untitled01 Economic performance
Dedicated Project Managers Vanessa Sinclair, Robert McCue and Mark Tunks are part of the team overseeing Integral Energy’s network response to rapid development in the north-west sector of the franchise.
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Delivery Kieran and Megan Shanahan and their three children are typical of families in newly developing areas of the franchise who depend on safe and reliable electricity supply.
Improving our network operating performance, including increasing reliability of supply.
Continuing to build and maintain value in our network.
Building up the accuracy and completeness of data about the network and non-network assets that we own through the development of a comprehensive register for our network and non-network assets.
Continuing to improve the integrity of financial data across all business units.
Continuing to address the mass-market challenges of full retail contestability, including addressing the needs of our customers.
challenge exceeded
challenge achieved
challenge not achieved
ongoing challenge with targets met to date or positive progress shown
ongoing challenge with targets not met to date
Network reliability (planned and unplanned interruptions to supply) showed improvement at 147 minutes lost per customer (excluding major storms and bushfires), below our target of 149 minutes.
Spent a record $164m on network capital programs, $4m below target, but $52m more than in 2002-2003.
Further development of the Geographical Information System (GIS), a database showing the location of all network assets, introduced in December 2002.
Ongoing use of the Field Inspection System (FIS), used to inspect all of the organisation’s electricity poles and towers, implemented in December 2002.
Creation of a corporate equipment register and work management system to replace disparate legacy systems, implemented in May 2004.
Further developed provision of financial strategy, discipline and cash flow management for the organisation, and the accurate capture, control and reporting of financial performance to key stakeholders, including development of web-based financial budgeting and reporting.
Achieved EBITDA budget of 106.4% (after adjustment for one-off revenue gains). Continuing strict adherence to operating financial targets.
Provided rigorous input and analysis to the desired financial outcomes of the Network and Retail Determinations (IPART).
Made significant gains among non-franchise customers through dedicated door-to-door sales agents.
Continued success with cost-effective direct marketing campaigns.
An increasing proportion of customers secured onto a negotiated contract.
Completed a research program to identifying key customer value drivers related to our products.
Retained a significant proportion of large business customers.
Did we meet our challenges?
Financial challenges for 2003-2004, and our performance against them, are listed below.
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Customers
Sold 10,141 GWh of electricity, a 2.1% increase on 2002-2003.
Total customer connections were 819,496 as at the end of June, a 1.3% increase from 2002-2003.
Network reliability (planned and unplanned interruptions to supply) was 147 minutes lost per customer (excluding storms), a 5% decrease on 2002-2003 and below our target of 149 minutes. Our target for 2004-2005 is 145 minutes lost per customer.
Provided customers with $21m in rebates and payment assistance under the Pensioner Rebates Scheme, Life Support Equipment Scheme and the Energy Accounts Payment Assistance Scheme, a 9.4% increase from the previous year. This money is reimbursed to us by the NSW Government.
Achieved a decrease in customer complaints over last year due mainly to reduced impact of bushfires and severe storms.
The total of 2,651 complaints about the operation of our network, equates to around 3.2 complaints received for every 1,000 customers.
Suppliers
Purchased goods and services from more than 2,000 external suppliers and contractors through an open and transparent process.
Established long-term relationships with strategic suppliers – particularly those that fit closely with Integral Energy’s values.
94% of suppliers were paid on time.
Employees
Paid $114.8m in wages and benefits (including superannuation) to our employees, a 9% decrease from the $126.6m paid in 2002-2003. This was due to a range of factors, including an increase in the superannuation surplus account, requiring no expenditure of prepaid superannuation contributions.
Providers of capital
Earnings before interest and tax, before capital contributions, were $202.7m, a 69.1% increase from 2002-2003 and 41.6% above forecast. Our target for 2004-2005 is $182.1m.
Returned a net profit, after tax, of $102.3m, an 138.2% increase on the previous year.
Returned $102m in dividend to our shareholder.
Interest on debt and dividend payments was $85.5m.
Public sector
Income tax equivalents were $61.8m, an increase on the $33.9m of equivalents in 2002-2003.
Performance indicators
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Economic performance
The key contributors to the economic dimension of Integral Energy’s business performance are investment in, and performance of, the organisation’s electricity supply network; the contribution of retail operations; overall financial management for the organisation; and, ensuring adequate resources are in place to further support growth of the business.
Over the past five years, Integral Energy has significantly increased investment in its network to improve the reliability and safety of electricity supply to customers. As a key generator of income for the corporation, the network is characterised by ageing assets attempting to deal with increasing demand through growth, notably in residential areas, and higher demand through appliance usage, notably air-conditioning.
Higher levels of investment are required to meet increasing demand as new areas of the franchise are developed; higher demand from growing use of air- conditioning; and, to replace assets at or near the end of their useful life.
The organisation’s supply network, which serves well over two million people in homes and businesses, spans 24,500 square kilometres, and has an estimated value in excess of $2b. The network includes 20 transmission, 144 zone and 26,571 distribution substations, 312,500 power poles and 173,000 streetlights, bound together by 33,370km of underground and overhead cable.
Key load centres include Parramatta, Blacktown, Penrith, Liverpool and Wollongong.
