Consumer Engagement Program Peak Consumer Group Forum - March 2014

Transcription

1 Consumer Engagement Program Peak Consumer Group Forum - March 2014

2 Contents Introduction 1 About the forum 2 Electricity pricing and our planning proposal highlights Participant feedback on our prices and planning proposal 3 8 Appendix - Presentation: Our five-year plans, Networks NSW CEO Vince Graham - Presentation: Endeavour Energy s electricity plans and prices, Endeavour Energy General Manager, Network Development Ty Christopher Further information contact: Network Regulation Mike Martinson, Group Manager Network Regulation, Networks NSW Ph: mike.martinson@endeavourenergy.com.au Stakeholder Feedback Kylie Yates, Group Manager Corporate Communications, Networks NSW Phone: kylie.yates@ausgrid.com.au Kate McCue, Manager Corporate Affairs, Endeavour Energy Ph: kate.mccue@endeavourenergy.com.au Right the invitation to the forum

3 Introduction Customer representatives from across NSW gathered on 11 March 2014 to explore the industry s plans for the next five years and to consider the impact our plans will have on our share of customers electricity bills. The feedback from the forums with residential and small business customers is provided in the separate report: Endeavour Energy s Consumer Engagement Report April Ausgrid, Endeavour Energy and Essential Energy held the joint forum for consumer advocacy organisations to understand their views and priorities. The forum formed part of the industry s consumer engagement program for developing its plans for regulator approval. Each business recently submitted draft transitional proposals to the Australian Energy Regulator which cover the year. Each business is required to submit its full five year proposal to the regulator on 31 May. The forum provided the opportunity to seek consumer representatives feedback on: our proposed plans, the impact of the plans on the electricity network and prices, and how we can improve our customer service, communication and engagement. Feedback from the forum will be considered in developing our final, full five year plan. This report provides an outline of the forum with peak consumer advocacy groups. Senior industry representatives met with peak consumer group representatives, including Vince Graham Networks NSW CEO (centre back row) 1

4 About the forum Customer groups welcomed the opportunity to discuss issues with Networks NSW CEO Vince Graham and other industry leaders including Endeavour Energy General Manager Ty Christopher, Ausgrid Manager Asset and Network Planning Neil Gordon and Essential Energy Manager Network Regulation Natalie Lindsay. Organisations represented at the forum What we discussed The following presentations were discussed with forum participants. Networks NSW CEO covered: 1. What is Networks NSW? 2. Our objectives 3. How we are managing costs and prices 4. How the AER proposal process works 5. How we re consulting with customers 6. Highlights of our proposals 7. Our challenge: declining electricity use puts pressure on customer prices and possible response: look at different ways of charging for electricity use. A representative from each of Ausgrid, Endeavour Energy and Essential Energy presented their network investment strategies and proposed expenditure for the five years to Ballina Shire Council Break Thru People Solutions, Greystanes Disability Services, Mountains Youth Services Team, Syd-West Multicultural Services Inc Council on the Ageing (COTA) Department of Ageing, Disability and Home Care Energy & Water Ombudsman NSW Parramatta Chamber of Commerce Physical Disability Council NSW PIAC Public Interest Advocacy Centre Salvation Army Wiradjuri Council of Elders Australian Energy Regulator Energex The Networks NSW and Endeavour Energy presentations are attached. FEEDBACK ON THE FORUM It was no small thing to see the thought and effort invested by very senior people in the forum the making of the effort spoke volumes in its own right. I thought it was very valuable. While networks might stumble with engagement approaches in the early stages, just to have made this effort is recognition of the preparedness of the industry to listen and to value customers. Oliver Derum, Policy Advisor at the Public Interest Advocacy Centre 2

5 ELECTRICITY PRICING AND OUR PROPOSAL HIGHLIGHTS For the full proposal highlights presented at the forum, refer to the presentations in the Appendix 2 3

6 ELECTRICITY PRICING AND PLANNING Endeavour Energy has developed a proposal for the Australian Energy Regulator which outlines how we plan to operate and maintain the electricity distribution network now, and into the future. In developing our proposal to the industry regulator, our objectives place the customer first and promote the long term interests of customers with respect to safety, affordability and reliability. The continuing decline in electricity use has been putting pressure on customer prices. Networks NSW has started a conversation with Peak Consumer Advisory Groups about the need to rethink electricity tariffs and have proposed introducing a declining block tariff rather than inclining block tariffs. Endeavour Energy s costs are around 40% of a customer s electricity bill. 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% 17.48% 15.06% Movement in our share of electricity bills (nominal %) 16.22% 3.55% 0.01% -0.24% The proposed increase in our share of customers' electricity bills constrained to CPI (or less) Target:Our share of customers' electricity bills will increase by no more than CPI 1.22% Year 4

