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Public Forum Presentation

Review of Electricity and GasRegulated Retail Prices

4 December 2003

IntroductionOur customers Craig MurrayOur retail business John AdamsOur proposals Terri BensonConcluding comments Craig Murray

Presentation Outline

Craig MurrayManaging Director

Introduction

Our business philosophy– To be ‘Australia’s leading utility business’– A strong commercial focus – To balance price and service– A commitment to providing sustainable

regulated retail services in country and coastal communities

Introduction

Successful integration of three energy retailersExtensive customer consultationMoving to deliver price consistency Country SupportGrowing customer satisfaction

Our achievements

Development of a single customer

information system, full retail competition

systems and improved customer services

Country Energy

EnergyVersion 6.3

750,000 +

NIBS370,000

CIS260,000

EnergyVersion 4120,000

Customer Service Principles

• Be Professional• Take Ownership• Display Empathy• Be Innovative• Escalate Issues

Focus on meeting customer needs

Increasing customer satisfaction

‘Country Support’ introduced

Active community consultation

Fair and equitable prices for customersBalance between price and serviceHigher levels of customer satisfaction

Our Priorities

John AdamsGroup General Manager Retail

Our retail business

Snapshot of the businessImpacts of full retail competitionWhat our customers wantOur priorities

Our retail business

Customer centres

Our supply area Annual regulatedrevenue $730 M

700,000 customers

75% of NSW

38 customer centres

114 local government areas

Only 20% of State consumption

Low customer density

300 regulated retail prices63% of tariffs below target levels

represents 73% of total consumption

Regulated Retail Electricity

640

660

680

700

720

740

760

780

2001/02 2002/03 2003/04Financial Year

Rev

enue

($M

)

Revenue($M)

TargetRevenue($M)

Our Gas businessVoluntary Pricing Principles apply to low-usage customers in ;

– Bombala– Cooma– Culcairn– Holbrook– Temora– Wagga Wagga

Historically low pricesPartially addressed during the last review, still more work to be done

2003 Base retail costs versus 2003 Revenue

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

0 GJ

10 GJ

20 GJ

30 GJ

40 GJ

50 GJ

60 GJ

70 GJ

80 GJ

90 GJ

100 GJ

110 GJ

120 GJ

130 GJ

140 GJ

150 GJ

160 GJ

170 GJ

180 GJ

190 GJ

Consumption Band (Annual GJ)

Cos

ts ($

)

OPEX ($'000)

FRC Cost ($'000)

Commodity Cost ($'000)

Netw ork Cost ($'000)

Retail Revenue ($'000)

Gas… $10M annually in revenue (735 GJ)

Understandably focus is on electricity but principles in most instances apply equally

Gas vs ElectricityGas3%

Electricity97%

Gas1%

Electricity99%

Customer Numbers

Annual Revenue

Full Retail Competition… what are the impacts

To date relatively low activity levels and impacts

Regulated activities actually increasing

Need to mature our understanding of long term impacts

Insert call centre activity stats

Target Retail tariff

N(Network Component)

R(Retail Component)

Network Charges Variable R Fixed R

Market Fees

Energy Losses

Energy Purchases

Operating Costs

Green Compliance

FRC cost not recovered

Profit Margin

Profit Margin

Transmission Charges

Distribution Charges

Transmission Charges

Building Blocks… cost components

– Outcomes unknown– Ability to pass through

Appropriate Costs… Network

$-

$100.00

$200.00

$300.00

$400.00

$500.00

$600.00

$700.00

$800.00

Regulated Market

Profit Margin

OPEX

Green

Losses

Market Fees

Purchases

NUoS

Regulated Market

Base Year

$-

$100.00

$200.00

$300.00

$400.00

$500.00

$600.00

$700.00

$800.00

$900.00

Regulated Market

Profit Margin

OPEX

Green

Losses

Market Fees

Purchases

NUoS

Regulated Market

5 Year Forecast

Starting Point… below target prices

-

10,000

20,000

30,000

40,000

50,000

60,000

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Annual MWh

Cus

tom

ers

$-

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

Ave

rage

und

er re

cove

ry p

er c

usto

mer

Customers Average Under recovery


Our customers… customer research

Customer views obtained from– Customer satisfaction surveys– Customer council and rural advisory group– Customer feedback– Consultation with special interest and customer advocacy

groups and organisations– Customer research

Customer service tailored to customer needsCustomers accept the need for equity and price

consistency…and the opportunity to save money

Inequities… 2003/2004

$600.00

$620.00

$640.00

$660.00

$680.00

$700.00

$720.00

$740.00

$760.00

$780.00

$800.00

Target Retail Price Country Energy (Current) Location A (Obsolete) Location B (Obsolete) Location C (Obsolete)