The network is operated and maintained on a day-to-day basis by:
Engineering Performance, which is responsible for system operations and development, contestable work operations and performance review, and development of policies and standards governing the growth, maintenance and refurbishment of the network.
Asset Management, which ensures that the electrical assets are “fit for service” through transmission and distribution engineering, maintenance and construction programs, refurbishment and emergency response. The group employs almost 900 of the organisation’s staff in field or support roles.
Capital Solutions, created in July 2002 in recognition of the rising level of investment in the network, and the need to ensure delivery of the capital program in the interests of increased customer expectations and changing consumption patterns. Capital Solutions’ role is to drive the delivery of this expanding program; monitor and report on the program’s status; and, provide a range of services to ensure effective and efficient provision of services to the network business units.
Reliable electricity supply
Integral Energy is committed to providing long-term customer service by developing and operating a sustainable and reliable network. The organisation’s fundamental strategy is that customers in its region should, on average, receive comparable service standards to customers in like situations within Australia.
A key service standard is reliability, which is measured as the number of minutes, on average, that each customer is without supply, excluding major storms.
The reliability target of 149 minutes per customer was made up of 119 minutes for unplanned events (including high temperatures, traffic accidents, and impact by animals or falling trees) and 30 minutes of planned outages (such as maintenance or construction activities on the network).
The overall reliability result for the year was 147 minutes, including 116.7 minutes unplanned and 30.3 minutes planned. This was a good result considering the increase in work on the network as a result of the increasing capital program, and the impact of key incidents.
Incidents that had significant impact on the performance of the network included:
In December, an unscheduled outage at Blacktown transmission substation, which interrupted 13 Integral Energy zone substations affecting about 83,000 customers and three EnergyAustralia zone substations.
Between January and March there were 24 days where temperatures exceeded 35
o C.
In April there was an interruption to approximately 77,000 customers due to a suspected cut to an underground cable, which caused the loss of eight zone substations.
In June, a large tree, which was being lopped by a private contractor, fell onto the main transmission line from Shoalhaven to Huskisson, South Nowra and Sussex Inlet zone substations. The tree had to be removed and the line repaired before full supply could be restored.
The 2004-2005 reliability target is 145 minutes (115 minutes unplanned, 30 minutes planned).
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Left to right: George Ridolfo, Patrolman, Bowenfels. Val Logan,Tony Torville and Jag Balaji, Finance (General Ledger) , Huntingwood. Steve Williams, Regional Services Manager, Central, Hoxton Park.
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Demand continues to grow
The organisation’s asset management planning results in the development of short-term and long-term initiatives and areas for network and non-network investigations.
Much of the investment and areas of investigation in the short term are driven by the need to match the huge growth in residential, commercial and industrial customer demand being experienced across the network supply area, but concentrated in a number of key regions.
Following close assessment of the nature of customer growth, the following issues have been recognised and addressed:
Changes in historical consumption patterns, which have led to major changes in the distribution network loading and design criteria for the reticulation on new subdivisions.
A shift from a winter peak in energy consumption to a summer peak, which changes the nature of demands on network assets.
A large shift in the volume of energy for short periods within the network supply area, driven largely by an increase in commercial and
residential air-conditioning load in Western Sydney.
Rapid take up of land use – particularly in new development areas in north-west and Western Sydney. In some new areas, such as Glenmore Park, average household consumption has doubled.
Rezoning of residential areas from low to medium density. This has resulted in greater numbers of group townhouses and villa homes, increasing the load density of established areas.
Significantly higher reliability expectations among customers due to the growth in home offices and increased reliance on the Internet as a means of conducting business.
In response to growing demand, a wide range of capital and maintenance programs were planned, commenced or continued during the year, including by geographic region:
South-west
Mamre zone substation establishment ($13m): Required to supply a new industrial development in the Mamre area and to supply the residential area of Erskine Park.
Hawkesbury
North Richmond zone substation ($7m): Enhanced and new zone substations to improve reliability of electricity supply to customers in the Hawkesbury area, and the Richmond RAAF base.
Penrith
Glenmore Park zone substation ($6.5m): Upgrading the capacity of the zone substation in response to a doubling of average household electricity demand in Glenmore Park, largely as a result of increased use of air-conditioning.
Blacktown
Baulkham Hills zone substation ($7.5m): A new zone substation will be established within the Baulkham Hills transmission substation to ensure we can deliver ongoing supply reliability to customers in the Seven Hills industrial area and surrounding residential area.
Quarries zone substation ($8m): Following the release of major tracts of land for residential and industrial development, the existing Quarries zone substation was upgraded to supply the expected initial demand.
Case study 1 In the sweltering summer, homes and business in Sydney’s western suburbs really feel the heat. As air-conditioners go on, the capacity of Integral Energy’s electricity substations come under pressure – but only for a relatively short period. For the rest of the year they operate well under capacity.
These are ideal conditions for Demand Management (DM) strategies. Acknowledged as an industry leader in seeking out and applying DM initiatives, Integral Energy has begun yet another major program. For the first time in Australia, the corporation has contracted two energy efficiency companies – Energy Conservation Systems and Big Switch Projects – to investigate the opportunities to reduce electricity demand during periods of peak demand.