7 EVERYTHING ENDEAVOUR ENERGY DOES IS DRIVEN BY 3 KEY PRIORITIES: SAFETY By continuously improving our safety performance for employees, contractors and the public AFFORDABILITY By striving to contain average increases in our share of customers electricity bills at or below CPI RELIABILITY By ensuring the ongoing reliability, security and sustainability of our network 5

8 OUR PROPOSAL FOR THE FUTURE Our proposal focuses on keeping costs down and operating and maintaining an electricity network that is safe, affordable and reliable for customers. CAPITAL EXPENDITURE (CAPEX) - to build and renew the network and replace ageing equipment Proposal highlights: Endeavour Energy will spend $1.7 billion on capex over the next five years. We will spend $1.1 billion less than we did the last 5 years. This is a reduction of 37% and is 44% below the forecast of inflation over the five year period OPERATING EXPENDITURE (OPEX) - to maintain the existing electricity network Proposal highlights: Endeavour Energy will spend $1.8 billion on opex over the next five years. While this is an increase of 7%, this amount is still 5% below the expected level of inflation over the next five years. 44% 5% FORECAST AVERAGE CUSTOMER ELECTRICITY USE which impacts pricing Proposal highlights: Average customer electricity use is expected to fall by 1.6% a year over 5 years. This is due to rooftop solar, the high Australian dollar affecting manufacturing and the ongoing impact of past price increases. This puts pressure on prices. 1.6% 6

9 BENEFITS AND RISKS For transparency, below is a summary of the benefits and potential risks of our proposal to consumers. Benefits to customers Stable prices We propose to keep average price increases to our share of customers electricity bills at or below CPI for the next five years Reliability We propose to maintain or slightly improve reliability in some areas. Safety Our proposal aims to deliver programs that are safe and sustainable for the electricity network and the communities it serves. Clarity of costs We are giving customers greater transparency about how much they pay for metering services. New growth areas Electricity infrastructure for new growth centres will foster local economic development. Removing cost subsidies Customers who do not use specific services (such as special meter test readings) will no longer subsidise those who do. Potential risks to customers Price volatility If energy use is lower than forecast, a revenue cap may result in customers paying more than we propose. Reduced reliability If our capital program is not approved, we may need to postpone projects which could make the electricity supply less reliable in some areas. Future prices If our forecasts for economic growth, asset condition and customer connections are wrong, we may need to spend more than our AER allowance to address unexpected issues. This could add to customer prices in the period. New rules Customers who request a special service may now pay considerably more for that service as the AER now requires that those customers cannot be subsidised by our general customer base. 7

10 PARTICIPANT FEEDBACK ON OUR PRICES AND PLANNING PROPOSAL 7 8

11 Themes from participant feedback The main themes that dominated the discussion and participant feedback were: 1. The biggest priority or concern for their members is affordability and stability of price, followed by maintaining the current level of reliability (without paying any more). 2. The most important issues for households with fixed incomes with respect to electricity bills is keeping prices stable over the medium to long term, followed by the ability to reduce bills by using less electricity or efficient appliances. 3. They would be supportive of changing the way customers are charged for electricity if it meant prices would be more stable and predictable. 4. While many representatives recognised complex policy issues affect pricing, they also called for simplicity and clarity from the industry and its regulators to meet the longer term interests of customers. 5. Broadly, participants are pleased with the significance of safety, affordability and reliability as underpinning all Endeavour Energy s operations. The poll results are on the next page. 9

12 Forum poll results Which of the following issues is the biggest priority or concern for your members? Response Percentage Affordability and stability of prices 85.7% Maintaining current level of reliability (pay no more) 14.3% Paying more for better reliability 0% Paying less for reduced reliability 0% Safety of the electricity network 0% Better communication channels i.e. mobile apps, online info Other 0% 0% What would you say is the most important issues for households with fixed incomes with respect to electricity bills? Response Percentage Keeping prices stable over the medium to long term 50% Ability to reduce bills by using less electricity, efficient appliances Reducing cross-subsidies so they don t pay for other households technology (e.g. solar) 25% 16.7% Better understanding of their electricity bill 8.3% How supportive would you be of changing the way customers are charged for electricity if it meant prices would be more stable and predictable? (Noting that our share of bills won t increase above CPI for the next 5 years.) Response Percentage Supportive 100% Neutral 0% Opposed 0% 10

