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TRANSCRIPT
Regulatory Proposal to the AER 2011-2015
AER Public Forum, Melbourne17 December 2009
2
Presenters and Outline
• Energy & demand forecasts
• Work program drivers
• Key investments
• Operating costs
• Pricing & tariff outcomes
• Ongoing expectations and challenges
• Past reliability and customer service performance
• Key messages
• Expenditure development process
• Network
• Shane Breheny – CEO
• Neil Watt – Manager Asset Strategy and Performance
3
Expectations & Challenges
Ongoing Expectations Emerging Challenges
• Good reliability and supply restoration performance
• Security of the network
• Strong emphasis on bushfire risk mitigation
• High levels of safety for the public and employees
• Focus on efficient investment choices
• Facilitating customer choice in retail
• Environmental challenges
growth in air conditioning load
evolving environmental policy initiatives impacting operations and sales
• Containing ‘energy at risk’
• Ageing infrastructure
• Smarter network
4
CitiPower
5
CitiPower’s Network
Key statistics
• 157 kms supply area
• Region covers Melbourne CBD and inner suburbs
• Region generates 22% of GSP
• 310,000 customers
• 46.6% network underground
• 1,907 customers per sq km
6
Australia’s most reliable CBD distribution network
59.864.1
51.6
41.4
36
43.4
32.4
23.8
41.5
27
88.1
44.7
20.616.6
61.2
21.4
21.2 21.917.2
10
20
30
40
50
60
70
80
90
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Unp
lann
ed N
etwor
k SA
IDI (
mins)
Significant load shedding due to generation shortfalls
Major storm events
______ Unplanned Network SAIDI Minutes (no exclusions)
______ Unplanned Network SAIDI Minutes (with exclusions)
7
Major investments 2006-10
• Upgrade of the network servicing the Port of Melbourne and surrounding area to include a second major zone substation supply
• Installation of additional 60MVA of substation capacity at southwestern end of CBD to service the CBD and West Melbourne
• Commencement of major security and growth related upgrades to Melbourne’s CBD
• Replacement of Southbank zone substation
8
Customer service
CitiPower’s commitment to exceptional service was acknowledged at the 2008Customer Service Institute of Australia Australian Service Excellence Award
0.01%0.01%0.01%0.01%0.01%
0.02%
0.00%
0.01%
0.02%
0.03%
0.04%
0.05%
0.06%
0.07%
0.08%
2003 2004 2005 2006 2007 2008
% o
f om
buds
man
com
plai
nts
per c
usto
mer Result significant given
CitiPower has over 310,000 customers
9
Customer service levels & safety performance
• CitiPower’s commitment to customer service is demonstrated by:
– average complaints per 1,000 customer below the industry average since 2002
– a reduction in complaints escalated to the Energy and Water Ombudsman
– consistently high satisfaction ratings across residential customers (79 per cent), major customers (86 per cent) and retailers (89 per cent).
• CitiPower was recognised with a Highly Commended Award at the 2008 National Safety Awards of Excellence
10
Proposal highlights - CP
• Forecast net capital expenditure of $1,058m ($2010)
• Forecast operating expenditure of $222m ($2010) over 2011-15
• Maintenance of existing reliability and quality levels
• Enhancement of system security in the CBD
• Mitigation of fault level exceedence in the CBD and surrounding
areas
• Maintain ‘energy at risk’ at or below 2010 levels
• Continued renewal of urban areas driving new connections
• Prudent replacement of aging assets
• Introduction of smarter network technologies using AMI
functionality
11
Expenditure development process
• Methodology:
– Capex: bottom-up approach based on asset management plans & demand forecasts
– Opex: revealed costs using recurrent efficient 2009 as base year
– Where appropriate subject to external advice/review
• Based on prudent asset management plan
• Subject to rigorous governance process
• Aimed at meeting NEL objectives & rule requirements
Safety
Reliability
Security
Quality
Price
12
Energy forecasts & Max demand trends
• Energy consumption used in establishing prices
• Energy forecasts developed by NIEIR
• Energy forecasts influenced by:
Government energy policy
Global financial crisis impacts
AMI
• Maximum demand used in determining Reinforcement Capex
• Forecasted internally and verified with NIEIR
• Maximum demand influenced by:
Economic conditions
Population growth
Appliance purchase & usage patterns
Energy forecasts Maximum demand
13
Growth trends
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
2006-10 2009 2011-15Ave
rage
ann
ual g
row
th
Customer numbers Energy consumption Maximum demand
14
Work program drivers – peak demand & asset utilisation• Peak demand growth driven by air
conditioning:– 2009 heatwave, record demand– New phase, from penetration to
