Final Plan Attachment 5.11 Australian Gas networks Draft Plan - PDF document

Final Plan Attachment 5.11 Australian Gas networks Draft Plan Customer Workshop Presentation October 2016

Victoria and Albury Final Plan Attachment 5.11 December 2016

AGN Five Year Plan for Victoria and Albury 5 October 2016 Preston

Forms 2

Introduction

I ntroduction | Preston Agenda Topic Time Duration Introduction 6:30 5 minutes Background 6:35 10 minutes Our Plans – Current View 6:45 30 minutes Our Plans – Discussion 7:15 10 minutes Break 7:25 10 minutes Recap and Incorporation of Feedback 7:35 50 minutes Consideration of Feedback – Discussion 8:25 15 minutes Feedback Form 8:40 10 minutes Wrap up and close 8:50 10 minutes End 9:00 4

I ntroduction | Why are we here? • In March, we heard from you about your experiences with AGN, your views on potential future investments and your needs and priorities as a gas customer • Deloitte reported on your feedback in the Customer Insights Report (5 July 2016) • AGN considered your feedback in its Draft Plan (5 July 2016) • AGN want to make sure they heard properly and to let you know how they incorporated any feedback into their Plans • As a regulated business, AGN’s plans are submitted to the Australian Energy Regulator (AER) who reviews and approves expenditure and the maximum price charged to customers • Deloitte are here to facilitate the workshops and independently capture and report on any discussion 5

I ntroduction | Today’s Presenters Ben Wilson Craig de Laine Andrew Foley Shaun Spinks Chief Executive Officer General Manager – Regulation General Manager – Victorian Deloitte Networks Australian Gas Networks Australian Gas Networks APA Group 6

Background

Background | Re-cap: Who We Are and What We Do 8

Background | Developing our Plans I nsights and Draft Plan Research Consultation on our Draft Plan Summarising what we heard from customers & Including initial customer Including through stakeholder stakeholders & reflecting it in our Draft Plan workshops in March 2016 workshops AGN’s AA Proposal Further Customer Engagement Submitted to the AER by Did we hear correctly in the initial workshops? How 1 January 2017 have the customer insights been reflected in our Plans Continued Refinement of our Plans AGN Final Deloitte To reflect stakeholder Plans Report feedback and any changes in market conditions 10

Background | Timeline Nov 2015 5 Jul 2016 23 & 30 Aug Early Dec 2016 February 2017 Jul 2017 Oct 2017 1 Jan 2018 2016 AGN to AER Final Begin Victoria AGN Publish Reference Group Public submissions New AA and Albury Draft Plan Workshops on Meetings on AA on our AA submit Decision Period begins engagement and Deloitte Draft Plan Proposal proposal closing in Revised AA expected (Reference Insights February Proposal to end- October the AER Groups, Report engagement strategy, initial meetings et al.) Mar 2016 Aug 2017 Six customer By 1 Jan 2017 Public submissions on AGN to submit workshops 16 Aug 2016 5 & 6 Oct 2016 Jun 2017 Draft Decision and held in Victoria AA Proposal to AER Draft Revised AA Proposal Initial submissions Further customer and Albury on Draft Plan workshops the AER Decision due to the AER Continued Engagement with Regulators and other key stakeholders 11

Our Plans – Current View (subject to change prior to submission)

Our Plans | Current Plans for Victoria and Albury I mproved Service Lower Costs New Customers > 90_ % m $13_ + 14,000 % Of emergency calls Cut in expenditure New customers 12 answered within 10 compared to actual connecting to our seconds expenditure incurred network each year Lower in the current period Prices % 5.4 t CO 2 100_ % > 1.96_ Mains replacement Tonnes of CO 2 saved per Finance cost down completed Cut in prices on new customer per annum from 7.39% to < 6% 1 January 2018* Continuous Ensuring we are Better access to improvement in sustainably cost- gas, contributing safety, reliability efficient to lower carbon and customer emissions service Lower prices, lower costs, continuous service improvements * Before inflation 13