13 Networks NSW Welcome Consumer Advocacy Groups Forum on electricity plans and prices 11 MARCH Facilitator - Denise Wilson

14 Agenda 1. Introduction - Safety Briefing - Networks NSW video - Explanation of polling 2. Discussion: 5 year plans, priorities & challenges Vince Graham, CEO Break 3. Overviews by Ausgrid, Endeavour Energy, Essential Energy 4. Q&A and discussion 5. Wrap up and close Lunch Facilitator - Denise Wilson 2 Networks NSW

15 Networks NSW Our five-year plans FORUM - Consumer Advocacy Groups Vince Graham 11 MARCH

16 We will talk about 1. What is Networks NSW? 2. Our objectives 3. How we are managing costs and prices 4. How does the AER proposal process work? 5. How we re consulting with customers 6. Highlights of our proposals 7. Our challenge ahead 7 Networks NSW

17 What is Networks NSW? What is Networks NSW?? Comprises Ausgrid, Endeavour Energy and Essential Energy ( poles and wires in NSW ) remain separate companies joint Board common CEO and senior management team Why was it established? Networks NSW was formed by the NSW Government on 1 July 2012 to: Put downward pressure electricity prices and save $400M over 4 years, to help fund electricity rebates for low income households NETWORKS NETWORKS NSW (Umbrella NSW Agreement) AUSGRID ENDEAVOUR ESSENTIAL 8 Networks NSW

18 Our purpose and objectives Our purpose: To be of service to our communities by efficiently distributing electricity to our customers in a way that is safe, reliable and sustainable. Our objectives: Safety Continuously improve safety performance Affordability Strive to contain our share of customers electricity bills to CPI or less Reliability Ongoing reliability, security, sustainability of the network 9 Networks NSW

19 How we are managing costs (our share) Past: Electricity network bill increases of 60% ( ) 66% Households- Average network charges increased by 66% or $346 61% Small business - Average network charges 61% or >$1,000 Present and Future: Bill increases of no more than CPI We can only control electricity bills if we control our costs Reform program - across the Ausgrid, Endeavour, Essential $4.3billion in savings forecast over the 5 years to 2016: - $1.4 billion savings over past 2 years - another $2.9 billion savings identified over next 3 years 10 Networks NSW

20 Transitional proposal for Three objectives : Safety Affordability - CPI Reliability The next 5-year regulatory period starts in July 2014 and ends in June We provided our draft transitional proposals to the AER on 31 January Outlines our plans for the network and the effect on prices for only. Our plans are funded by the network part of customers electricity bills We also had to give an indication of our plans for the next 4 years of the period. We submit our full, substantive proposals for the remaining 4 years on 31 May 2014 AER approves prices for AER reviews that decision when considers substantive proposals (April 2015). 11 Networks NSW

21 Substantive (full) proposal for 4 years We provide our substantive proposal to the AER in May The AER will make a determination for the last four years of the 2015/16 to 2018/19 period in April The AER will review our proposal, taking into account stakeholder submissions. The AER will review whether the prices for the transitional year ( ) were efficient, and if necessary make adjustments to the prices for the last 4 years. The AER s decision will also set cost reflective prices for metering and more than 50 ancillary services (non-routine services requested by the customer). We want to inform you of our proposals and understand any concern or priorities your members have. 12 Networks NSW

22 Proposal Highlights (combined totals over 5 yrs) Nominal Real Capital program - down from $15.6 billion to $9.7billion 38% 45% Capital program will reduce from $15.6 billion approved for last 5 year period to a proposed $9.6 billion for the = a 38% reduction, which is 45% below forecast rate of inflation ; Operating Program - up from $6.9 billion to $7.7 billion 15% 2% Will increase from $6.7 billion approved by the AER for last 5 year period to a proposed $7.8 billion for the = a 15% increase, which is 2% above the forecast rate of inflation Average customer electricity use across NSW down 1.6% p.a 1.6% Expected to fall by 1.6% a year over 5 years from 1 July 14. Due to rooftop solar, high Aussie dollar affecting manufacturing and ongoing impact of past price increases. This puts pressure on prices. 13 Networks NSW