The focus is on the Blacktown-Seven Hills district of Western Sydney, where Integral Energy is seeking to defer capital expenditure on upgrading a new substation at Leabons Lane, Blacktown.
This three-year project seeks to defer the $3m upgrade cost, allowing public investment to be put to better use. Under the program, Integral Energy provided free energy efficiency reviews, helping major business customers uncover ways to save energy. Any customer that invests in projects that reduce peak power demand will be given a subsidy towards those projects.
Leading the project is Frank Bucca, Integral Energy’s Demand Management/ Network Utilisation Manager. Frank dedicates most of his time to projects that deliver wide benefits – lower electricity
bills for customers and cutting greenhouse emissions (the Blacktown/Seven Hills program will reduce emissions by 6,750 tonnes each year, equivalent to removing 1,500 cars from NSW roads each year).
Economic performance
South Coast
Shellharbour zone substation ($4m): Upgrading of Shellharbour zone substation to match demand from the new residential release area of Shell Cove, as well as existing residential areas of Shellharbour.
Across the network
Summer power factor correction ($14m): The increasing use of industrial, commercial and domestic air-conditioning has resulted in higher reactive power demand on the network, affecting supply reliability. This project, which began in 2001, involves the installation of power factor correction capacitors at various existing zone substations to address the issue of increased reactive power demand and increase supply security.
Transmission system refurbishment ($66m): During 2004-2005, refurbishment will be completed on major system assets throughout Western Sydney, the Illawarra, the Blue Mountains and the Southern Highlands. This will help maintain customer service levels, and improve the safety and environmental impact of the electricity system.
Distribution system maintenance ($17.5m): The investment includes the maintenance and repair of overhead and underground systems, regular inspection of the electricity system and repair of the system following incidents such as storms and vehicle impacts.
Preventative vegetation management ($15m): Vegetation growth is managed in an environmentally sensitive manner, with an eye towards minimising the impact on customer electricity supply.
Industrial and commercial customer connections ($9.5m): Connection of electricity to new industrial customers often requires the upstream system assets to be augmented or rearranged. This program will streamline the connection of new industrial or commercial customers to the electricity system in Western Sydney, the Illawarra and Southern Highlands.
Underground residential development ($9.5m): This program ensures that construction of new underground distribution assets in new urban land release areas occurs in a timely manner to meet customer needs.
Distribution substation refurbishment ($13m): System analysis has revealed the need to augment a number of distribution transformers to help bolster supply reliability. This ongoing program involves the replacement of transformers with larger capacity units.
Distribution works program ($6m): Identifying essential distribution system development works required throughout the franchise area to maintain community safety, customer service levels and business performance.
Environmental enhancement program ($1m): An ongoing program of works that will reduce the impact of the network on the environment, mainly through insulation of overhead lines and/or their replacement with underground cables.
Reliability enhancement projects ($1.7m): This ongoing program targets the poorest performing areas of the system for corrective action.
Projects planned for the future include:
South-west
Wetherill Park transmission and zone substation ($22m): Designed to address the significant industrial development activity in the area, with the first stage due for completion in 2005-2006.
East Liverpool transmission substation ($33m): Augmentation in response to increasing demand for electricity in the Liverpool CBD and surrounding areas, driven primarily by commercial and high-density residential activity.
Parramatta
Parramatta CBD east zone substation ($18m): Future investment is required to ensure capacity and reliability. While there are opportunities for demand management, the current network option is to establish a Parramatta CBD east zone substation, and a second substation in the Parramatta CBD when required.
South Coast
Springhill transmission substation ($40m): The substation, which has reached the end of its effective service life, will be replaced by a new substation to ensure ongoing reliable electricity supplies to Wollongong and the Port Kembla industrial area.
Focus on demand management
Integral has always had as a primary goal, the reliable and safe delivery of electricity to customers. In recent years, however, there has been added emphasis for Integral to do this in the most energy efficient and environmentally safe manner.
A broad range of Integral’s stakeholders are driving this new imperative.
The NSW Government is seeking to ensure better management of electricity demand including the reduction of peak loads, greenhouse gas emission abatement and improved appliance efficiencies. Agencies such as the Department of Energy, Utilities and Sustainability, the Department of Infrastructure, Planning and Natural Resources and the Department of Environment and Conservation have expectations that energy companies will increase demand management solutions where feasible.
The Independent Pricing and Regulatory Tribunal (IPART) is specifically concerned with the State’s growing demand for electricity, the increasing peaks in demand and lowering the cost of service provision.
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Left to right: Carl Stratton, Judy Fuller and Andrew Burton, Finance, Huntingwood. Evan Blye, Electrical Fitter Mechanic, Construction, Penrith. Tracey Simmons, Sales, Retail and Customer Services, Huntingwood.
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Environmental groups recognise the environmental implications of increasing fossil fuel consumption and are moving towards partnering with industry and government to resolve complex issues such as demand management.
Customers are becoming increasingly more aware about environmental issues such as greenhouse gas emissions, and may modify their electricity consumption if provided with the necessary information, flexibility of options and economic incentives. Retailers are actively focusing on demand management as a way of differentiating their product and recognise the flow-on effects to the network businesses in the form of potential reductions in capital expenditure and peak load demands.
Integral has responded by developing an organisation-wide demand management strategy that considers the above stakeholder requirements and links directly to our organisational vision – “to be Australia’s leading energy business”.
