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1
Delivering efficient and sustainable network servicesAER Public Presentation
Regulatory Proposal to the Australian Energy Regulator2009 to 2014
30 July 2008
Introduction – Vince Graham CEO
Presentation –Rod Howard, GM Network Development & Control
4
Outline of this presentation Integral Energy
Key issues
Expenditure forecasts
Revenue outcomes
Reliability and pricing outcomes
5
Integral Energy’s Network
Serves 850,000 customers, or 2.1 million people
24,500 km2
Over 2,700 staff
Over 28,400 substations, 312,650 power poles and 33,000 km of cables
Covers Greater Western Sydney, Blue Mountains, Illawarra, South Coast and Southern Highlands and spans 18 LGA’s
$3.8B RAB, with a replacement value of approx $7.5B
6
Components of your annual retail electricity bill
An average Integral Energy residential customer’s bill is made up of the following components:
Distribution= 41%Transmission = 5%Generation = 43%Retail = 11%
Regulatory proposal addresses Distribution component of annual retail electricity bill
Regulation impacts all customers, even those on negotiated contracts.
41%
43%
11%
5%0%
Distribution Transmission Climate Chg Generation Retail
7
International residential electricity pricesInternational Residential Electricity Prices (Australian cents/kWh)
September 2006
28.827.2 25.9 25.6 25.5 25.5 25.0
19.9 19.5 18.2 18.2 17.716.1 14.8 14.7 14.6 14.5 13.1
10.1
-
5
10
15
20
25
30
35
Irelan
d
United
Kingdo
mGerm
any
Japa
nPola
ndPort
ugal
Austria
France
Hunga
rySwitz
erlan
dNew
Zealan
dFinl
and
Korea
United
States
Austra
liaNorw
ayTurk
eyMex
ico
Chines
e Taip
ei
1. This data was reported by the New Zealand Ministry for Economic Development in the Energy Data File June 2007. The data has been converted to Australian currency using 30 September 2006 exchange rate of 0.865.2. The original data was mostly sourced from the International Energy Agency publication Energy Prices and Taxes Fourth Quarter 2006; Germany, Japan and United Kingdom data is based on older information.3. The Australian price has been calculated using the 2004 average reported by the Australian Energy Regulator (State of the Energy Market 2007) and updated to September 2006 using ABS CPI quarterly data.
The environment we will face in 2009-2014 and key issues impacting on expenditure
9
Integral’s Operating Environment
Our operating environment is influenced by:
1. Inherent features of our franchise area
2. Changing customer behaviour and expectations
3. Network age and condition
4. Regulations (NSW DRP Licence Conditions)
10
1. Inherent features of our franchise area
Serve some of Australia’s fastest growing communities
2 new developments, each the size of Canberra, are planned for Sydney’s north-west and south-west
Impact of major state infrastructure projects in Integral Energy’s network, including M7 and road upgrades
Land use shifting from rural and semi-rural to urban and light commercial, driving increasing customer expectations of reliability
Peak temperatures typically higher and more sustained than those of coastal regions and experienced more consistently
11
Growth centres in North West and South West Sydney
Image courtesy of the NSW Growth Centres Commission
12
Parklea - 1997
13
Parklea - 2004
14
Kellyville - 1996
15
Kellyville - 2005
16
Norwest Business Park – early 1990s
17
Norwest Business Park – 2007
18
Expected growth 2009-2014
1.3% 1.2%
3.6%
0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%
Demand
Energy
Customers
Average Yearly Growth 2009-2014
19
