Regulatory Proposal to the AER 2011-2015 AER Public Forum, Melbourne 17 December 2009
Presenters and Outline • Shane Breheny – CEO • Neil Watt – Manager Asset Strategy and Performance • Energy & demand • Ongoing expectations forecasts and challenges • Work program drivers • Past reliability and customer service • Key investments performance • Operating costs • Key messages • Pricing & tariff outcomes • Expenditure development process • Network 2
Expectations & Challenges Ongoing Expectations Emerging Challenges • Good reliability and supply • Environmental challenges restoration performance � growth in air conditioning load • Security of the network � evolving environmental • Strong emphasis on policy initiatives impacting bushfire risk mitigation operations and sales • High levels of safety for the • Containing ‘energy at risk’ public and employees • Ageing infrastructure • Focus on efficient • Smarter network investment choices • Facilitating customer choice in retail 3
CitiPower 4
CitiPower’s Network Key statistics • 157 kms supply area • Region covers Melbourne CBD and inner suburbs • Region generates 22% of GSP • 310,000 customers • 46.6% network underground • 1,907 customers per sq km 5
Australia’s most reliable CBD distribution network Significant load 90 shedding due to 88.1 generation shortfalls 80 Major 70 s) storm in 64.1 I (m events 61.2 60 59.8 ID A rk S 51.6 50 o tw 44.7 43.4 e 41.4 41.5 N 40 d 36 e n n 32.4 la 30 p 27 n U 21.4 23.8 20.6 20 21.9 16.6 21.2 17.2 10 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 ______ Unplanned Network SAIDI Minutes (no exclusions) ______ Unplanned Network SAIDI Minutes (with exclusions) 6
Major investments 2006-10 • Upgrade of the network servicing the Port of Melbourne and surrounding area to include a second major zone substation supply • Installation of additional 60MVA of substation capacity at south western end of CBD to service the CBD and West Melbourne • Commencement of major security and growth related upgrades to Melbourne’s CBD • Replacement of Southbank zone substation 7
Customer service 0.08% % of ombudsman complaints per customer Result significant given CitiPower has over 310,000 0.07% customers 0.06% 0.05% 0.04% 0.03% 0.02% 0.01% 0.02% 0.01% 0.01% 0.01% 0.01% 0.01% 0.00% 2003 2004 2005 2006 2007 2008 CitiPow er’s com m itm ent to exceptional service w as acknow ledged at the 2 0 0 8 Custom er Service I nstitute of Australia Australian Service Excellence Aw ard 8
Customer service levels & safety performance • CitiPower’s commitment to customer service is demonstrated by: – average complaints per 1,000 customer below the industry average since 2002 – a reduction in complaints escalated to the Energy and Water Ombudsman – consistently high satisfaction ratings across residential customers (79 per cent), major customers (86 per cent) and retailers (89 per cent). • CitiPower was recognised with a Highly Commended Award at the 2008 National Safety Awards of Excellence 9
Proposal highlights - CP • Forecast net capital expenditure of $1,058m ($2010) • Forecast operating expenditure of $222m ($2010) over 2011-15 • Maintenance of existing reliability and quality levels • Enhancement of system security in the CBD • Mitigation of fault level exceedence in the CBD and surrounding areas • Maintain ‘energy at risk’ at or below 2010 levels • Continued renewal of urban areas driving new connections • Prudent replacement of aging assets • Introduction of smarter network technologies using AMI functionality 10
Expenditure development process • Methodology: Safety – Capex: bottom-up approach based on asset management plans & demand forecasts Reliability – Opex: revealed costs using recurrent efficient 2009 as base year Security – Where appropriate subject to external advice/ review • Based on prudent asset Quality management plan • Subject to rigorous governance Price process • Aimed at meeting NEL objectives & rule requirements 11
Energy forecasts & Max demand trends Energy forecasts Maximum demand • Energy consumption used in • Maximum demand used in establishing prices determining Reinforcement Capex • Energy forecasts developed by NIEIR • Forecasted internally and verified with NIEIR • Energy forecasts influenced by: • Maximum demand influenced by: � Government energy policy � Economic conditions � Global financial crisis impacts � Population growth � AMI � Appliance purchase & usage patterns 12