Since 2001, Integral has published annual planning statements that seek to engage the community and encourage proposals for alternative non-network solutions to specific forecast system constraints. These statements were prepared in accordance with requirements, documented in the NSW Demand Management Code of Practice.
Customer response
Continuing its strategy of locating field crews as close as possible to within 60 minutes travel of work sites, the organisation opened new depots at Narellan, near Camden, and Springhill, south of Wollongong.
Receipt and delivery of essential equipment was also enhanced with the opening in May 2004 of a purpose-built central logistics facility at Glendenning, near Blacktown. The store’s location gives access to the main traffic routes to all parts of the network franchise area. Access and delivery times will be further
improved with the completion of the M7 orbital road in 2007.
At year-end, the new pole yard at Penrith was nearing completion, replacing the facility that has operated at Schofields for many years.
Plans are also being prepared for the refurbishment of office space at Shellharbour, and development of the Hoxton Park depot. Elsewhere, the Board has approved the construction of new depots at Picton and Moss Vale (to replace Bowral).
Following a number of break-ins, the Board has also approved an upgrade in security at Narellan, and extension of the security fencing program to 39 substations.
Connecting customers
Customer connections increased by 17% in 2003-2004, with 5,586 applications comprising 1,523 subdivisions and 4,063 connection of load.
Also, more than 67,000 notifications of electrical or service work by contractors were processed, with more than 17,000 subdivision and project inspections.
Although registered by the NSW Department of Energy, Utilities and Sustainability, the standard of work and methods of Accredited Service Providers (ASPs) are monitored and inspected by Integral Energy to ensure compliance with its standards and to protect the safety of its customers and the public.
The organisation held seminars to broaden awareness of the organisation’s expectations of Level 2 ASPs, and to provide orientation for new Level 3 ASPs (designers). Integral Energy also issued safety, procedure and equipment notices, and a further information session on network connection policy.
During the year, 24 Level 2 ASPs (service connectors) were suspended from working on Integral Energy’s network for breaches of safety and related work practices.
Future challenges include addressing the present shortage of Level 3 ASPs in the marketplace in order to adequately respond to burgeoning residential and commercial demand. Although Integral Energy used to provide these services, it was forced to withdraw from the market at the beginning of 2003 in order to focus on its own capital program.
In recognition of the gap this has created in the marketplace, Integral Energy has recently reviewed its decision and plans increased involvement in 2004-2005.
Metering and meter data
The meter data group, including InfoMet, continued to provide services to numerous retailers and end-use customers, and maintained its accreditation with the National Electricity Market Management Company (NEMMCO).
A key challenge during the year was the introduction of improved processes for testing meters. This included upgrading field testing equipment to help ensure timely and accurate billing of customers.
The bulk meter change process was also re-introduced, resulting in the replacement of about 10,000 old meters, mainly for residential and small business customers.
In response to some customer complaints about billing errors, the meter data unit undertook improvements in validation processes for meter reading to ensure timely and accurate billing. This resulted in an improvement in the error rate from one in 1,700 to one in 3,000.
Vegetation management
Vegetation contact with overhead power lines is a common cause of supply interruptions. Integral Energy seeks to minimise interruptions of this nature through a planned program of vegetation management totalling $15m that balances environmental needs with network reliability. Vegetation management cycles have been reduced from 18 months to 12 months.
Economic performance
In 2003-2004, the program was extended to include pre-summer bushfire inspection of private lines, part of the organisation’s Bushfire Risk Management Plan. Pole inspections are carried out by helicopter, with regional staff inspecting the condition of private lines.
During the year, more than 280 bushfire defects were identified and corrected, while private line inspections revealed 1,458 defects involving either vegetation or hardware faults.
Further information on environmental initiatives can be found in the environment report on page 36.
Systems management program
Integral Energy’s commitment to network investment includes computer-based systems that underpin the operation and performance of the network. In order to drive improvements in systems, the organisation established the Integrated Asset Information Management Strategy
(IAIMS) to evaluate existing business systems and processes, and assist in making optimal decisions about upgrades to or new investments.
Progress on three key projects so far includes:
replacement in December 2002 of the organisation’s Geographical Information System (GIS), a database showing the location of all network assets;
replacement of the organisation’s Field Inspection System (FIS), used to inspect all of the organisation’s electricity poles and towers, implemented in December 2002; and,
creation of a corporate equipment register and work management system to replace disparate legacy systems, together with the integration of the equipment register and works information with the organisation’s GIS and FIS ( implemented in May 2004).
IAIMS has a long-term vision and, on successful completion, will provide asset and works managers with access to best practice processes, systems and information for the effective ongoing management of the organisation’s asset base. This, in turn, will:
provide improved reliability of supply for our customers;
promote the safety of the community and our staff;
improve our network performance;
provide our shareholder with increased value.
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Case study 2 South Coast windstorm wreaks havoc
On Sunday, 24 August 2003, the South Coast region of Integral Energy’s electricity network was hit by the worst storm in 22 years. As trees fell, and roofing blew from residential and commercial buildings, more than 140,000 customers lost supply, more than half in Integral Energy’s southern region. Beyond the Illawarra and South Coast, freak winds caused widespread damage in Lithgow, the Blue Mountains, Hawkesbury and the Southern Highlands.
