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
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
Starting Point… below target prices
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
Starting Point… below target prices
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
$630.00
40% Off Peak 50% Off Peak
Annu
al Bi
ll
Standard tariffTime of Use
Regulated Retail Electricity
640
660
680
700
720
740
760
780
2001/02 2002/03 2003/04Financial Year
Reve
nue
($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)
Inequities… 2006/2007
$600.00
$650.00
$700.00
$750.00
$800.00
$850.00
$900.00
$950.00
$1,000.00
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
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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