Network 13 August 2015 Agenda Who we are Our vision and - PowerPoint PPT Presentation

Five Year Plan for the South Australian Natural Gas Distribution Network 13 August 2015

Agenda  Who we are  Our vision and performance  Stakeholder engagement  Expenditure  Demand forecasts  WACC and cash flow  Customer impact  Stakeholder feedback  Conclusion

Who we are  Australian Gas Networks (AGN) is one of Australia’s largest gas distributors: ‒ Servicing 1.2 million customers across most states and territories ‒ Including the Melbourne, Adelaide and Brisbane central business districts  Owned by the Cheung Kong Group since 2014 Rockhampton Brisbane Metropolitan Darwin Network NT Gladstone Hervey Wide Bay Bay North Lakes Pipeline Sandgate Bundaberg Maryborough Palm Valley Brisbane Eagle Pipeline Farm Ipswich Alice Indooroopilly Dinmore Springs QLD Palm Valley 15% Rockhampton Gas Field Gladstone Alice Melbourne Metropolitan Springs Network Wide Bay Bundaberg Hervey Bay Epping Maryborough Yarra River WA Melbourne South Yarra 45% Brisbane 1 SA 5% Port Cranbourne Phillip Bay Frankston NSW Port Pirie Port Pirie Sydney Whyalla Whyalla Berri Mildura Adelaide Metropolitan Adelaide Mildura Adelaide Network Berri Albury Wagga Wagga Murray bridge Murray Bridge VIC Riverland Elizabeth pipeline Mount Gambier Bairnsdale Gepps Cross West Lakes Sale Melbourne 2 Traralgon Transmission pipelines owned by AGN Adelaide Moe Magill 35% Transmission pipelines not owned by AGN TAS Edwardstown Distribution networks owned by AGN Marion % Pie charts show proportion of FY2014 revenue AGN’s is one of Australia’s largest gas distributors 3

Our vision: To be the leading gas distributor in Australia Public safety  Delivering for  Reliability Customers  Customer service Safety  A Good  Employee engagement Employer  Skills development Doing the work within  Sustainably industry benchmarks Cost Efficient  Delivering profitable growth Achieving top quartile performance on our targets 4

2016 to 2021: High service levels, lower prices, increased investment Which means… 2011 – 2016 Actuals/Estimates 2016 – 2021 Targets  Emergency calls: 90% answered in 10 seconds  Maintain high performance levels  Leaks: 95% attended in 2 hours; 100% repaired in  Improve network resilience  Public safety Leakage Management Plan (LMP) Delivering for  Support customer growth (more than 35,000 new Mains survey: 100% compliance with LMP   Reliability connections) Customers Average 15 interruptions to 5+ customers per annum   Customer service  Plans informed by stakeholder engagement Around 38,000 new connections  Strengthened performance incentives   Stakeholder engagement program  2014 Lost Time Injury Frequency Rate (LTIFR): 1.3  Continuous improvement: per million hours ‒ LTIFR less than 1.0 per million hours  Safety  Increase in employee and contractor numbers: 434 in A Good ‒ Restricted duties rate: less than 15 days  Employee 2011, 648 in 2014 engagement Employer ‒ Implementation of employee engagement program (to be confirmed)  Skills development Training and compliance monitoring ‒  100% cast iron mains replacement delivered (1,070 km)  Complete cast iron mains replacement (862 km) Commenced plastic pipe replacement (100 km, not in Continued selective replacement of plastic pipes  Doing the work   benchmarks) (411 km) within industry Sustainably benchmarks  Expanded network to Tanunda and McLaren Vale  Lower network tariffs in real terms – 11% upfront price Cost Efficient reduction  Delivering  Outperformance: 9% operating expenditure, 12% capital profitable growth expenditure  Step-out network growth  6% volume underperformance We will deliver increased investment and lower prices 5

