AI 070503

Proposed pricing structure – Network Regulatory period 2004 - 09Adrian RayGM - Sustainability: 

Proposed pricing structure – Network Regulatory period 2004 - 09 Adrian Ray GM - Sustainability

Slide2: 

Agenda

Existing determination: 

Existing determination Revenue under-recovery Estimated 15% AARR under at June 04 Costs Increasing Opex Capex higher than forecast Significant TUOS increase 2002/03 Growth Average 1.5% per year over last 10 years Annual sales volatility One large mine in Broken Hill consumes 33% energy Impact of mining – flat outlook assumed

Existing revenue collection: 

Existing revenue collection

Sales volatility: 

Sales volatility

Current Pricing: 

Current Pricing Pricing cross subsidies Under-recovery of tariffs Urban subsidise remote Business subsidise domestic Increases since 1995 Transmission increases passed through AI chosen no real network distribution increases.

Network price changes: 

Network price changes

Operating Expenditure: 

Operating Expenditure Increased focus on maintenance Increased asset management and regulatory costs

Capital Expenditure: 

Capital Expenditure Historical CAPEX volatile Targeted reliability improvements reduce customer outage minutes by increased monitoring, protection and switching systems

Commercial Needs: 

Commercial Needs Goal: Pursuit of an efficient and sustainable business Compliant Reliable Competitively priced Maintaining & Investing for future Drivers of Proposed Price Changes Network asset valuation $57.8 million Weighted average cost of capital 7.8% Annual operating costs Annual capital expenditure Annual sales growth

Operating Costs - Forecast: 

Operating Costs - Forecast Historical: Non typical base year; Priority with Customer funded works resulted in low opex Current: Increasing cost of compliance & Improved reliability Targeted 1.5% pa productivity improvement

Operating costs - forecast: 

Operating costs - forecast

Capital Expenditure - Forecast: 

Capital Expenditure - Forecast Targeted reliability improvement – SCADA, Maintenance Management Targeted 25% Improvement in Customer Minutes Off Supply

Sales Consumption - Forecast: 

Sales Consumption - Forecast Post Drought: –3% drop forecast 1.5% pa growth long term trend Influence of Mine = 33% energy

Revenue – Increasing Shortfall: 

Revenue – Increasing Shortfall Required revenue increases from $12m to $19.3m in 04/05 Total shortfall (Required – Actual): $7.3m

Summary - Drivers for Price Changes: 

Summary - Drivers for Price Changes Board ensures weights on Management to avoid gold plating: 1.5% pa operating productivity Capital investment – short term investment in monitoring, protection and switching then 50% reduction 15 year Asset Management Plan – define performance, maintenance and investment Historical under recovery on asset value Under recovery increases with Improved reliability requiring targeted maintenance and capital investment.

Concerns: 

Concerns Price Impacts On top of Drought & marginal economic outlook Intense Board discussion - Community ability to absorb price increases Transmission Charges $3m increase last year - significant price shock for Customers Service Levels Emerging from under recovery & under investment Reliability MUST improve Customers MUST see benefits

Service Levels: 

Service Levels Forecast Improvements SCADA to improve monitoring and response times Voltage control & switching upgrades 25% improvement in reliability for Customer SCADA is estimated to provide a 13% reduction in customer outage minutes for rural customers Target to reduce outage minutes by 10% because of improvements in protection systems

Retail bill components: 

Retail bill components

Options to Bridge the Revenue Gap: 

Options to Bridge the Revenue Gap Price Increase 60% (Some Forgone Revenue) Price shock for customers – some total bills up >30% Board concerns on community impact; unknown impact of additional difficulties eg drought Recoup Full Increase in ‘Future Value’ Terms Over 5 Years 5 years of high price increases for customers Community incapacity to pay during difficult years ahead Graduate Increases; Forgo Some Revenue Difficult decision – Australian Inland will not recover all revenue Minimise price shocks to customers Acknowledge the revenue shortfall Clearly a discussion for Shareholders

Revenue options to 2008/09: 

Revenue options to 2008/09

Price Impacts – Monthly Total Bill (2002/03 NUOS): 

Price Impacts – Monthly Total Bill (2002/03 NUOS)

Price Impacts – Monthly Total Bill (2002/03 NUOS): 

Price Impacts – Monthly Total Bill (2002/03 NUOS)

Price Impacts – Monthly Total Bill : 

Price Impacts – Monthly Total Bill Propose 26% graduated increase over 5 years Year 1 increase by 10.5% Years 2-5 increase by 3.6% per year Excludes annual CPI inflation adjustment Revenue forgone by delaying increase from 1 to 5 years is $11 m borne by Shareholder in reduced EBIT.

DUOS price determination: 

DUOS price determination 2003/04 DUOS = NUOS – TUOS 2004/05 ONWARDS NUOS = DUOS + TUOS

Indicative 2003/04 DUOS charges: 

Indicative 2003/04 DUOS charges

Indicative 2003/04 TUOS charges: 

Indicative 2003/04 TUOS charges

Pricing issues: 

Pricing issues Off-peak 1 negative DUOS tariff TUOS allocation to off-peak tariffs > DUOS allocation TUOS fixed charges allocated to energy (fixed charges allocated to fixed results in more negative DUOS charges) Domestic TOU tariff requirement TOU tariffs require overhaul Cross-subsidies to be addressed DUOS revenue/kWh from CRNP customer << other customers

Discussion & Questions: 

Discussion & Questions