While many customers had power restored within 48 hours, others had to wait for up to six days. Emergency teams removed hundreds of trees and other debris from power lines, enabling repair crews to complete their work.
Among the crews were Brad Rossiter (Nowra) and Michael Cullen Seven Hills, pictured during Live Line training.
A detailed study of the storm and its aftermath has led to major changes in the way Integral Energy will plan its recovery from storms and major network incidents. Upgrading of equipment has also made it easier for customers who phone to gain more information about network problems during emergency incidents.
Left to right: Lyne Deveney and Tranquilino Javier, Billing, Retail and Customer Services, Huntingwood. Chris Pett, Leading Hand Lineworker, Construction, Penrith. Sharon Kokoszka, Marketing, Retail and Customer Services, Huntingwood.
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Regulatory management
The Independent Pricing and Regulatory Tribunal (IPART) regulates Integral Energy’s network revenue and network pricing. In June 2004, IPART delivered its NSW Electricity Distribution Pricing 2004/05 to 2008/09 Determination.
This Determination sets the network revenue that Integral Energy will be allowed to earn over the 2005-2009 regulatory period. The Determination marked the culmination of a long process, commencing late in 2002 with the release of an Issues Paper by IPART and entailing a number of detailed submissions from Integral Energy and other stakeholders.
Integral Energy welcomed the final decision by IPART as it delivered balanced outcomes on key issues related to the rate of return, expenditure allowances and pricing impacts. While there have been some refinements, IPART largely accepted Integral Energy’s expenditure proposals.
The final Determination provides for Integral Energy to significantly increase its capital investment in the network to $1.2b over five years. This level of expenditure will allow us to deliver on our network strategy and meet electricity demand (expected to grow by 32%) associated with population growth and increased use of air-conditioning, and to replace ageing and deteriorating assets.
The challenge for Integral Energy is to deliver its ambitious and necessary capital program. In 2003-2004, Integral Energy achieved a record system capital spend of $164m and plans to substantially increase this level of system capital spend over the coming years.
Other features of IPART’s Determination are:
the weighted average cost of capital was set at 7% pre-tax real;
introduction of a weighted average price cap as the form of regulation over the next regulatory period;
a network price increase of CPI+5% in 2004-2005 followed by CPI+1.5% in the remaining years of the regulatory period;
implementation of a paper trial for a service quality mechanism;
the inclusion of a pass-through mechanism for certain future costs not yet quantifiable; and,
an improved demand management framework.
During the year Integral Energy progressed proposals for tariff reform with IPART to improve price signals to customers. This need has been largely driven by the proliferation of air-conditioning in Integral Energy’s network area – particularly in Western Sydney – and the impact this has had on our network assets.
In June, IPART approved the organisation’s 2004-2005 pricing proposals as being in line with the regulatory requirements and other pricing principles and methodologies outlined in the Determination.
From 1 July 2004, as part of its tariff reform, Integral Energy introduced an increasing block tariff structure in its domestic and business network tariffs. This two-part structure charges a premium for energy consumption above a threshold. In 2004-2005, the second “block” in the network tariff will cost about 5% more than the first “block”.
Thresholds have been set at 7,000 kWh a year for residential customers and 21,000 kWh a year for general supply customers. As the network price accounts for approximately half a customer’s overall bill, this 5% differential will translate to approximately a 2.5% difference between blocks at the retail level.
While this differential is conservative, it provides Integral with the ability to monitor customer reaction to this relatively small price signal. Over time it is intended that the price difference between blocks will be increased so that a greater price signal is delivered to those users with higher consumption levels and who are placing most strain on the network.
Economic performance
Cost to date completion Description 2002-2003 2003-2004 Total (2yrs) date Comments
North Richmond $3,780,134 $763,961 $4,544,095 Complete Augment North Richmond ZS to ZS augment a 2 x 25MVA.
Power Factor $18,103,843 $7,912,351 $26,016,194 September 99 x 11kV 5MVAr units have improvement 2004 been installed and 82 units
commissioned to address issues with Integral Energy's power factor as seen by Transgrid.
Bow Bowing ZS $3,475,065 $317,406 $3,792,471 Complete Installation of equipment to augment improve system capacity and reliability.
Quarries ZS $1,533,375 $4,425,049 $5,958,424 August 2004 Building complete. Final install of equipment and commissioning.
Glenmore Park ZS $1,464,505 $1,916,433 $3,380,938 September Required to meet increasing load in the augment 2004 developing Glenmore Park area.
Lennox ZS $255,894 $932,706 $1,188,600 April 2005 Install third transformer and replace augment two existing transformers.
Shoalhaven TS $303,594 $910,944 $1,214,538 September Augment power transformer to augment 2004 60MVA and install 132kV bussection CBs.
Kembla Grange ZS $179,873 $1,019,742 $1,199,615 July 2004 Install second power transformer and augment new 11kV switchgear section.
Wallgrove ZS Nil $536,003 $536,003 August Temporary 45MVA zone substation 2004 with significant customer funding.
Homepride ZS $59,768 $1,972,309 $2,032,077 June 2004 Install third transformer and new 11kV augment switchgear section.