Peak temperatures are much higher in Integral’s western area
41
30
43
32
20
25
30
35
40
45
Integral Energy West Integral Energy Coastal Regions
Tem
pera
ture
(oC
)
50% Probability of Exceedance
10% Probability of Exceedance
20
2. Changing customer behaviour
Customers’ use is changing
In 2006, air-conditioning penetration was 62% across the network and 74% in Western Sydney, compared to 25% 10 years ago
June 2008 survey shows a/c penetration now at 72% across the network and 81% in Western Sydney – a 10% and 7% increase, respectively, in 2 years
There has also been a significant up-take of appliances such as home computers and entertainment systems, increasing consumption
Rural and urban customer expectations are now aligned
21
Air-conditioners contribute significantly to the summer peak
Sydney West Bulk Supply Point Load Profile
0
200
400
600
800
1000
1200
1400
1600
00:30
01:30
02:30
03:30
04:30
05:30
06:30
07:30
08:30
09:30
10:30
11:30
12:30
13:30
14:30
15:30
16:30
17:30
18:30
19:30
20:30
21:30
22:30
23:30
Time
Dem
and
(MW
)
0
5
10
15
20
25
30
35
40
45
Ric
hmon
d Te
mpe
ratu
re (º
C)
Day of Report (LHS): 1 Feb 2006 38.6 Degrees Maximum TemperatureDay of Report (LHS): 27 Feb 2006 23.4 Degrees Maximum TemperatureTemperature (RHS): 1 Feb 2006Temperature (RHS): 27 Feb 2006
Hot Day Max. Demand – 1,472 MWMild Day Max. Demand – 872 MW
22
Rural customers’ reliability expectations are now in line with urban customers’ expectations
816660 64
212
0
10
20
30
40
50
60
70
80
90
Urban Rural Difference Urban Rural Difference
SAID
I min
s pe
r yea
r
2002 2006
23
3. An ageing network requires the replacement of an increasing number of assets
45%
0
20
40
60
80
0-5 6-10 11-15 16-20 21-25 26-30 31-35 36-40 41-45 46-50 51-55 >55
Age (Years)
Qua
ntity
Total number of power transformers = 402
Qua
ntity
24
4. Licence compliance
NSW Design & Reliability Performance licence conditions introduced in 2005 and amended in 2007 include design planning standards which must be met by 2014
Significant number of network assets require investment to ensure compliance
This work is mandatory – provides N-1 security and reliability performanceSubtransmission
Substations and FeedersDistribution
Feeders
0
200
400
600
07/08 08/09 09/10 10/11 11/12 12/13 13/14
Num
ber o
f Fee
ders
ProposedDo Nothing
0
40
80
120
160
07/08 08/09 09/10 10/11 11/12 12/13 13/14
Num
ber o
f Ele
men
ts
ProposedDo Nothing
Our Network Strategy
26
We have explicitly considered the challenging environment in developing our network strategy
Capital Expenditure
28
Development of capital programIntegral Energy proposes a capital program of $2,953 million
Developed to meet the key network challenges:
Servicing growth (46%);
Replacing an ageing network (27%);
Achieving compliance with the NSW DRP Licence Conditions (14%); and
Non system assets to support the network (11%).
Program prepared in accordance with a rigorous network planning and governance process designed to achieve prudent and efficient outcomes.
29
Total capital expenditure 2009 – 2014 is $2.95bn(2008/09 $)
0
100
200
300
400
500
600
700
2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14
Ann
ual C
apex
($m
200
8/09
)
Actual/Forecast
Non System
System
Total System: $2.62 bn 2009-2014
Total Non System: $0.34 bn 2009-2014
Operating Expenditure
31
Development of operating program
The core network operating expenditure forecasts have been derived by:
Establishing an efficient base year (2007/08);
Incorporating a growing asset base;
Applying productivity savings; and
Incorporating forecast cost increases over the 2009 regulatory control period.
