Tariff Structure Statements – Energex and Ergon Energy AER public forum

Rules – defining & reflecting costs National Electricity Objective “…promote efficient investment in, and efficient operation and use of, electricity services for the long term interests of consumers with respect to…” Network Pricing Objective “…tariffs a distributor charges in respect of its provision of direct control services should reflect the distributor’s efficient costs of providing those services to the retail customer” Distribution pricing rules – efficiency Pricing principles Tariff classes Tariff assignment / reassignment Distribution pricing rules – customers & compliance Customer impacts Understandability of tariffs Jurisdictional gov’nt obligations

Rules – Defining & reflecting costs Identify forward looking costs (LRMC) Link costs to customers – tariff classes & assignment / reassignment Define costs & causation links LRMC – time & location, but: rules silent on tariff design Design of tariffs Minimise distortions to forward looking tariff signal Recover residual costs Revenue between SA & AC to avoid cross subsidies Stand- alone & avoidable cost Transition approach Understandable tariffs Gov obligations Alter tariffs (customer impacts & compliance)

Rules – Defining & reflecting costs Cost reflectivity = means to achieve efficient usage and investment (network & customer side) Spectrum of degrees of cost reflectivity:  Rules (NPO, LRMC) refer to prices reflecting costs of providing services to individuals  Cost = time & location specific  Technology, practicality, acceptability determine degree / speed of cost reflectivity progress for each distributor  Rules encourage progress over time along cost reflectivity spectrum  Iterative process to compliance – over time and by business

Overview Large customers (ICC & CAC) Transition to new time-of-use demand tariffs (CAC) Small customers (SAC) Retain existing flat and time-of-use tariffs Opt-in for new demand tariffs (require appropriate metering) Some adjustments to existing tariffs to improve cost reflectivity Steps along cost reflectivity spectrum > consumption to actual cost drivers > signals costly periods (consider appliance use)

Time of use tariffs (existing) ◦2 part tariff (fixed, usage) with peak usage charge:  4pm to 8pm weekdays for residential  7am to 9pm weekdays for business Demand tariffs (new) ◦3 part tariff (fixed, usage, demand)  Demand charge windows 4pm to 8pm weekdays (excludes PH) for residential and 9am to 9pm weekdays (excludes PH) for business  Demand charge = highest 30 minutes in demand charge window  Cap on demand charge for first 12 months (5kW for residential) Energex’s small customer tariffs Flat usage Current – 2 part tariffs Stay on existing OR Opt-in to new tariff Fixed Max demand Usage No change Fixed Variable usage Time of use Demand

Seasonal time of use tariff ◦2 part tariff (fixed, usage) with peak usage charge:  3pm to 9.30pm each summer day for residential  10am to 8pm summer weekdays for business Seasonal demand tariff ◦2 part tariff (usage, demand)  Demand charge windows as per seasonal time of use tariff (lower demand charge non-summer)  Demand charge = average 4 highest days measured in demand charge window (minimum 3kW in non-summer months) Ergon’s new small customer tariffs Inclining usage Current – 2 part tariffs Stay on existing OR Opt-in to new tariff Max demand Usage Fixed charge Fixed Variable usage Time of use Demand Usage charge

Defining & linking costs to customers Forward costs Residuals Augex – capex & some opex 10+ yr forecast Total regulated revenue Demand component Fixed &/or usage SAC Business LRMC (AIC method) CAC General customer Residential SAC ICC

Proposed peak time-of-use and demand tariff windows Energex  4pm to 8pm weekdays for residential  9am to 9pm weekdays for business  Excludes gazetted public holidays Ergon  3pm to 9.30pm each summer day for residential  10am to 8pm summer weekdays for business Link to cost drivers (network stress periods) but: sufficiently linked? Based on total network peak but: constraints instead? Simplified windows but: costs? Sends helpful message?

Price & non-price alternatives Price signals > part of suite of network management approaches Interactions in approaches > network costs driven by asset condition at specific times & locations: ◦Locational $p = theoretical best but complex – future? ◦More averaged prices = more reliance on DM Constraints driven by peak demand Signal price to motivate response Build more network Procure demand management alternatives

Moving to more cost reflective tariffs but cognisant of impacts on customers > transition Rule requirements – customer impacts Defining costs & causation Designing tariffs Recovering residual costs Standalone & avoidable costs Adjusting tariff approach for customer impacts & other compliance

Rule requirements Consider impacts May transition over time – may extend over multiple reg periods Extent customers can choose tariff Extent customers can mitigate impact through usage decisions Tariff structure - reasonably understandable Consider type & nature of customer Departures from cost reflectivity Consider info provided & consultation undertaken Jurisdictional obligations no locational pricing for small customers

Impacts & understandability Rules require impact consideration but difficult: ◦Retailer has direct contract with customers:  Retailer(s) be able to offer varied options (flat tariffs, peaky tariffs, critical peaks, mobile phone style cap plans?)  Varied retailer options in effect could manage impacts?  What constraints will retailer(s) face in offering various options? ◦ If constraints likely – impacts of network tariffs more identifiable ◦Retailer incentive to make tariff info easy to understand?

Energex estimated residential customer impacts

Managing small customer impacts – transition methods ApproachDemand tariff proposalsAER observation Mandatory/ voluntary? Opt-inOpt-in mitigates customer concerns Tariff simplicityEnergex: time of use and demand tariffs standard structure Ergon: seasonal aspect to time of use and demand tariffs Interested in consumer responses Retailer packages crucial Ergon non-summer min demand charge similar to fixed charge Cost reflectivityEnergex: demand charge 100% immediately Ergon: gradual increase in demand charge Needs to be seen in context of other measures Other measuresEnergex: 12 month cap on demand charge Balances moving straight to cost reflectivity

Key Dates Submissions due- issues paper 28 Apr 16 AER draft determination 1 Jul 16 New Energex tariffs 1 Jul 16 Revised TSS proposals 2 Sep 16 AER final determination 30 Jan 17 Pricing proposals align with TSS 1 July 17 submissions to

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Potential discussion topics Pros and cons of choosing a new tariff Retailer response Demand tariff: ◦Opt in for all or more important for existing customers? What about new customers with appropriate metering? ◦Choice of charging windows > appropriate or could be better targeted? ◦Benefits of switching are clear? Who better or worse off? Other issues?