Kenthurst ZS $1,597,225 $67,268 $1,664,493 Complete New 132/33kV transformer in service. augment
Blacktown TS $1,597,255 $1,892,422 $3,489,677 Complete Installation of equipment to augment improve system capacity and reliability.
South Coast SCADA $2,006,967 $572,250 $2,579,217 Ongoing Replaced existing outdated systems upgrade at 14 sites.
33kV Circuit Breaker $1,462,626 $472,376 $1,935,002 Ongoing Program to replace units at various replacement program locations that have been identified as
being at the end of their useful life.
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Left to right: Patricia Munton, Sales, Retail and Customer Services, Huntingwood. Leigh Albrecht, Senior Customer Service Officer, New Contracts, Huntingwood. Justin Pennings, Electrical Fitter Mechanic, Construction, Penrith.
Strengthening our Retail business
In an increasingly competitive market, more than 600,0000 electricity customers in NSW have exercised choice and moved to negotiated agreements since the introduction in January 2002 of full retail contestability (FRC) for residential and small business customers. Despite the intensity of competition among retailers, Integral Energy has continued to successfully deliver against its key objective of maximising positive contribution in the retail market.
Significant progress was made in the performance of the residential and business segments, driven by the movement of customers on to negotiated agreements. The acquisition, retention and renewal of profitable customers through the use of sales/direct marketing, outbound telesales and door-to-door sales continued, and this has been enhanced by the implementation of a new contract management system.
Integral Energy now has well over 800,000 business and residential customers and annual consumption has grown 2% over the year as a result of our retail activities and through natural growth.
Major results include:
Significant gains among non-franchise customers, won by a dedicated team of door-to-door sales agents and direct sales people.
Continued success with cost-effective direct marketing campaigns, securing existing profitable customers onto contract.
An increasing number of small retail customers secured on a negotiated contract.
Completion of a research program identifying the key customer value drivers relating to our products.
Retention of a significant proportion of large business customers.
In the business segment we were successful in securing many thousands of customers during this year. Since FRC, a major focus of the Small to Medium Enterprises (SME) business sales team has been on building our ability to meet the needs of customers with multiple site requirements, and on developing strategies to leverage our strength in the market.
As an indication of the strength of the organisation’s strategy, a number of major contracts were secured.
Critical to our success in targeting these multi-site customers has been the launch of the Master Billing product, which allows consolidation of billing for companies. Additionally, the large business sales team implemented a range of improved business processes designed to boost our capabilities. Their strong focus on account management has returned results for Integral Energy despite the high price competitiveness of the market.
Indirect sales activity has built on the success of previous years, with hundreds of thousands of customer contacts made using door-to-door sales in non-franchise areas of NSW. Tens of thousands of customers have been signed to negotiated contracts.
Customer service
The organisation’s customer interaction centres at Huntingwood and Coniston handled more than 1.2 million inbound customer calls during the year. The call centres delivered a significant improvement in the average speed of answer for incoming calls, reducing the time taken from 225 seconds to 25 seconds over the 12 months. Calls abandoned improved from 20% for the first six months to 5% for the second six months.
The number of staff trained to answer emergency calls increased over the year, resulting in a smoother, more efficient handling of customer calls during emergency situations. Resources were tested when a windstorm in August 2003 caused widespread damage and power outages across large parts of the Illawarra and south coast. This was the worst storm of its kind in the past 10 years, affecting 140,000 customers. Improvements in call centre technology enabled information to be given to 38,000 customers during the windstorm.
This storm and information from customer surveys led to a substantial review of the type and frequency of information required by customers during emergency situations. As a result, Integral Energy has introduced new systems that provide customers with more detailed information about problems on the network by making a phone call.
New contract operations
During 2003, the New Contracts Operation team underwent a major restructure, designed to deliver better customer service. The addition of 10 permanent roles and the formation of key processing teams within the department resulted in a reduction in the average number of complaints.
The team was involved in the design, development, testing, training and implementation of the new contract management system. In addition, there was a significant effort in data cleansing activities relating to the existing contract system. All staff in the team completed training in customer service principles in November and use of the new system in May.
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Maximising the contribution of our Retail and Customer Services business
Economic performance
Trading
The past year presented significant challenges to our Trading activities as the portfolio composition changed following continued growth in sales activity as more customers took advantage of full retail contestability. The need to match wholesale contract purchases with variable load shapes sold to customers required continual management.
The key responsibility of Trading is to hedge long-term customer load already signed with Integral Energy while continuing to offer competitive prices to the sales and marketing team in Retail and Customer Services. Trading continued to strategically reposition its energy portfolios, adjusting them for new forecasts, sales campaigns and changes in wholesale market conditions.
The business continued to develop wholesale relationships in order to meet the changing requirements of the organisation’s retail portfolio. At the same time, the development of sophisticated analysis techniques has enabled Trading to execute innovative wholesale transactions to fulfil wholesale requirements.
Developments in energy markets
As well as improvements that have seen forecasts move closer to actual settled load, the energy futures market has provided the organisation with the ability to move in and out of the market to position the portfolio with regard to changing forecasts. Steady growth in this market, which commenced in September 2002, has provided the liquidity to enable entry to and exit from the market in a timely and cost-efficient manner.
