Outline
• Prices
• Profits
• Costs
- Focus on actuals; comparison to other NSPs; comparison to regulatory
expectations
- At this stage, mainly contextual and high level
NSW households currently paying 2X VIC households and 2.5X GB
households for elec. distribution network services
Average household prices for network services
(2013/14)
cents / kWh
25
20
15
10
5
2
m
in
GB
er
ag
e
GB
av
m
ax
GB
Vi
ct
or
ia
M
Vi
ax
ct
or
ia
av
er
ag
e
Vi
ct
or
ia
m
in
vo
ur
En
de
a
er
ag
e
av
NS
W
Au
sg
rid
Es
se
n
al
-
NSW DNSPs about twice as profitable as AER expected in current
price controls
Actual NPAT (2012/13)
$(million)
$800
$700
NPAT assuming 10.29% post tax ROE (and using actual gearing)
$600
"Surplus" return
$500
$400
$300
$200
$100
$AusGrid
Endeavour
Essen al
And don’t forget “debt guarantee” fees and income tax equivalents of $857m in
2012/13 = 174% of actual dividends paid to Treasury
By any measure an extraordinarily profitable industry.
3
Actual revenue running far ahead of expected, in spite of much lower
throughput than expected. Why?
4
NSW DNSP RAB per connection near the top end in Australia and
about 3X higher than VIC and about 7X higher than GB!
2012/13
RAB Per connec on
($'000)
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$Ergon
Energy
5
Ausgrid
Essen al Energex Endeavour Aurora
Energy
Energy
Energy
Ci power SP Ausnet SA Power Powercor Jemena
Networks
United
Energy
UK Power
networks
And NSPs proposing only slightly less capitalised spend in coming RP
than actual in current RP
Change in RAB
($millions, nominal)
Current period (including meters)
Coming period (excluding meters)
$4,500
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$-
AusGrid
6
Endeavour
Essen al
2012/13 opex/connection also near top end in Australia, though
(relatively) not as bad as RAB/connection
Opex per customer $(2013)/
connec on
$700
$600
$500
$400
$300
$200
$100
$Ergon
7
Essen al SP Ausnet
Ausgrid
Energex Endeavour SA Power
Networks
Aurora
Powercor
Jemena
United
Ci power
Proposed opex in next RP hardly changed from actual opex in this RP
Allowed opex (current RP)
$million (2013)
$3,500
Actual opex (current RP)
Proposed opex (coming RP)
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$Ausgrid
Endeavour
Essen al
But headcount in next RP at least 1000 less than this RP. At $80k per person per year,
headcount reduction should deliver savings of $400m in next RP. So, where is the
money going?
8
EBSS claims hard to understand
Allowed opex less actual opex
$million
EBSS claim
$500
$400
How does $37m
overspend for Ausgrid
translate into $426m
bonus to be paid by
consumers?
$300
$200
$100
$-
Ausgrid
-$100
9
Endeavour
Essen al
Proposed return on debt far,far above actual costs: More of the same.
Ausgrid
Endeavour
Essential
Cost of debt
Proposed
(2012/13
return on
annual
debt
report)
Difference
7.98%
5%
2.98%
7.98%
5%
2.98%
7.98%
5.8%
2.18%
Approximate
impact on Approximate
2014/15
impact on
revenues
2014/15
($million)
prices
$
206
10%
$
95
9%
$
85
6%
Mistakes of the past must not be repeated.
10
Energy density for Endeavour and Ausgrid in sharp decline
NSW DNSPs project big bounce-back in energy density. But why? Revenue
cap provides strong incentives to over-forecast demand and consumption.,
Mistakes of the past must not be repeated.
11
Initial summary comments
1. NSW DNSPs currently have high costs, high prices and extraordinarily high profits.
2. Proposals do not head in the right direction: little change from current, if anything with
declining energy density things actually getting worse.
3. The mistakes of the past in capex and opex allowances, return on debt and demand
projections must not be repeated.
4. Looking forward to engaging with DNSPs and AER in constructive dialog.
12