23 Highlights - what it means for customers Our share of electricity bill increases will be held at or below CPI for the next 5 years Our share of customers electricity bills will fall in real terms Greater stability to help households and small businesses manage their budgets 25% 22.99% 23% 21% 19% 17% 15% 13% 11% 9% 7% 5% 3% 1% -1% -3% 19.50% Ausgrid 21.90% 21.43% -0.90% 0.32% Then Now 2.43% 2.09% 1.25% 1.03% Endeavour Energy Movement in our share of electricity bills (nominal %) 22% 20% 17.48% 18% 16.22% 16% 15.06% Then 14% 12% 10% 8% 6% 3.55% 4% Now 2% 1.22% 0.01% 0% -0.24% -2% Essential Energy Movement in our share of electricity bills (nominal %) 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% 18.34% 21.26% 20.05% 18.64% -2.30% Now 2.49% Year 14 Networks NSW

24 Highlights our transitional proposals Impact on Customer Bills July 2014 (our share) Real change in capital spending (09/14 v s 15/19) Real change in operational spending Ausgrid Endeavour Essential +1.12% -0.24% +2.49% -48% -44% -42% +2% -5% +8% Assumed wage increase p.a. 2.5% 2.5% 2.5% Electricity use forecast p.a. -1.5% -1.6% -1.6% Reliability of our network steady steady steady Opening Return on Asset Base (RAB) July 2014 $14.6bn $5.6bn $6.8bn 15 Networks NSW

25 Change to typical electricity bills (our share) proposed from 1 July 2014 Typical Customers Annual bill 2013/14 ($ p.a) Annual bill 2014/15 ($ p.a ) Change ($) Change (%) Ausgrid Household (5MWh) $ $ $ % Small business (15MWh) $2, $2, $ % Endeavour Household (6MWh) $ $ $ % Small business (26MWh) $2, $2, $ % Essential Household (7MWh) $1, $1, $ % Small business (23MWh) $4, $4, $ % Table: Electricity bill impact from distribution network charges for typical household and small business customers ($nominal) 16 Networks NSW

26 Falling electricity use 1 Electricity use is expected to fall by 1.6% each year on average across the NSW over the next 5 years ( ). Due to take up of domestic solar panels, high Aussie dollar affecting Australian manufacturing and the customer response to past price increases Forecast energy use from 2010 to 2019 (GWh) FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 Actual energy/ expected for FY2014 AER determination Forecast (transitional proposal) 17 Networks NSW

27 Industry challenge ahead Declining electricity use puts pressure on customer prices Why? 1. Historic tariff structures Network costs mostly fixed Customer charges mostly variable - based on how much electricity is used - on an inclining scale Price structures don t reflect costs 2. Technology Customers who can afford technology can avoid variable electricity charges (ie home owners with disposable income) Those that can t afford technology bear the burden of declining electricity consumption (renters, low & fixed incomes) $ $ $ $ $ $ 18 Networks NSW

28 Current tariff structure - inclining NSW Endeavour N70 Example: Component Price Fixed (c/day) st Block (c/kwh) 2nd Block (c/kwh) 3rd Block (c/kwh) 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 IBT Threshold (kwh p.a.) Family uses 9,000 kwh pa Fixed $128 33c/day x st Block $ c x 2 nd Block $ c x TOTAL $1,128 Endeavour N70 Block Threshold (rhs) 19 Networks NSW

29 Different ways of charging for electricity use DGhjfg 20 Networks NSW

30 Discussion 21 Networks NSW

31 POLL How supportive would you be if we changed the way we charged for electricity so prices were more stable and predictable in the long term? (Noting that our prices will not increase by more than CPI for 5 years) Extremely supportive Supportive Mildly supportive (sounds ok, need convincing) Neutral Mildly opposed (sceptical but open to more information) Opposed Strongly opposed 22 Networks NSW

32 Customer Engagement Focus on improving our engagement long term Engagement strategy follows best practice guidelines from AER based on IAPP Engagement underway (Facebook, face-to-face meetings, research conducted, analysis of existing engagement activities) to understand priorities and how people want to engage with us in future Engagement Affordability Safety Demand Management Customer Research -Key Themes Reliability Hardship Information 23 Networks NSW

33 Customer Engagement new channel Using new channels to engage with customers mums and dads. Your Power, Your Say - joint Facebook page allows ongoing conversations with our customers Topics include Reliability Streetlights Solar Pricing Vegetation Management Demand Management Safety Metering 24 Networks NSW