Working with the Regulator
Integral Energy operates in an increasingly complex regulatory environment, which impacts substantially on the retail operation through the prices we charge, the type and standard of service we provide and how we are required to relate to customers.
Much of the retail focus has been on compliance with the Energy Industry Marketing Code of Conduct. This has resulted in much work being undertaken to ensure that our systems and training were robust and that the organisation complied with all elements of the Code, particularly with the introduction of our new door-to-door supplier. The last financial year saw a continued improvement in our compliance with the Code with breaches at the lowest levels since the commencement of FRC over two years ago.
The Independent Pricing and Regulatory Tribunal (IPART) regulates the electricity prices that Integral Energy can charge customers supplied under a standard form customer supply contract. In June 2004, IPART handed down its NSW Regulated Retail Tariffs 2004/05 to 2006/07 Determination.
While there are some concerns with specific elements of IPART’s ruling, the final Determination will allow the organisation to address long-term issues associated with its regulated tariffs.
IPART has set target tariffs that it considers are at cost-reflective levels, calculated by summing the network component (network charges) and the retail component (retail costs). However, Integral Energy’s regulated retail tariffs are currently below these target levels.
IPART’s Determination requires Integral Energy to move these tariffs toward the target levels, subject to limitations in annual price increases. The final Determination means that regulated tariffs should achieve target levels by 2005-2006.
Key features of the Determination are:
continuation of the network-plus-retail framework in establishing the target level for regulated tariffs;
limiting annual increases in regulated retail revenue to CPI+2.5%;
limiting annual increases in a customer’s bill to CPI+5% or $35, whichever is the greater;
setting annual retail operating costs at $70 a customer; and,
setting the retail net margin at 2%.
Retail tariff reform has also been a key activity during the year. Mirroring the introduction of an increasing block tariff into the domestic and general supply network tariffs from 1 July 2004 (see page 29), Integral Energy’s regulated retail tariffs for domestic and general supply also adopted the same two-part structure from 1 July 2004.
The same annual thresholds of 7,000 kWh for residential customers and 21,000 kWh for general supply customers applied at the retail level and the charges for consumption above these thresholds are priced, on average, 2.5% higher than for consumption below the thresholds.
While this price signal is conservative, customer reaction to this relatively small price signal is being monitored and will be analysed with a view to increasing the price differential between blocks so that, over time, an effective price signal is delivered to large users.
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Left to right: Alan Haynes and Lisa Richards, Fixed Assets, Finance, Huntingwood. Peter West, Senior Engineer, Transmission Substations Development, Huntingwood. Ray Jeavons, Electricity Worker, Construction, Penrith.
Integral Energy will continue to investigate other pricing initiatives, including time of use metering, interruptible tariffs and projects aimed at testing customer response to greater price signalling within tariffs.
Green energy
Reducing greenhouse gas emissions is one of the key challenges facing the energy sector, and in particular the electricity industry. This is further highlighted by the number of schemes arising both at a state and federal level, with numerous obligations to be met under each scheme.
This year Integral Energy again met its renewable energy obligations under the Mandatory Renewable Energy Target Act 2000 (MRET), and is the only state-owned retailer based in NSW to have met its target. MRET is a federal scheme, which imposes a legal liability on wholesale purchasers of electricity to proportionately contribute towards the generation of an additional 9,500 GWh of renewable energy per year by 2010.
The year saw the continuing success of the organisation’s accredited Green Power products in the residential market, with growing numbers of customers choosing between 20% and 100% of their electricity supply to be sourced from 100% renewable generation.
Approval was also gained for products in the small and medium business markets. Green power generators are accredited by the NSW Sustainable Energy Development Authority (SEDA), an independent body, under the strict requirements of the national Green Power program. These generators are required to produce over and above what is required to be met under the MRET scheme.
Customer care
Integral Energy takes pride in playing an active role in the community and recognises that at times individuals may have difficulty in meeting their financial commitments. In response to these situations, customer service policies were revised to provide greater flexibility when dealing with hardship cases. These revised
policies came into effect in February, and early results indicate that it has greatly benefited those customers committed to paying their bill but who are unable to do so for various reasons.
During the year, our customer care team handled more than 13,000 cases, an increase of 45% on the previous year. These contacts related mainly to energy consumption, debt recovery and billing issues.
In 96% of cases, the issues were resolved within 30 days. An enhancement to our complaints system enabled staff to cope with the increase in correspondence without impacting negatively on response times.
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Case study 3 Underground philosophy
More often than not, the debate on where power lines – new or upgraded – should go often ends up with an apparently simple choice: overhead or underground. Integral Energy supports the undergrounding of power lines in cases where it is economically viable.
The organisation estimates that 95% of all power lines in post-1970 residential estates within the franchise are underground: about 39% of the low voltage network and 17% of the high voltage network are underground.
In new and future residential estates the costs of undergrounding are shared between Integral Energy and the developers. The issue of who pays, however, becomes contentious in developed areas where there is a push to place existing overhead power lines underground.
In these cases, Integral Energy supports the user-pays model. This view was endorsed by the NSW Independent Pricing and Regulatory Tribunal (IPART) in its 2002 review that attempted to quantify the costs and benefits of undergrounding power lines in NSW.
