1. RETAIL ADVISORY GROUP
October 2012

2. Ensuring we have a sustainable network by:
THE WHY?
Ensuring we have a sustainable network by:
Sending the appropriate pricing signals to customers
Increasing competitive pressure amongst retailers

3. BACKGROUND Load was growing at twice the rate of kWh growth
Network upgrades driven by load growth not kWh growth.
Transpower charges driven by load growth.
Significant dedicated assets to de- energised installations.

4. BACKGROUND (Continued)
Many of the customers causing the load growth paying relatively low lines charges e.g. seasonal businesses and holiday homes
Incentivised to increase load
Urban domestics lowest decile – ability to shoulder cost burden limited.
Predominately rural (dedicated assets)
25% of domestics holiday homes
Significant seasonal businesses

5. OHAKUNE SUBSTATION LOAD OVER TIME
EXAMPLE OF LOAD GROWTH
OHAKUNE SUBSTATION LOAD OVER TIME

6. Background (Continued)
2004 – non incumbent retailers advised us they could not charge different fixed charges:
Holiday homes
Transformer charges
Dedicated lines
2005 – direct billing
2007 – load charging
Recognition pricing signals wrong
Need to raise revenue from holiday home and seasonal areas as areas of greatest capex growth but very low return.
Customer expectation – line charges should be even

7. TLC CHARGES
Capacity Charge– (Network charge) – the maximum load an installation needs at any time.
Dedicated Asset Charges – Transformers, meters and relays
kW load charge–based on a customer’s load level multiplied by the regional rate
Regions– Te Kuiti/Otorohanga, Taumaranui, Ohakune, National Park, Turangi and Whakamaru.

8. BILLING DIRECT
Higher rural network charge $1.085m
Transformer charge $2.487m
Extra holiday home charges $1.730m
Seasonal establishments $ .860m
Vacant installations $2.222m
TOTAL $8.386M
TOTAL LINES REVENUE $32.23M
Advised that none of the above can be billed through retailers as the tariffs were deemed to be too complex.

9. If the above revenue was not collected then line charges would have to increase by up to 42% on the balance of our customers (excluding major industries).

10. Commerce Commission Release Comparative Lines Charges
Does not include Transpower charges.

11. Lines charges based on kWh consumption
Negative Spiral
Lines charges based on kWh consumption
Consumer reduces consumption bill
Consumption reduction not achieved over peak periods of usage = no cost reduction for company
No cost reduction for company = price increases for customers
No focus on network costs or load management Focus on a sustainable network - both
Lines prices rise (e.g. Top Energy) infrastructure, load management and customer affordability – Future lines prices decrease

12. Is a holiday home different?
One Week Profile (school holidays)
kW load charging for 2.51 kW
Consumption over 7 Days 105 kWh
Average daily consumption 15 kWh
Monthly charge:
kW load $53.29
kWh $27.98
Shortfall $25.31
Charging kWh for holiday homes means that residents of the area subsidise the holiday home owners

14. Direct Billing

15. Annual Bill – Average Urban Domestic (MED comparison base)
PRICE TRENDS
Annual Bill – Average Urban Domestic (MED comparison base)
LINES
2010
2011
2012
TLC - Waitomo
798.40
816.80
842.40
Vector
786.40
860.00
New Zealand
756.00
777.60
843.20
DELIVERED ENERGY
TLC + King Country Energy
2,093.60
2,105.60
2,132.80
TLC + Trustpower
2,089.97
Waipa + Trustpower
2,118.52
Mercury + Vector
1,988.80
2,063.20
2,181.60
2,031.20
2,116.80
2,215.20
Trust owned – no control over retailers, only have influence over TLC. With community ownership there is more to consider than maximising profit.
Direct billing may have added to TLC costs, but it has not contributed to increased bills for delivered energy.

16. Transpower costs will reduce Reduce company costs
Positive Spiral
TLC charges by kW load
Consumers can choose to reduce their usage over peak periods of power consumption
Peaks evened out
Transpower costs will reduce
Reduce company costs
Keeping prices reasonable for the customer
No focus on network costs or load management Focus on a sustainable network - both
Lines prices rise (e.g. Top Energy) infrastructure, load management and customer affordability – Future lines prices decrease

17. LOAD CHARGING - OUTCOME
Transpower charges not increasing at the same rate as the rest of the industry due to lower load growth.
2012 Transpower increased its charges by 20%. This plus normal lines increases resulted in increases in lines charges elsewhere in NZ in April of approx 10%.
Our Transpower charges went up in total 8%
Transpower price saving at Ohakune $500,000 pa
Transpower saving elsewhere - $780,000pa
Network upgrade saving estimated by Engineering Manager at a minimum of $1 million a year. Current price saving - $800,000 pa

18. CUSTOMER FOCUS Increase customer understanding of load:
Engage with customers in their own homes and within the communities we serve
Providing education on what load is and the effect on the network
Provide advice and assistance for customers that have difficulty managing load
Educating customers on how they can shift kW load off the peak periods and offering Time of Use meters and load monitoring technology
Offering advice on energy conservation if they do not have a Time of Use meter
We can help you by suggesting a solar cell and battery for your electric fence unit or security lighting.
Call us.

19. CUSTOMER ENGAGEMENT
A dedicated customer engagement team established to deliver the above customer focused education and advice
Community Trust (Ruapehu/Turangi) set up to provide total energy advice to members of our local communities – Molly Melhuish involved.

20. DIRECT CUSTOMER CONTACT
Direct responsibility for after-hours customer fault service – requested by our customers
Direct responsibility for any customer compensation claims – over and above requirements of Customer Guarantees Act

21. Customer involvement
Direct billing means TLC customers know what they are paying in network charges

22. COMMUNITY ENGAGEMENT - EXAMPLE
We held two public meetings in Ohakune in December 2011 and February 2012 to discuss the issue of capacity at Transpower’s substation.
Transpower agreed to alter the way it charged for the new transformer so that customers ended up saving over $150K
Community feedback to Transpower contributed greatly to the decision during the first public meeting

23. Community Engagement Further
CPP commenced on trading off price for increased outages.
Customers can meaningfully engage as know price

24. NATIONAL GROUPS - DOMESTIC ENERGY USERS NETWORK (DEUN)
Contracted to research how easy is it for our customers to shift load
What role do the various load monitoring technologies play in the success of shifting load?

25. Low barriers to entry No prudentials
Customers contact us direct for any network related query/complaint
Retailers competing mainly on energy price – as was expected in lead up to 1999 reforms.

26. Use of System
Current – model agreement minus those clauses covering billing/ prudentials / other transactions through the retailer
Main requirements:
Provide meter reading info ( 2 way)
Provide customer info ( customers may not be the same)
Provide large outage info ( us to retailer)
Provide information on medically dependent customers and other such statutory information (2 way)
Discon/recon monopoly

27. Customer Contract Largely based on model
Customer not necessarily energy consumer – longer term relationship as assets provided to the place.
Standards on outages etc as per Consumer Guarantees Act
Currently being reviewed by Russell McVeagh for Consumer Guarantees reforms.

28. CONVEYANCING REQUIREMENTS
Extract from the EA 2012 Annual Report –
“Simplify and standardise to a greater degree lines company use of system agreements to reduce barriers to entry in regional markets by retailers”
Annual Report 2012, Page 4 – Promoting Competition

29. Summary Achieving Sustainability through
Elimination of load growth that no-one wants to pay for
Separating security of supply costs from energy savings for those looking at distributed generation within an installation
Customer participation in standard setting – lower capex leads to lower price
Low barriers to entry encouraging retail competition – sustained pressure on energy price.