Growth trends 5.0% 4.0% Average annual growth 3.0% 2.0% 1.0% 0.0% 2006-10 2009 2011-15 -1.0% -2.0% Customer numbers Energy consumption Maximum demand 13
Work program drivers – peak demand & asset utilisation • Peak demand growth driven by air • Expenditure driven by highest conditioning: utilised assets – 2009 heatwave, record demand – New phase, from penetration to upgrade CitiPower Load Profile 1500.00 Hot Days 1400.00 1300.00 1200.00 1100.00 Warm Days g 1000.00 in 29/01/09 at 43.2oC d 900.00 a lo 28/01/09 at 43.2oC 800.00 d 17/02/09 at 31.7oC e Mild Days lis 700.00 06/02/09 at 33.1oC a rm 600.00 12/02/09 at 23.7oC o N 20/02/09 at 24.5oC 500.00 400.00 300.00 200.00 100.00 0.00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 :0 :0 :0 :0 :0 :0 :0 :0 :0 :0 :0 :0 :0 :0 :0 :0 :0 :0 :0 :0 :0 :0 :0 :0 :0 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 0 1 1 1 1 1 1 1 1 1 1 2 2 2 2 Time of Day - Eastern Standard Time 14
Work program drivers – energy at risk • Containment of energy at risk to 2010 levels: - energy at risk has more than doubled in last 4 years - implies augmentation expenditure levels greater than historic levels CitiPower Network 2006-2015 Zone Sub Energy at Risk (EDPR Iteration 2) 140,000MWh 120,000MWh 100,000MWh 80,000MWh 60,000MWh 40,000MWh 20,000MWh 0MWh 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Energy at Risk (MWh) - Do Nothing - Using expanded DSPR forecasts Energy at Risk (MWh) - With Augmentation - EDPR Iteration 2 15
Work program drivers – Ageing assets Asset Replacem ent: • Portfolio of ageing assets • Average age in excess of 40 years • Increasing risk of higher failure rates and rising maintenance costs • Prudent conditioning monitoring to manage risk - replacement of poles - replacement of underground cables - Replacement of major plant 16
Demand management • Network planning process to identify and implement demand management alternatives where they are economically efficient • Demand management and/ or non network initiatives: – West Melbourne • Extent to which demand management and/ or non- network alternatives are considered depends on: – CitiPower receiving expressions of interest from proponents of feasible alternatives – advances in technology which may lead to a greater number of viable and feasible alternatives 17
Key investments 2011-15 Reinforcement of a highly utilised network – Metro 2012 Capacity Upgrade – CBD Security Upgrade – Regulatory test process completed for both projects CBD Security Metro 2012 80 70 ) m $ 60 0 1 0 t (2 50 n e 40 m ce rm 30 fo in 20 e R 10 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Year 18
Key investments 2011-15 • Enabling connection of embedded generations whilst ensuring security of the network – maintaining fault levels at or below plant and equipment ratings has become an increasing challenge due to an increase in embedded generators – installation of impedance reactors to ensure compliance with fault levels – proposed charge being levied on embedded generation connections • Safety and the environment – noise control – drainage of oil and asbestos management • Creating a network for the future – AMI leveraged projects – replacement/ renewal of the SCADA network 19
Approach to operating expenditure forecasts • Use revealed cost methodology using 2009 as base: – most recent actual performance (5 months of forecast) – efficiency carry over mechanism applies – audited accounts available before AER final decision ± Add/ subtract changes in service classification ± Add/ subtract change in overhead allocation + Add step changes + Add scale escalation for growth across network + Add cost escalation = Forecast operating expenditure 20
Opex – key drivers of cost increases Scope Step Changes: $24m – Climate change Debt raising costs: – Demand Management $22m (WMTS) – Insurance – Self insurance – AEMC Distribution Planning Rule changes – Safety management Scale escalation: $20m Input cost escalation: – Increased network size $19m – Increased work volume – Increased labour – Additional customers – Increased materials 21
Expenditure 2011-15 1,400 1,200 1,000 $m, 2010 800 2006-10 2011-15 600 400 200 0 Gross capex Net capex Operating 22
Revenue requirement Other: 3% Opex: 18% Return of capital: 29% Return on capital: 64% 23
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