Economic performance
Supporting our people
Further progress was made on establishing a working environment that supports and recognises individual and team performance. Integral Energy’s focus on people issues over the past three years has built on strategies for recruitment and retention of staff, the development of skill sets and career planning, as well as an organisation- wide reward and recognition program.
Key human resources initiatives over the past year included:
strengthening the Safety Group to further drive a culture of safety throughout the organisation;
establishment of a special team to compile safe work method statements for more than 600 field jobs;
providing a wide and varied range of training programs for all staff;
further refining policies and procedures that guide our practices;
enhancing graduate and cadet engineer programs;
preparing for the 2004 staff attitude survey; and,
continued efforts to apply common skill sets to a range of field-based positions through the Competency Project.
Full details are given in the Social performance report on page 50.
Information technology and communications
Information Technology and Communications (IT&T) is a key enabler to the business, supporting a complex set of business processes, connecting our assets, customers and staff across a wide geographic area. Our philosophy is one of pragmatic alignment to business needs.
In addition to supporting the business in the delivery of the IAMS strategy, and projects such as the contract management system, IT achieved a significant upgrade of the enterprise resource planning (ERP) software, covering finance, payroll and logistics operations, through the introduction of the Ellipse program.
A major project under way is the re- tendering for supply of outsourced IT&T services, focusing on infrastructure, communications and applications support. During February 2004, Integral Energy went to market for the provision of IT&T Services. The scope of the outsourced services was separated into two proposals – telecommunications services, and infrastructure and applications support. The objective of the IT&T outsourcing project is to select service providers that can deliver:
increased service performance;
decreased costs while maintaining a high quality of service; and,
flexibility in relation to scope, performance requirements, terms and conditions, price and exclusivity.
Responses to these proposals were received from a range of IT&T suppliers. Following an extensive evaluation process, the organisation is now in the process of negotiations with the short-listed proponents with a view to achieving a solution that delivers the best commercial and operational results for the organisation. A final decision is expected to be announced by December 2004.
The organisation recently embarked on a review of its IT&T strategy in order to ensure IT is enabling better business performance. The first priority is to ensure IT&T delivers an assured business platform while delivering cost-effective IT&T services.
We will then look to the next level of performance to facilitate enhanced business operational efficiency.
Achieving this level of business efficiency is increasingly dependent on the effective use of information. The strategy is therefore focused on optimising the returns from information management. This strategy will ensure that IT delivers on its role as a key business enabler of service delivery to our customers, stakeholders and staff.
Property and security
Integral Energy has made significant progress in restructuring its property portfolio to support operational objectives and ensure property assets match our targeted cost structure. The program provides for establishing new facilities, winding back on leasehold properties and disposal of surplus facilities.
New facilities have been established at Smeaton Grange (known as Narellan Field Support Centre) to replace the Minto depot, which was too large for operational needs and was being encroached upon by residential development. Negotiations are under way for the disposal of the Minto site.
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Left to right: Mark Ireland, Billing Services, Retail and Customer Services, Huntingwood. Steve Gurnett, Project Manager, Hoxton Park. Geoff McGown, Electrical Fitter Mechanic, Construction, Penrith.
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In addition, a new central logistics facility has been opened at Glendenning, near Blacktown, as part of the relocation from leased accommodation at Seven Hills. The site also consolidates the essential spares store with the main material supply store.
Further land has been purchased at Glendenning to accommodate the Transmission Branch from Seven Hills.
Land has also been purchased at nearby Kings Park to accommodate the Distribution Branch from Seven Hills. The leasehold property at Seven Hills will then be terminated.
The leasehold depot premises at Coniston have been vacated with the new Field Support Centre opening at Springhill in Unanderra. Shellharbour and Nowra Field Support Centres will be refurbished in 2004-05.
Following on from state and federal security initiatives, Integral Energy has been working with a number of security agencies to establish appropriate arrangements for sites designated as critical infrastructure. These arrangements include extensive use of various security services at critical sites, random security checks conducted by the organisation’s security branch, and the ongoing program of remotely monitoring selected sites.
These initiatives are in addition to measures taken in previous years, which continue to reduce the number of security related incidents across the organisation.
Moving ahead
The 2004-2007 Corporate Plan includes the following objectives and key performance indicators in the economic dimension:
Objectives Strategic initiatives Key performance indicators
Build value in the network Improve maintenance planning. Network reliability <145 minutes lost per customer, Vision: Customers in Integral’s region should, Achieve capital delivery. excluding storms. on average, receive comparable service standards Implement resource capability planning. Achieve capital program. to customers in like situations within Australia. Focus on system, data and Achieve maintenance program.
information provision.
Maximise the contribution from the Retail and Maintain Integral Energy’s competitive Achieve required margin. Customer Services business market position. Improve customer satisfaction. Vision: All Integral Energy retail customers will have Manage retail risk. Ensure trading policy compliance. their electricity provided by a responsive retailer.
Ensure support systems are in place Deliver cost effective IT&T systems. Manage stakeholder needs. Review approach to governance
and risk management.
20 00
-0 1
20 01
-0 2
20 02
-0 3
20 03
-0 4
11 4.
Major works in progress
Maximising the contribution of our Retail and Customer Services business
Ensuring support systems are in place