Robust stakeholder engagement supports our plan Jul-14 Nov-14 Jan-15 Aug-15 Strategy Phase Research Phase Implementation Phase Ongoing Engagement Ongoing communications with key stakeholders  Developed Scoping Paper  4 workshops with residential and  Internal and external engagement on  Engage on AA Proposal business customers insights  Established Reference Groups  Report on the effectiveness of previous 1 workshop with advocacy groups  Developed and released Insights and engagement  Liaised with key stakeholders (internal  Implementation report for consultation  10 interviews with retailers, consumer and external) Incorporate learnings into strategy  advocacy groups and large users  Developed Access Arrangement (AA)  Developed engagement strategy  Quarterly meetings with Reference Groups Proposal  Online survey (overarching and SA-specific)  Ongoing engagement with stakeholders  Gave preview to AER (May)  Launched stakeholder website Key deliverables Stakeholder Research and Insights and Implementation Ongoing Stakeholder Engagement Strategy Insights Report Report and AA Proposal Engagement Who we Engaged With Key Deliverables  AGL  Local Government Association of SA Australian Energy Market Commission Multicultural Society of SA    Australian Energy Market Operator  Non-gas users  Australian Energy Regulator  Office of the Technical Regulator of SA  Business SA  Origin Energy  Commercial consumers  Primary Producers SA Conservation Council of SA Property Council SA    Consumers SA  Residential consumers  COTA SA  SA Council of Social Service  Energy and Water Ombudsman of SA  SA Department of State  Energy Networks Association  Simply Energy Energy Retailers Association of Australia Uniting Care Wesley Country SA   EnergyAustralia Uniting Communities    Essential Services Commission of SA  Various large industrial users 6

Efficient levels of opex, held flat 100 Current AA Period Next AA Period 80 353 367 $ million 2014/15 334 335 60 40 20 0 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 estimate forecast forecast forecast forecast forecast forecast Actual Benchmarks Proposal Proposal less Increased Wholesale Gas Price Impact on Cost of Unaccounted for Gas  Proposed opex over the next period is $353 million, ~5% 250 more than that incurred over the current period 200 Opex per customer ($ calendar 2010) AGN QLD Allgas QLD ‒ Increase driven by the impact of rising wholesale gas ActewAGL Vector NZ 150 prices on the cost of purchasing gas that is lost on Powerco NZ AGN Wagga the Network Jemena Gas Networks 100 AGN Albury AGN Victoria Multinet AGN ATCO WA SA AusNet  Excluding the impact of rising wholesale gas costs opex is 50 flat 0 0 10 20 30 40 50 60 70 80 Customer density (customers per kilometre) Source: Economic Insights. 7

Well justified capex program 180 Current AA Period Next AA Period 150 479 $ million 2014/15 699 120 547 450 551 90 60 30 0 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 estimate forecast forecast forecast forecast forecast forecast Actual Actual less High Density Polyethylene Benchmarks Proposal Proposal less High Density Polyethylene  In the current period AGN Forecast capex (including cost escalation and overheads) ‒ Will deliver the full cast iron mains replacement program Augmentation, 3% Meter ‒ Commenced HDPE (plastic) mains replacement program Replacement, 3% Mains  Proposed capex over the next period is $699 million Replacement, Other, 9% 60% ‒ In line with expenditure at the end of the current period Information and driven by mains replacement Technology, 10% Growth Assets, 16% 8

Risk-based approach to mains replacement  Current performance: 350 Current Period: Next Period: Actual: 1,072km CI & UPS, 100km HDPE Proposed: 862km CI & UPS, 411km HDPE ‒ Undertake 100% of allowed cast Allowed: 1,072 km CI & UPS 300 iron and unprotected steel (CI & UPS) program 250 ‒ Complete 100 km of HDPE replacement (unfunded) 200  Next period proposal: km ‒ Complete CI & UPS program and 150 continue HDPE program 100 ‒ Only ~20% of total HDPE replaced, risk mitigated by camera inspections, leak surveys, 50 other interventions Distribution Network Composition 0 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 CI & UPS 938 km Actual CI & UPS Actual HDPE Proposed CI & UPS HDPE 2,120 km Proposed HDPE CI & UPS (Allowed) MDPE 3,024 km Protected Steel & Other 1,659 km Safety considerations are driving HDPE replacement__ 9

Reviewing Security of Supply  AGN is undertaking a review of actions it can take to improve the security of supply across the network  This follows a major outage on the non-AGN owned transmission pipeline to Port Pirie in April 2015  It is reasonably common across the network for customers to receive gas from a single supply point  AGN has included a Cost-Pass-Through mechanism in its plan that allows AGN to proceed with, and recover the costs of, any security of supply initiative that meets the relevant criteria (as approved by the AER) over the next five year period  Any such proposals will be discussed with relevant stakeholders, including the AER, once they have been developed – Following feedback, we are willing to include a cap at a level of $10 million in total, over five years Our customers value reliability and security of supply 10