upgrade
• Expenditure driven by highest utilised assets
CitiPower Load Profile
0.00
100.00
200.00
300.00
400.00
500.00
600.00
700.00
800.00
900.00
1000.00
1100.00
1200.00
1300.00
1400.00
1500.00
0:00
1:00
2:00
3:00
4:00
5:00
6:00
7:00
8:00
9:00
10:0
0
11:0
0
12:0
0
13:0
0
14:0
0
15:0
0
16:0
0
17:0
0
18:0
0
19:0
0
20:0
0
21:0
0
22:0
0
23:0
0
0:00
Time of Day - Eastern Standard Time
Nor
mal
ised
load
ing
29/01/09 at 43.2oC28/01/09 at 43.2oC17/02/09 at 31.7oC06/02/09 at 33.1oC12/02/09 at 23.7oC20/02/09 at 24.5oC
Mild Days
Warm Days
Hot Days
15
Work program drivers –energy at risk• Containment of energy at risk to 2010 levels:
- energy at risk has more than doubled in last 4 years
- implies augmentation expenditure levels greater than historic levels
CitiPower Network 2006-2015Zone Sub Energy at Risk (EDPR Iteration 2)
0MWh
20,000MWh
40,000MWh
60,000MWh
80,000MWh
100,000MWh
120,000MWh
140,000MWh
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Energy at Risk (MWh) - Do Nothing - Using expanded DSPR forecasts Energy at Risk (MWh) - With Augmentation - EDPR Iteration 2
16
Work program drivers –Ageing assetsAsset Replacement:
• Portfolio of ageing assets
• Average age in excess of 40 years
• Increasing risk of higher failure rates and rising maintenance costs
• Prudent conditioning monitoring to manage risk
- replacement of poles
- replacement of underground cables
- Replacement of major plant
17
Demand management
• Network planning process to identify and implement demand management alternatives where they are economically efficient
• Demand management and/or non network initiatives:
– West Melbourne
• Extent to which demand management and/or non- network alternatives are considered depends on:
– CitiPower receiving expressions of interest from proponents of feasible alternatives
– advances in technology which may lead to a greater number of viable and feasible alternatives
18
Key investments 2011-15 Reinforcement of a highly utilised network
– Metro 2012 Capacity Upgrade
– CBD Security Upgrade
– Regulatory test process completed for both projects
0
10
20
30
40
50
60
70
80
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Year
Reinf
orm
cem
ent (
2010
$m)
CBD Security
Metro 2012
19
Key investments 2011-15
• Enabling connection of embedded generations whilst ensuring security of the network
– maintaining fault levels at or below plant and equipment ratings has become an increasing challenge due to an increase in embedded generators
– installation of impedance reactors to ensure compliance with fault levels
– proposed charge being levied on embedded generation connections
• Safety and the environment
– noise control
– drainage of oil and asbestos management
• Creating a network for the future
– AMI leveraged projects
– replacement/renewal of the SCADA network
20
Approach to operating expenditure forecasts
• Use revealed cost methodology using 2009 as base:
– most recent actual performance (5 months of forecast)
– efficiency carry over mechanism applies
– audited accounts available before AER final decision
± Add/subtract changes in service classification
± Add/subtract change in overhead allocation
+ Add step changes
+ Add scale escalation for growth across network
+ Add cost escalation
= Forecast operating expenditure
21
Opex – key drivers of cost increases
Debt raising costs: $22m
Scale escalation: $20m
– Increased network size – Increased work volume – Additional customers
Scope Step Changes: $24m
– Climate change– Demand Management
(WMTS)– Insurance– Self insurance– AEMC Distribution
Planning Rule changes– Safety management
Input cost escalation: $19m
– Increased labour– Increased materials
22
Expenditure 2011-15
0
200
400
600
800
1,000
1,200
1,400
Gross capex Net capex Operating
$m, 2
010
2006-102011-15
23
Revenue requirement
Return of capital: 29%
Opex: 18%
Other: 3%
Return on capital: 64%
24
Price outcomes for customers - CitiPower• CitiPower’s success has been achieved whilst delivering real
decreases in average distribution charges of 36 per cent over the last ten years
• CitiPower will continue to ensure value to its customers by:
– maintaining current good performance in the face of increasing peak demand and asset utilisation
– enabling connection of embedded generators whilst ensuring security of the network
– ensuring sustainable performance in the face of climate change and addressing increasing aging infrastructure
• These challenges mean that prices will be increasing this regulatory control period:
– 10.1 per cent increase in 2011 and a 8 per cent increase in price per annum over the rest of the regulatory control period
25
• CitiPower supports continuation of an efficiency benefits sharing scheme applying to operating expenditure
