Frank Tudor Change is the only constant.

Agenda

•  About Horizon Power

•  Changing circumstances

•  How did we think about changing?

•  The outcome

•  Reflections

§  Service 100,000 people and 10,000 business

§  2.3 MM sq km

§  $1.5 Bn in assets

§  40 Networks, 2 Interconnected systems

§  70,000 Poles and Towers

Our patch

Our inheritance §  Ageing assets

§  Embedded risks

§  Neglected customers

§  Motivated people

Agenda

•  About Horizon Power

•  Changing circumstances

•  How did we think about changing?

•  The outcome

•  Reflections

Horizon Power has evolved to adapt to change

Strategic Review 2010/11

•  Shift in strategy to focus on regional priorities

•  Focus on delivery and no surprises

•  Address organisational inefficiencies

•  Effective governance and assurance

Outcomes

•  Performance Management

•  Single point accountability

•  Improved capability and capacity in the business

•  Enabled the delivery of a significant project pipeline

Horizon Power could not have contemplated the Strategic Review in 2013 without first achieving the outcomes of 2010

Heavy regional investment between 2006-2014

Investment of $1 billion directly and $3 billion indirectly

•  Additional 200 MW in the Pilbara

•  Network integrity significantly improved

•  Core system upgraded

•  20 Power Stations delivered

•  Pilbara Underground Power progressed

Now project pipeline has started to slow

Frank presentation v 4.pptx Draft—for discussion only 8

Economic pressures start to bite

Modern energy market dynamics are challenging

Fuels •  Gas market maturity

•  Rising gas prices

Technology •  Renewables costs reducing

•  Smartgrid inflection points

Policy •  Uniform tariff / subsidy

•  User pays/cost reflectivity

Usage •  Decreasing load factor

•  Increasing inequity

Energy prices rising steeply and under scrutiny

In the face of economic pressure, energy industry

transformation and the reduction in the project pipeline,

a change was required.

Agenda

•  About Horizon Power

•  Changing circumstances

•  How did we think about changing?

•  The outcome

•  Reflections

All possibilities considered.

Our focus on our regional customers is unwavering

Your Local Energy Partner

We benchmarked ourselves against best practice, which helped identify new ways of doing business

- regional US electricity co-ops Similar but different

•  75 years old; 50MM customers •  Similar customer and network size •  Fully integrated networks •  Less complex governance

Despite differences, many lessons learned from benchmarking

•  Simple, fit-for-scale processes •  Smart use of technology •  Significantly lower cost in parts

Benchmark Horizon Power

We benchmarked against world’s best practice

We agreed up front a number of design principles for our new operating model

8 Design Principles Vision

Safe and reliable

electricity

Low cost

Sustain-able for

long term

Remove barriers to technical evolution Capture scale

1 2

Simplicity Optimise cost of compliance

3 4

Accountability driven down as far

as practical

Empower consumer choice

7 8

KPI design for cost outcomes

6 Scaleability

5

Horizon Power involvement to the extent necessary to provide efficient economic outcomes

Implement longer term

changes

Change process

Design new

operating model

Design new org structure

Implement new org structure

Transition to new

operating model

.

6 weeks 4 weeks 4 weeks 6 months 12-18 months

Dec 2013 Sept 2013 Jan 2014 June 2014 Jan 2016

• Clean sheet • Quick process • Honest engagement

Agenda

•  About Horizon Power

•  Why did we need to change?

•  How did we think about changing?

•  The outcome

•  Reflections

MCo Presentation 14112013.pptx 18

Old operating model New operating model

Region Region

Head Office

Region Region Bentley Support Services Partnerships

Head Office drives decisions and control

Regions execute

Pilb

ara

Bus

ines

s

Kim

berle

y B

usin

ess

Esp

eran

ce

Bus

ines

s

Mid

wes

t B

usin

ess

Empowered, accountable regions driving operations

Central support provides

enabling services

New operating model drives regional empowerment

Examples of new operating model and application of design principles

Simplicity

Highly prescriptive centrally controlled Asset Management Plan, updated annually

Trigger-based asset management planning, using more templated approach

Accountability drive down as low

as practical

Centrally controlled decision-making, concentrated in senior Head Office executives

Greater empowerment of local regional staff in management of customers, assets, spending

Gov involvement to extent needed

Business development team seeking out new opportunities

Provider of last resort, when market can't

Principle Old model New model

The outcome

•  Decrease in subsidy of $100 Million per year by 2018

•  Annual savings of $36 Million delivered

•  Each role redesigned in new structure

•  40 separate initiatives in implementation.

Agenda

•  About Horizon Power

•  Why did we need to change?

•  How did we think about changing?

•  The Outcome

•  Reflections

Learnings

•  Benchmark – be brave

•  Blank sheet of paper

•  Speed - the essence

•  People focused

•  Proactive stakeholder engagement

•  Involvement of Regional Board Members

•  Clear accountabilities

•  Road maps – assigned accountabilities with rigour testing

There will be challenges ahead

•  BCG Cartoon

Source: Change Curve created by Jeanie Daniel Duck from The Change Monster © 2001

Change is the only constant – next wave will be caused by growth in distributed generation

Shift towards distributed renewable generation is straining infrastructure and shifting revenue away from what has long been our core product: energy

Sales decline Sales growth

Impact of distributed generation on sales forecasts $M

1Source: Horizon Power analysis and estimations

Change is the only constant

•  Integration of digital technology

Change is the only constant

•  Optimised essential services provision to remote communities