Area

Ann

ual S

pend

bas

ed o

n av

erag

e an

nual

bill

Demand Management and Price Signals…• Opportunity

to reduce customer costs

• Retail prices need to reflect network price signals

• Correct economic signals come through cost reflective pricing

$560.00

$570.00

$580.00

$590.00

$600.00

$610.00

$620.00

$630.00

40% Off Peak 50% Off Peak

Ann

ual B

ill

Standard tariffTime of Use

Terri BensonGroup General Manager Regulatory Affairs

Outcomes for customers

The current frameworkThe principlesThe optionsThe outcomes

Outcomes

Equitable and efficient price outcomesTariff structures that preserve pricing

signals and create opportunities for customer savings

Cost reflective prices

The Principles that are needed

Current Framework… the multiple layers

Average selling price can not increase by more than CPI

Tariffs above target levels can not move

CPI+2 or $25 for domesticCPI+5 or $50 for business

Results in……..End

price

Customer constraints

Tariff constraints

Average price constraints

-

10,000

20,000

30,000

40,000

50,000

60,000

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Annual MWh

Cus

tom

ers

$-

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

Ave

rage

und

er re

cove

ry p

er c

usto

mer

Customers Average Under recovery



$600.00

$620.00

$640.00

$660.00

$680.00

$700.00

$720.00

$740.00

$760.00

$780.00

$800.00


Area

Ann

ual S

pend

bas

ed o

n av

erag

e an

nual

bill

Demand Management and Price Signals…• Opportunity

to reduce customer costs

• Retail prices need to reflect network price signals

• Correct economic signals come through cost reflective pricing

$560.00

$570.00

$580.00

$590.00

$600.00

$610.00

$620.00

$630.00

40% Off Peak 50% Off Peak

Annu

al Bi

ll

Standard tariffTime of Use

Regulated Retail Electricity

640

660

680

700

720

740

760

780

2001/02 2002/03 2003/04Financial Year

Reve

nue

($M

)

Revenue($M)

TargetRevenue($M)

Country Energy’s Proposal

Remove the overall CPI capRemove individual tariff constraintsLink network pricing outcomesProvide flexibility in side constraints

Protect customers through agreed price constraints

… to achieve a fair transition to equitable and cost reflective prices

Outcomes… how it would work

Pricing constraint should link network and regulated retail prices

(N 05 – N 04 ) Network RevenueN 04 Regulated Retail Revenue

CPI + ({= x ( ) +)CPI- }Allowed increase 04/05 R 05

Outcomes… drivers of pricing outcomes

A number of factors will determine price outcomes– Distribution network review outcomes (50% of final price)– Energy purchases (40% or more of the final price)– Application of retail side constraints

Additional variables include– Market costs– Green compliance– Operating costs and net margin

Establishing the principles is the first step

Outcomes… revenue requirements and

scenarios

2003/04 2004/05 2005/06 2006/07Scenario

($M

)

Target RevenueCurrent ArrangementsCPI+2 Domestic, CPI+5 businessCPI+5Tariffs to target levelDirect pass through of NUoS

Without appropriate pricing inequities will continue

2003/04 2004/05 2005/06 2006/07Financial Year

Rev

enue

($M

)

TargetRevenue($M)

Revenue($M)


$600.00

$650.00

$700.00

$750.00

$800.00

$850.00

$900.00

$950.00

$1,000.00


Area

Ann

ual S

pend

bas

ed o

n av

erag

e an

nual

bill

Craig MurrayManaging Director

Concluding comments

Concluding comments

Our submission proposes an approach that delivers– Equitable pricing outcomes– IPARTs objectives

…within a simplified pricing framework…with outcomes acceptable to our customers

Questions

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