Our Plans | Building Block Model – How are Prices Determined? • As described earlier, our Plan is submitted to the AER for review and approval • This Plan sets out what work we need to undertake over the next five year period and how much we expect this work to cost (operating and capital expenditure) • It also includes forecasts of how we will finance our business • Our network revenue (expenditure plus a return on and of our investment) is recovered by charging customers for using the network Operating Costs (in year) Network Use Capital Costs Network (customer Network Prices (1/ 60 th per year) Costs/ Revenue numbers and consumption) I nterest (on 59/ 60 ths ) I ncludes opex, capex, financing cost 14

Our Plans | Operating Expenditure (Opex) $100 Opex ($2016, million) $80 $60 $40 $337 million $322 million $20 Current Period Next Period $0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Actual Benchmark Forecast • We have applied the AER’s preferred forecasting approach wherever possible • The major components of our opex are: Other stay in business 18% • Efficient base year (BAU) ($310m) • Escalation and Growth ($13m) 82% • Marketing ($10m) Safety & reliability 15

Our Plans | New Initiative – Marketing • Only non-base year cost included in our plan is a $2 million per annum joint marketing program with the other two Victorian gas distributors in metropolitan Melbourne • Currently, AGN conducts marketing activities in regional Victoria and South Australia only (no overlap with other businesses) • Proposing to expand this program to incorporate metropolitan Melbourne, as a joint project with the other gas distributors, to ensure costs are allocated appropriately • Marketing activities will include: • Working with appliance retailers to offer incentives to customers for connecting new gas appliances to our network (through provision of rebates) • Mass media (such as advertising campaigns) 16

Our Plans | New Initiative – Marketing • Marketing is required as natural gas is a fuel of choice (i.e. competes with electricity) • The marketing program will increase the usage of our network, spreading fixed costs across more customers • Increasing the number of connections will deliver lower prices to existing customers in the medium to long-term • Why do we need an allowance? Because benefits will be passed to customers after the five year regulatory period Do you support paying up to $3 per year more on your bill in the short term to expand our marketing program on the basis that overall bills will fall in the medium term? 17

Our Plans | Capital Expenditure (Capex) $200 $180 $160 $140 Capex ($2016, million) $120 $100 $80 $60 $40 $526 million $552 million $20 Current Period Next Period $0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Actual Benchmark Forecast • We have applied the AER’s preferred forecasting approach wherever possible • The major components of our capex are: • • • Mains Replacement (31% ) IT (13% ) Discrete Projects (10% ) • Growth (30% ) • Meter Replacement (8% ) • Augmentation (8% ) AGN is proposing a ‘stay in business’ capex proposal 18

Our Plans | Capex – Mains Replacement • Current performance: • On track to deliver benchmark volume of low pressure mains replacement program • Next period proposal: • Complete low pressure replacement program • Moving into Melbourne CBD Decrease of approximately $90m over the next period, • 3km HDPE sampling program compared to costs incurred in current period • Engagement with ESV • Depreciation of old mains in RAB by 2022 Safety considerations are driving our mains replacement program 19

Our Plans | Capex – Augmentation – Northern Corridor (Merrifield) • Merrifield project will deliver 37,000 homes • Northern growth corridor will ultimately deliver 220,000 homes • Evaluations now underway for other northern developments for example Donnybrook East 20

Our Plans | Capex – Augmentation: Southern (Cranbourne and Clyde) 21

Our Plans | Falling Prices in 2018 Bill Composition: Residential Commercial Price: • Our Plans provide for lower distribution charges over the next five years compared to the current period Commercial ($M) Residential ($M) 25 250 20 200 15 150 10 100 5 50 - - 2016 2017 2018 2019 2020 2021 2022 2016 2017 2018 2019 2020 2021 2022 22