• CitiPower supports the introduction of a demand management incentive scheme
• CitiPower supports the proposed service incentive arrangements with business specific amendments
Incentive arrangements
26
Network tariffs - CitiPower
• Roll out of AMI meters allows for the development of more innovative and efficient tariff structures
• CitiPower are considering a number of changes to their tariff design for possible start-up in 2011
• Customers will be transitioned throughout the 2011-15 regulatory control period as meters are changed over
• CitiPower will be consulting with their customers over 2010 on proposed tariff design changes
• Final set of tariffs will be outlined in CitiPower’s Pricing Proposal following the AER’s Final Decision
27
Powercor Australia
28
Powercor Australia’s network
• ccKey statistics
• 150,000 sq kms supply area
• Region covers 65 % of state
• Serves key regional cities
• 683,000 customers
• 4.5 customers per sq km
• 95% network overhead
• cc
Australia’s most reliable rural distribution network
230
198.5207.7
185.5 186.6194.4
141.3
198.5
209.9
133.5124.6
113.2
140.6
110.3
124.5
123.7
100
120
140
160
180
200
220
240
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Unp
lann
ed N
etw
ork
SAID
I (m
ins)
Storms and third-party incidents caused significant damage to the network
Significant load shedding due to generation shortfalls
Major storm event
______ Unplanned Network SAIDI Minutes (no exclusions)
______ Unplanned Network SAIDI Minutes (with exclusions)
30
Key investments 2006-10
• Specific projects targets delivered in the last regulatory control period include:
– focus on small areas of customers receiving low levels of service (Otways)
– improving identification and rectification of supply quality issues
– additional supply capacity in the Sunshine/St Albans and Geelong areas to meet demand growth
– reinforcement of supply capacity along the Murray River between Mildura and Swan Hill
31
Customer service
Powercor’s commitment to exceptional service was acknowledged at the 2008 Customer Service Institute of Australia Australian Service Excellence Award
0.02%0.03%0.03%0.03%0.03%0.04%
0.00%
0.01%
0.02%
0.03%
0.04%
0.05%
0.06%
0.07%
0.08%
2003 2004 2005 2006 2007 2008
% o
f om
buds
man
com
plai
nts
per c
usto
mer
Result significant given Powercor has over 683,000 customers
32
Customer service levels & safety performance
• Powercor’s commitment to customer service is demonstrated by:
– average complaints per 1,000 customer below the industry average since 2002
– a reduction in complaints escalated to the Energy and Water Ombudsman
– consistently high satisfaction ratings across residential customers (84 per cent), major customers (86 per cent) and retailers (89 per cent).
• Powercor was recognised with a Highly Commended Award at the 2008 National Safety Awards of Excellence
– lost time injuries has exhibited a downtrend since late 1990’s
– average annual lost time injury rate below one since 2001
33
Proposal highlights - PAL
• Forecast net capital expenditure of $1,588m ($2010)
• Forecast operating expenditure of $869m ($2010) over 2011-15
• Maintain existing reliability and quality of supply levels
• Maintain ‘energy at risk’ at or below 2010 levels
• Prudent condition based asset replacement and renewals
• Managing the impacts of climate change on the network
• Continued growth in new connections across the network
• Introduction of smarter network technologies using AMI functionality
34
Expenditure development process
• Methodology:
– Capex: bottom-up approach based on asset management plans & demand forecasts
– Opex: revealed costs using recurrent efficient 2009 as base year
– Where appropriate subject to external advice/review
• Based on prudent asset management plan
• Subject to rigorous governance process
• Aimed at meeting NEL objectives & rule requirements
Safety
Reliability
Security
Quality
Price
35
Energy forecasts & Max demand trends
• Energy consumption used in establishing prices
• Energy forecasts developed by NIEIR
• Energy forecasts influenced by:
Government energy policy
Global financial crisis impacts
AMI
• Maximum demand used in determining Reinforcement Capex
• Forecasted internally and verified with NIEIR
• Maximum demand influenced by:
Economic conditions
Population growth
Appliance purchase & usage patterns
Energy forecasts Maximum demand
36
Growth trends
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2006-10 2009 2011-15
Ave
rage
ann
ual g
row
th
Customer numbers Energy consumption Maximum demand
37
Work program drivers – peak demand & asset utilisation
• Peak demand growth driven by air conditioning:
- 2009 heatwave, record demand- New phase, from penetration to
upgrade
• Expenditure driven by highest utilised assets.
