Customer and Consumer Panel 28 May 2015
Welcome to Powerlink Merryn York Chief Executive 2
Our position in the supply chain
The cost of our service Powerlink Source: Queensland Competition Authority 4
About the Customer and Consumer Panel Amanda Newbery Facilitator 5
About today’s session • Introductions • Overview of today’s agenda 1. Powerlink’s Engagement approach 2. Discussion - Role of the panel 3. Reset overview 4. Opex methodology and discussion 5. Capex methodology and discussion 6. Meeting recap/actions 6
Powerlink’s Engagement Approach Gerard Reilly Group Manager - Stakeholder Relations 7
Why engage? • Improve: – business decision making – our understanding of stakeholder views • Discuss changes at a stage we can do something about them • Our mission – We responsibly deliver electricity transmission services that are valued by our shareholders, consumers, customers and the market. • Powerlink Stakeholder Engagement Framework 8
Engagement objectives • Expand ‘business as usual’ engagement processes • Speak with the right people at the right time • Present information in a simple and accessible manner • Clearly show which elements of Powerlink’s decision making stakeholders can add most value • Genuinely consider feedback in our decision making • Demonstrate how engagement has improved Powerlink’s decision making 9
Proposed engagement approach Directly-connected customers Consumer representatives Industry representatives 10
Proposed engagement approach Who are we What are we How are we going Undertake Report back engaging with? engaging on? to engage? engagement? • Stakeholder • Market research • Face-to-face is • Panel • Close the loop identification to identify key preferred • Forums issues 11
2015 Engagement Calendar May Jun Jul Aug Sep Oct Nov Dec Customer Powerlink Customer Metro Customer and Transmission and Brisbane and Consumer Network Forum Consumer Area Plan Consumer Panel Panel Forum Panel Gladstone Area Plan Forum 12
Role of the Customer and Consumer Panel Amanda Newbery Facilitator 13
Role of the Panel • Wide spread of varied expertise • Working together • Stakeholder and PQ’s expectations • Regularity of meetings • What do you want to discuss in the coming 12 months? 14
Powerlink Revenue Proposal 2018 – 2022 Regulatory Period Don Woodrow – Revenue Reset Leader Lutfiye Allahmanli – Reset Stream Leader, Opex Greg Hesse – Reset Stream Leader, Capital 15
Overview • About our Revenue Proposal • What is capex/opex? • Our current forecasting considerations • Our current methodology thinking • Where we need your involvement 16
About our Revenue Proposal • Powerlink has adapted to the changing economy and market • Our expenditure has been below forecast in the current regulatory period • Our Revenue Proposal will reflect expected continued change • Proposed rate of return methodology consistent with AER Guidelines • Similar outcome to recent rate of return determinations is likely • AER will not set Powerlink’s rate of return until 2017 • Powerlink’s Revenue Proposal will benefit from stakeholder input 17
Revenue Reset Timetable We will be seeking your feedback and ideas as we work through the entire process Date Action 30 June 2015 Powerlink submits expenditure forecasting methodologies to the AER 31 January 2016 Powerlink submits Revenue Proposal to the AER * May 2016 Submissions due to AER on Revenue Proposal * September 2016 AER draft Determination released * December 2016 Powerlink submits Revised Revenue Proposal AER Determination released for Powerlink’s 2017/18-2021/22 30 April 2017 regulatory control period * indicative 18
Potential input opportunities • Case studies about future development directions • Finance matters • Trade-offs between opex and capex 19
Afternoon Tea 20
Opex forecasting methodology Lutfiye Allahmanli – Reset Stream Leader, Opex 21
What is Powerlink’s opex? Routine Non-routine maintenance maintenance Planned Emergency Failure prevention Corrective Based on Reliability Centered Condition Maintenance Business Refurbishment Support Corporate Services IT Facilities 22
Our maintenance considerations We manage maintenance by applying Reliability Centred Maintenance (RCM) principles • Systematic and optimized approach • Defines asset function and required reliability and availability • Triggers technical and economic justification • Provides preventative maintenance plans • Used across different industries 23
Our refurbishment considerations • Structural refurbishment • Tower painting • Insulators and hardware replacement 24
Our opex forecasting methodology Powerlink’s opex forecasting methodology aligns with AER’s requirements and preferred methodology (base-step-trend) Base year Forecast Rate of Step 2014/15 2018-22 Change changes or opex 2015/16 25
What will add value to our opex forecasting methodology? Amanda Newbery Facilitator 26
Capex forecasting methodology Greg Hesse – Reset Stream Leader, Capital 27
What is capex? The cost of • investing and re-investing in our network assets – such as transmission lines and substations • supporting delivery of network services, including vehicle fleet, tools, equipment, offices and depots • > 95% of capex is invested in network assets. The value of the investment is recovered over the life of the asset, which can range from three years (eg. computers) to 50 years (eg. transmission lines) 28
Our current considerations Asset re-investments – Transmission Towers 2000 1800 1600 1400 1200 1000 800 600 400 200 0 1950 1960 1970 1980 1990 2000 2010 2020 2014 2009 Actual end of Indicative end Indicative end of asset life of asset life asset life 2009 - 2014 2017-2022 2023-2028 29
Our current considerations Demand forecasting Power Demand on 5 March 2015 9000 Delivered Delivered plus PV 8000 7000 Metered Demand (MW) 6000 5000 4000 3000 2000 1000 0 30
Our current considerations Network reconfigurations As parts of the network reach end of life, re-investment considerations include reconfiguration and potential decommissioning. B A C D 31
Our current methodology thinking Trend Predictive analysis modelling Forecast needs Forecast Capex Business case Options Investment analysis trigger 32
Forecasting capex next current Forecast significant investment need 33
Why use a hybrid forecasting approach? • Less resource intensive but still fit for purpose • Appropriate for forecasting – bottom up still used for actual investment approval/decision making • Does not generate unnecessary information that may not be used • Knowledge of asset condition and priorities improves over time • Allows for an evolving environment 34
What is in it for the end customer/consumer? • More accessible and simpler to understand – including comparisons over time • Cheaper, more transparent, streamlined determination process • Simpler and easier for all involved (AER, CCP, stakeholders, PQ) 35
Where we need your input today – Criteria for selecting forecast future investment triggers where additional bottom-up information will supplement the top-down forecasts. – Given these investment triggers are potentially some way into the future, what bottom-up information could be reasonably available? – Recall that > 95% of capex is for network assets 36
Powerlink 2013-17 Revised Revenue Proposal – Unapproved Network Project Estimates ($ million) $90.0 $80.0 $70.0 $60.0 $50.0 $40.0 $30.0 $20.0 $10.0 $- 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 101 106 111 116 121 126 131 136 141 146 151 156 161 166 171 176 181 186 191 196 201 206 211 37
Discussion Criteria for selecting forecast future investment triggers may include: 1. Sample of expenditure from each capex category (load-driven, non- load driven, non-network) 2. % of total forecast capex (eg. of the total forecast capex spend, x% is sampled) 3. $ threshold (eg. all projects with an expected cost greater then $x million) 4. Your ideas for criteria 38
Meeting recap • Key outcomes from capex and opex discussions • Key actions • Where to next? 39
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