32
Total operating expenditure 2009 – 2014 is $1.48bn(2008/09 $)
0
50
100
150
200
250
300
350
2004
/0520
05/06
2006
/0720
07/08
2008
/0920
09/10
2010
/1120
11/12
2012
/1320
13/14
Pres
crib
ed O
pex
($m
200
8/09
)
Network Operating Self Insurance
Debt & equity Raising Actual/Forecast Total
Demand Management
34
Demand Management Strategy
1. Reduce peak network demand and therefore defer/avoid capital expenditure
2. Develop optimal pricing signals and better customer information to promote efficient use of energy and provide appropriate incentives to customers to modify their usage
3. Contribute to the development of public policy relating to energy efficiency and network demand management to create a sustainablefuture
35
Demand ManagementIntegral has undertaken extensive activities in regard to demandmanagement
Demand Management is fully integrated into the major projects (growth driven) capital expenditure process, and has been for the last 10 years Address requirements of NSW DM Code of Practice, NSW Electricity Supply Act and National Electricity RulesImplemented ongoing tariff reformUndertaking extensive trials – Western Sydney Pricing Trial and Blacktown Solar CitiesOperate within the D-factor framework – for 3 years up to June 2007, 22 programs have avoided or deferred $26m of expenditure
36
Network DM Programs
Market based solutions employed. Successful examples:Castle Hill – 1.3 MVABlacktown – 3.7 MVAWetherill Park – 5.6 MVAParramatta – 2.1 MVABlacktown and Westmead hospitals – 2.1 MVAUnanderra – 2.0 MVA (ongoing, further 4.5 MVA identified)Liverpool – 1.0 MVA (ongoing, further 3.0 MVA identified)
Impact of past demand management programs included in forecast capital expenditures
37
Better Customer Information (WSPT)
Western Sydney Pricing Trial
1,200 customers
22 events called
Generally positive customer response
3.0
2.5
2.0
1.5
1.0
0.5
0
Ave
rage
Dem
and,
kW
Seasonal Tariff
DPP without in-home Display Monitor
DPP with in-home Display Monitor
Control Group
Time of Day
3.0
2.5
2.0
1.5
1.0
0.5
0
Ave
rage
Dem
and,
kW
Seasonal Tariff
DPP without in-home Display Monitor
DPP with in-home Display Monitor
Control Group
Time of Day
38
Better Customer Information(Blacktown Solar City)
Objectives
To influence energy use behaviour
To evaluate energy efficiency programs
To reduce peak demand
To reduce greenhouse gases
Outcomes – saving:
22GWh of electricity annually
24,000 tonnes of greenhouse gases
$3m in electricity bills
39
Revenue Requirement
Annual Building Block Revenue Requirement Components
-
200.0
400.0
600.0
800.0
1,000.0
1,200.0
2009-10 2010-11 2011-12 2012-13 2013-14
Year
($m
)
Net Tax CostsReturn of CapitalOpexReturn on Capital
40
Price outcomes
Customer bills estimated based on annual consumption of 6,000 kWh
Annual Domestic Bill Increase for a Residential Customer
$89
$31 $33 $35 $37
$-
$20
$40
$60
$80
$100
$120
$140
$160
2009/10 2010/11 2011/12 2012/13 2013/14
Distribution Component of Bill
2009/10 20010/11
-18.2% -3.5%
2011/12 2012/13 2013/14
X factors -3.5% -3.5% -3.5%
To meet investment, the following bill impacts are expected:
Residential bills to increase by approx $1.70 per week ($89 in first year)
Business customers’bills to increase by about $5.80 per week ($301 in first year)
41
Customer Protection – INPower customers
INpower customers
0500
100015002000250030003500400045005000
Jul-0
5
Sep-
05
Nov
-05
Jan-
06
Mar
-06
May
-06
Jul-0
6
Sep-
06
Nov
-06
Jan-
07
Mar
-07
May
-07
Jul-0
7
Sep-
07
Nov
-07
Jan-
08
Mar
-08
May
-08
42
Customer Protection – Reduced disconnections
Disconnections (12 month rolling total) as a % of Customer Numbers
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
May-06
Jun-06
Jul-06
Aug-06
Sep-06
Oct-06
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
Apr-07
May-07
Jun-07
Jul-07
Aug-07
Sep-07
Oct-07
Nov-07
Dec-07
Jan-08
Feb-08
Mar-08
Apr-08
May-08
Jun-08
%
43
Service outcomes
89101 104
121 126
93 94 93 90 88 86 84 8099 94
0
50
100
150
1999
/0020
00/01
2001
/0220
02/03
2003
/0420
04/05
2005
/0620
06/07
2007
/0820
08/09
2009
/1020
10/11
2011
/1220
12/13
2013
/14M
inut
es p
er C
usto
mer
Normalised Unplanned SAIDI - Forecast
Normalised Unplanned SAIDI - Actual
1999-2004 Trendline as given to IPART
2004 to 2009 projections as given to IPART
We are working towards a stretch target of 75 minutes in 2013/14Note these SAIDI outcomes are normalised using the 2.5 Beta method
44
Delivering efficient and sustainable network servicesAER Public Presentation
30 July 2008
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