Powercor Load Profile
0.00
200.00
400.00
600.00
800.00
1000.00
1200.00
1400.00
1600.00
1800.00
2000.00
2200.00
2400.00
0:00
1:00
2:00
3:00
4:00
5:00
6:00
7:00
8:00
9:00
10:0
0
11:0
0
12:0
0
13:0
0
14:0
0
15:0
0
16:0
0
17:0
0
18:0
0
19:0
0
20:0
0
21:0
0
22:0
0
23:0
0
0:00
Time of Day - Eastern Standard Time
Nor
mal
ised
load
ing
29/01/09 at 44.3oC28/01/09 at 43.2oC17/02/09 at 31.7oC06/02/09 at 33.1oC12/02/09 at 23.7oC20/02/09 at 24.5oC
Mild Days
Warm Days
Hot Days
38
Work program drivers –energy at risk.
• Containment of energy at risk to 2010 levels:- energy at risk has more than doubled in last 4 years- implies augmentation expenditure levels greater than historic
levels
PAL Zone Substations Energy at Risk without Single Transformer Stations
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Year
Ener
gy a
t Ris
k (M
Whr
s)
ActualsDo NothingAugmentBAS MD step increase for
both summer & winter.Predominantly due to BAS winter MD downturn (mild winter).
Predominantly BAS & WPD Projects.
39
Work program drivers –Ageing assets
• Asset Replacement:
– portfolio of ageing assets
– average age in excess of 30 years
– increasing risk of higher failure rates and rising maintenance costs
– prudent conditioning monitoring to manage risk
• replacement of poles
• replacement of cross arms
• replacement of conductor
• replacement of major plant
40
Demand management
• Network planning process to identify and implement demand management alternatives where they are economically efficient
• Demand management and/or non network initiatives:
– Charlton zone substation
– solar SWER photovoltaic system trial
– hot water load management
• Extent to which demand management and/or non- network alternatives are considered depends on:
– PAL receiving expressions of interest from proponents of feasible alternatives
– advances in technology which may lead to a greater number of viable and feasible alternatives
41
Key investments
• Reinforcement of a highly utilised network
– augmentation of the existing Geelong East Zone Substation
– augmentation of the 66kV lines in the Geelong area
– increasing the capacity of the 66kV line in the Charlton area
• Maintaining reliability and quality through renewals and replacement
– major replacement of conductors
– replacement of poles
– replacement of cross arms
42
Key investments (cont)
• Replacement of conductors
– Powercor will conduct a major replacement conductor program based on condition of assets
– enhanced program aims to ensure reliability is maintained in light of continued ageing and deterioration of overhead conductors in rural areas
• Creating a network for the future
– AMI leveraged projects
– replacement/renewal of SCADA network
43
Approach to operating expenditure forecasts
• Use revealed cost methodology using 2009 as base:
– most recent actual performance (5 months of forecast)
– efficiency carry over mechanism applies
– audited accounts available before AER final decision
± Add/subtract changes in service classification
± Add/subtract change in overhead allocation
+ Add step changes
+ Add scale escalation for growth across network
+ Add cost escalation
= Forecast operating expenditure
44
Opex – key drivers of cost increases
Debt raising costs: $33m
Work volume &Customer growth escalation: $9m
Input cost escalation: $78m
– Increased labour– Increased materials
Debt raising costs: $33m
Scope Step Changes: $94 m
– Climate change– High risk Victorian towns– Insurance– Self insurance– Vegetation management– Safety management
scheme– AEMC Distribution
planning changes
Network growth escalation: $53m
– Increased network size
45
Expenditure 2011-15
0
500
1,000
1,500
2,000
2,500
Gross capex Net capex Operating
$m, 2
010
2006-102011-15
46
Revenue requirement
Return on capital: 50%
Return of capital: 28%
Operating expenditure: 33%
Other: 0.04%
47
Price outcomes for customers - Powercor• Powercor’s success has been achieved whilst delivering real
decreases in average distribution charges of 45 per cent over the last ten years
• Powercor will continue to ensure value to its customers by:
– maintaining current good performance in the face of increasing peak demand, asset utilisation and increasing bushfire risk
– ensuring sustainable performance in the face of climate change and addressing increasing aging infrastructure
• These challenges mean that prices will be increasing this regulatory control period:
– 22.3 per cent increase in 2011 and a 5 per cent increase in price per annum over the rest of the regulatory control period
48
• Powercor supports continuation of an efficiency benefits sharingscheme applying to operating expenditure
• Powercor supports the introduction of a demand management incentive scheme
• Powercor supports the proposed service incentive arrangements with business specific amendments
Incentive arrangements
49
Network tariffs - Powercor
• Roll out of AMI meters allows for the development of more innovative and efficient tariff structures
• Powercor is considering a number of changes to its tariff design for possible start-up in 2011
• Customers will be transitioned throughout the 2011-15 regulatory control period as meters are changed over
• Powercor will be consulting with their customers over 2010 on proposed tariff design changes
• Final set of tariffs will be outlined in Powercor’ Pricing Proposal following the AER’s Final Decision
50
Thank you