34 What customers told us No more price shocks want affordable, stable prices Affordability Satisfied with reliability of network Reliability Value don t want to pay more for better reliability or less for reduced reliability Improve customer value without affecting reliability Safety Ensure safety of network Communications Better communications channels: mobile apps, online 25 Networks NSW

35 POLL Which of the following customer issues is the biggest priority or concern for your members? Affordability and stability of network prices Maintaining current level of reliability (without increasing prices) Paying more for better reliability Paying less for reduced reliability Safety of electricity network Better communications channels ie mobile apps, online information Other 26 Networks NSW

36 POLL What would you say is the most important issue for households with fixed incomes with respect to electricity bills? Ability to reduce their bills by using less electricity, efficient appliances Keeping prices stable and predictable over the medium to long term Better understanding of their electricity bill Reducing cross-subsidies so they don t help pay for other households technology (eg solar) 27 Networks NSW

37 Thankyou Discussion 28 Networks NSW

38 Endeavour Energy s electricity plans and prices Consumer Forum 11 March 2014 Ty Christopher General Manager Network Development

39 ENDEAVOUR ENERGY S NETWORK $5.3 billion electricity network Serves 2.2 million people in households and businesses across Sydney s Greater West, Blue Mountains, the Illawarra, Southern Highlands and South Coast. 170 major substations, 315,000 power poles and 28,000 smaller substations connected by 33,000 kilometres of underground and overhead cables. 2

40 OUR OBJECTIVES Safety our number one priority. We want to continuously improve our safety performance. Affordability - contain our share of network bill increases to at or below CPI for customers. Reliability - ensure the ongoing reliability, security and sustainability of the network. 3

41 OUR NETWORK Peak temperatures typically higher and more sustained than coastal areas - greater chance of temperatures being above 40ºC in any given year. 8 in 10 homes in Western Sydney have air conditioners. 8.5% of customers have solar generators on their homes. This costs other customers $52M per year until end of Our network covers Sydney s North West and South West Growth Centres. They will house more than 500,000 people in more than 180,000 homes. Two cities each the size of Canberra to be built within the Endeavour Energy network over the next 30 years. 4

42 NORTH WEST GROWTH CENTRE 16 Precincts 70,000 new dwellings 200,000 people 5

43 ORAN PARK SOUTH WEST GROWTH CENTRE 18 Precincts 110,000 new dwellings 300,000 people 6

44 FROM THIS: KELLYVILLE NSW 7

45 TO THIS: KELLYVILLE 10 YEARS ON 8 THIS IS OCCURRING ACROSS GROWTH CENTRES

46 CAPITAL EXPENDITURE Capital expenditure is the money used to expand and renew the network. Capital will reduce by $1.1 billion in compared to This is a 37% reduction or 44% below the forecast of inflation over

47 CAPITAL EXPENDITURE Key challenges: maintaining a safe, reliable and sustainable network renewing ageing network assets while there is falling demand across the broader network, we still need to service substantial growth in demand in the key greenfield growth areas of North West and South West Sydney 10

48 OPERATING EXPENDITURE Money used to employ workers and undertake network maintenance Operating expenditure to increase from $1.7B in to a proposed $1.8 billion over This is a 7% increase, but 5% below the forecast of inflation over $450 ENDEAVOUR - Transitional proposal opex and "underlying opex" $400 Opex ($m, real ) $350 $300 $250 $200 $150 $ Actual / Fcast ( ) AER opex allowance ( ) Transitional proposal opex (including ACS and ERW) Underlying Opex 11

49 OPERATING EXPENDITURE Network operating costs includes : network inspection, maintenance and repair vegetation management to keep trees a safe distance from powerlines fault and emergency repairs customer service operational switching and outage management demand forecasting procurement, logistics and stores information technology that supports network operations 12

50 ENDEAVOUR ENERGY PRICES Avoid price shocks Our share of an average household electricity bill will decrease by 0.24% next year, which is 2.68% below the forecast rate of inflation. Typical bill impact ($, nominal) Change ($) Change (%) Residential customer $ $ $ % Small business customer $2, $2, $ % 13

51 QUESTIONS 14

52 Further information contact: Network Regulation Mike Martinson, Group Manager Network Regulation, Networks NSW Ph: Stakeholder Feedback Kylie Yates, Group Manager Corporate Communications, Networks NSW Phone: Kate McCue, Manager Corporate Affairs, Endeavour Energy Ph: