transmission revenue proposal - aer
TRANSCRIPT
Transmission Revenue Proposal Public Forum 9 July 2014
Lance Balcombe, CEO
Wayne Tucker, GM Strategic Asset Management
Bess Clark, GM Strategy & Stakeholder Relations
• Introducing TasNetworks• Tasmanian context• Transmission revenue proposal• Summary
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Agenda
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On 1 July 2014 responsibilities changed
• Merger of – Aurora’s distribution and telecommunications networks– Transend’s transmission and telecommunications networks
• Merger will deliver savings for customers• Transmission revenue proposal includes immediate savings• We will continue to seek further savings
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TasNetworks
Purpose
Vision
Trusted by our customers to deliver today and create a better tomorrow
Trusted by our customers to deliver today and create a better tomorrow
We deliver electricity and telecommunications network services, creating value for our customers, our owners and our communityWe deliver electricity and telecommunications network services, creating value for our customers, our owners and our community
We understand our customers
by making them central to all we do
We understand our customers
by making them central to all we do
Customers
We enable our people to deliver value
We enable our people to deliver value
We care for our assets, delivering safe and reliable network services while
transforming our business
We care for our assets, delivering safe and reliable network services while
transforming our business
People One business
• Customer net promoter score
• Customer net promoter score
• Culture score• Engagement score• Culture score• Engagement score
• Zero Harm• Network service performance
maintained• Sustainable cost reduction
• Zero Harm• Network service performance
maintained• Sustainable cost reduction
Sustaina
ble shareh
olde
r outcomes:
•Re
turns o
n assets & equ
ity•
Divide
nds
•Co
rporate repu
tatio
n & su
stainability indices
Sustaina
ble shareh
olde
r outcomes:
•Re
turns o
n assets & equ
ity•
Divide
nds
•Co
rporate repu
tatio
n & su
stainability indices
To deliver our vision....
Strategic
Objectiv
esStrategic
Measures
• Voice of the Customer program• Framework for predictable &
sustainable pricing
• Voice of the Customer program• Framework for predictable &
sustainable pricing
• TasNetworks Culture program• TasNetworks Leadership
program
• TasNetworks Culture program• TasNetworks Leadership
program
‘One TasNetworks’ program:• governance frameworks• business systems• condition‐& risk‐based asset
management capability
‘One TasNetworks’ program:• governance frameworks• business systems• condition‐& risk‐based asset
management capabilityInitiatives
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Electricity supply chain
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Energy transmitted (GWh)
9,000
9,500
10,000
10,500
11,000
11,500
12,000
12,500
13,000
13,500
14,000
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Tasmania
Tas + export
The export component highlights the vital role that Transend’s network plays in delivering energy to mainland consumers
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Maximum demand (MW)
0
500
1000
1500
2000
2500
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
TASMANIA BASSLINK
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Loss of supply eventsTransmission > 0.1 system minutes
YTD
0
2
4
6
8
10
12
14
16
18
20
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
• Add value to our service– Maintain reliability – Improve customer relationships– Work together to develop solutions– Customer charter
• Consumer engagement activities– Survey– Focus groups– Many consumers want to know more and be involved
• A continuing focus of TasNetworks
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Customer focus
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Example of customer consultationBurnie Substation
Savage River Substation
Burnie Substation
Proposed 110 kV
redevelopment
Que Substation
Farrell Substation
N/O
NitrogenQue Substation
Waratah Tee
Hampshire substation
22 kV IBIS
N/O
Farrell Substation
Hampshire Substation
LEGEND
110 kV 22 kV
N/O Normally open
Savage River Substation
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Revenue proposal objectives• Reduce the cost of transmission in Tasmania while at least
maintaining service levels• Costs:
– based on future efficiencies, including from merger – achieve real cost reductions
• Service targets:– at least maintain level of service, extract higher performance from
current assets– agree appropriate levels of security and reliability with customers for
dedicated assets
• lower transmission prices to support customer sustainability• at least maintain the present level of service but at lower cost• reflect the impact of lower demand in future plans• maximise the way we use assets rather than building more• set tougher efficiency targets• reduce our rate of return • reduce the regulated asset value
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Customer feedback themes
Supporting lower prices for consumers• Since the transitional revenue proposal and decision we have
considered customer feedback – including adopting the AER’s view on cost of capital– further opex and capex reductions– further reduced our economic depreciation – permanently forgone $37 million under‐recovered allowable revenue
• Our revenue proposal is lower than AER March decision outcome– we have used our lower revenue figure to set prices for 2014‐15
rather than use the transitional decision revenue
Full revenue proposal (31 May submission)
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Capex
Projects Needs Potential solutions Customer consultation Preferred solution
Governance Robust internal approval process External engagement and consultation Project monitoring and control
Program Optimise projects, costs, timing, impacts
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Capex methodology
Capital investment is halving ($m 2013‐14)
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Capex incurred over the longer term ($m 2013‐14)
1400
1500
1600
1700
1800
1900
2000
2100
2200
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029Year
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Winter maximum demand forecast
MW
AEMO 2014
2014 Med
2014 Low
Historic
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Capex profile by type$m June 2014
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Development projects > $5 million$41 m of $56 m total
Project Description Estimated cost ($m) Completion Category
Waddamana - Palmerston 220 kV Security Augmentation
21 2018–19 Augmentation
Newton - Queenstown Security Augmentation
14 2016–17 Augmentation
Rosebery Substation transformer capacity augmentation
6 2016–17 Connection
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Renewals:Transmission line insulator replacements
• We spent $115 million (17%) less than the allowance in the previous period ($2013‐14)
• We are forecasting significant reductions for 2014‐19 (expenditure is halving)
• The ongoing program reflects a continuing need to manage risks, renew assets and deliver a reliable electricity supply
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Capex summary
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Opex
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24/7 control room Annual cost ($2014)
Base:2012‐13
$5.2
Step: New responsibilities from market operator
$0.4
Trend: Labour & growth escalation
Minimal
Productivity target ‐ efficiencies >$0.6
Total = real decrease $5.0
Operating expenditure methodology
Working hard to achieve opex reductions ($m 2013‐14)
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Controllable opex reductions ($June 2014)
$7.9m
• We spent nearly $40 million (14%) less than our allowance in the previous period ($2013‐14)
• Forecasting operating expenditure to reduce further in real terms
• Setting challenging operating expenditure targets and we will work hard to achieve them
• Not compromising safety and reliability
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Opex summary
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Revenue & pricing
• WACC ‐ based on a benchmark business (as per the Rules)• Will be updated based on interest rates during the agreed
observation period• Transitioning to a rolling 10 year average cost of debt (as per
AER guidelines)• We’ve accepted the AER’s cost of equity parameters• We’ve accepted the AER’s gamma for calculating the tax
allowance• Expert evidence suggests higher parameters
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Rate of return (weighted average cost of capital)
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Total revenue ($m nominal)
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Reducing the cost of transmission:Average impact of Revenue Proposal ($/MWh)
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Price impact (weighed average $ nominal)
2013–14Impact on annual charge
2014–15 2015–16 2016–17 2017–18 2018–19
ResidentialTotal $2,256
‐$54 +$4 +$1 +$5 +$5Transmission $338
Small businessTotal $3,782
‐$91 +$7 +$2 +$8 +$8Transmission $567
% change in transmission component ‐16.0% +1.4% +0.5% +1.7% +1.6%
• Incentives to reduce costs and maintain or improve service• Service target performance incentive scheme (STPIS)
– Service– Market impact– Network capability
• Expenditure– Opex: Efficiency benefit sharing scheme (EBSS)– Capex: Capex expenditure sharing scheme (CESS)
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Incentive schemes
• We are confident that the revenue proposal strikes the right balance for Tasmania’s future– we have listened to customers – we will maintain reliability and reduce our costs and revenue
• Transmission customer charges are falling • Customer engagement will continue
– TasNetworks’ 5 year corporate plan– annual planning report forums – ongoing account management, engagement and briefings
• Supporting our vision: trusted by our customers to deliver today and create a better tomorrow
Summary
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• Revenue proposal materials & annual planning reports• www.tasnetworks.com.au
• 2014 Revenue Reset Project Manager• Michael Seddon• [email protected]• 6271 6736
• GM Strategy & Stakeholder Relations• Bess Clark• [email protected]• 6271 6009
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More information
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