticians are employed to ensure the accuracy and reliability of basic data, to design appropriate databases and develop statistical reporting systems including Executive Information Systems.
Operational Research is closely related to statistics and a high proportion of OR activity in most energy industries has a high statistical component. In the current business climate, improved standards of service and increased efficiency make substantial demands on OR resources.
The retailing part of the energy sector also requires statisticians to support market research activity. For businesses with millions of customers and a fairly wide range of appliances and services, market research offers the opportunity to identify and meet the needs of many broad and niche markets.
Research and Technology is the foundation of the energy industry. Technological change is continuous, with government and public pressure to improve energy efficiency, reduce environmental damage and increase safety. Commercial pressures require new products, materials and servicing equipment. Statisticians are often involved in the design development and testing of new products.
6.3 Role of the Statistician
Applied statistics is always related to another field of knowledge. Thus statisticians cannot be effective without some understanding of the field within which they are working. New statisticians must learn rapidly about the business area in which they will be working. They need to communicate well, both to gain knowledge and to present their ideas convincingly.
The greatest problem every statistician must face in applying statistical methods is that real life does not correspond to the text books. Data is unreliable, statistical distributions are determinedly not normal and collinearity of apparently unrelated variables is endemic. This can be enjoyable and rewarding, always provided the test books are used as an aid to thinking rather than the complete answer. The quality of data in the energy industry is considerably better than I have experienced elsewhere but it is far from perfect.
One advantage of being a statistician is that one's skills are transferable and usually highly marketable. I have worked in the National Health Service, Social Services, Local Government and the Ports Industry before joining British Gas. The nature and purpose of the statistical activity I was involved in varied considerably, but my statistical training provided a sound basis for all these jobs.
6.4 Applications of Statistical Methodology
As I described earlier, statistics permeates throughout most large organisations. Statistical and mathematical modelling is used for forecasting markets and sales, for analysing and simulating operational activities and for Research and Technology. Inferential testing, together with point and range estimation are used in the development of models and the production of forecasts.
Data quality is essential for accurate statistical analysis. Statisticians must maintain close contact with operational and administrative staff to understand the data and its suitability for statistical analysis. Regular quality monitoring of data streams is essential.
The presentation of statistical information will influence the value placed upon it by managers. Clarity, relevance, accuracy and timeliness are critical factors which the statistician must handle effectively. Impact also comes through brevity. Statisticians must develop the presentational skills to ensure that their findings are recognised and acted on by senior and operational management.
6.5 Statistics Department
There are very few departments named "statistics" in the energy industry. Certainly the number of statisticians working in "Statistics Departments" is small in comparison with the number of trained statisticians. Operational Research, Market Research and Planning departments employ statisticians as do mathematics departments within Research and Technology. Many statisticians support other departments working as the sole statistician in the department.
There are considerable benefits to be gained from starting one's career as part of a statistical team: the opportunity to learn a variety of skills and background knowledge from more experienced members of the team; the chance to discuss problems and methodology; obtaining informed comment and criticism of one's work.
Many statisticians in industry retain a purely professional role possibly rising to team leader and head of a department specialising in quantitative methods. Others move into operational management or related disciplines, where their statistical experience remains of value. A reasonable proportion of the senior management of most energy companies comprises people with some statistical training and experience.
6.6 British Gas
British Gas is currently undergoing major reorganisation but at the time of writing, May 1993, the main departments employing statisticians were:
Headquarters: Statistics and Information Services;
Operational Research;
Marketing Statistics and Planning;
Market Research;
Research Stations.
Regions (12): Business Planning;
Marketing Services.
As Business Planning Manager for Northern Region, I manage a professional department containing 23 staff. The main activities are planning, forecasting, economic appraisal, performance monitoring, operational research, development of financial systems and internal audit. Ten members of the department are trained in statistics or operational research.
The key regular tasks involving statistics are:
Gas Sales
Analysing the pattern of gas consumption
Weather correction of gas sales estimates
Performance monitoring
Designing systems to estimate customer accounts
Profiling levels of activity and workload.
6.7 Gas Demand Analysis
One of the most interesting statistical activities is the analysis of patterns of gas consumption. Demand for gas on a severe winter's day can be more than five times the level experienced during July and August. British Gas manages the system partly through variable supply contracts and partly by storing gas. Gas suppliers, particularly North Sea operators, would prefer to supply at a constant rate. Consequently they charge premiums for flexibility in levels of take. Similarly the cost of storing gas is very expensive. The transmission and distribution pipeline systems must also be designed to meet peak levels of demand.
British Gas plans to provide a 1 in 20 year security of supply. Thus, over a very long run of years it will not fail to supply in more than 1 year in every 20. It is part of the job of Regional Business Planning Managers to provide the gas consumption estimates and forecasts on which to design the gas storage and supply systems. British Gas is considered to have the most efficient and reliable storage and supply system in the world.
The statistical models which support the analysis and forecasting process have been developed and improved over a period of nearly 30 years. Co-operation between statistical teams in regions and headquarters has been the key to successful development. Best practices become national standards while new approaches are designed and tested by individual teams. Even small improvements to accuracy can be worth millions of pounds, so changes in the constituent gas markets are monitored regularly.
The introduction of competition has added a new dimension to gas demand analysis, producing a greater degree of uncertainty and commercial barriers to information. This should provide new and interesting challenges for statisticians working in this area.
6.8 Conclusion
Statistics and quantitative management information are critical to the success of any business. This is particularly true for the energy industry. Statisticians have the opportunity to work on interesting projects which contribute to key decision making and influence the quality of service provided to millions of customers.