untitled01 Economic performance
Dedicated Project Managers Vanessa Sinclair, Robert McCue and Mark
Tunks are part of the team overseeing Integral Energy’s network
response to rapid development in the north-west sector of the
franchise.
21
Delivery Kieran and Megan Shanahan and their three children are
typical of families in newly developing areas of the franchise who
depend on safe and reliable electricity supply.
Improving our network operating performance, including increasing
reliability of supply.
Continuing to build and maintain value in our network.
Building up the accuracy and completeness of data about the network
and non-network assets that we own through the development of a
comprehensive register for our network and non-network
assets.
Continuing to improve the integrity of financial data across all
business units.
Continuing to address the mass-market challenges of full retail
contestability, including addressing the needs of our
customers.
challenge exceeded
challenge achieved
challenge not achieved
ongoing challenge with targets met to date or positive progress
shown
ongoing challenge with targets not met to date
Network reliability (planned and unplanned interruptions to supply)
showed improvement at 147 minutes lost per customer (excluding
major storms and bushfires), below our target of 149 minutes.
Spent a record $164m on network capital programs, $4m below target,
but $52m more than in 2002-2003.
Further development of the Geographical Information System (GIS), a
database showing the location of all network assets, introduced in
December 2002.
Ongoing use of the Field Inspection System (FIS), used to inspect
all of the organisation’s electricity poles and towers, implemented
in December 2002.
Creation of a corporate equipment register and work management
system to replace disparate legacy systems, implemented in May
2004.
Further developed provision of financial strategy, discipline and
cash flow management for the organisation, and the accurate
capture, control and reporting of financial performance to key
stakeholders, including development of web-based financial
budgeting and reporting.
Achieved EBITDA budget of 106.4% (after adjustment for one-off
revenue gains). Continuing strict adherence to operating financial
targets.
Provided rigorous input and analysis to the desired financial
outcomes of the Network and Retail Determinations (IPART).
Made significant gains among non-franchise customers through
dedicated door-to-door sales agents.
Continued success with cost-effective direct marketing
campaigns.
An increasing proportion of customers secured onto a negotiated
contract.
Completed a research program to identifying key customer value
drivers related to our products.
Retained a significant proportion of large business
customers.
Did we meet our challenges?
Financial challenges for 2003-2004, and our performance against
them, are listed below.
22
Customers
Sold 10,141 GWh of electricity, a 2.1% increase on 2002-2003.
Total customer connections were 819,496 as at the end of June, a
1.3% increase from 2002-2003.
Network reliability (planned and unplanned interruptions to supply)
was 147 minutes lost per customer (excluding storms), a 5% decrease
on 2002-2003 and below our target of 149 minutes. Our target for
2004-2005 is 145 minutes lost per customer.
Provided customers with $21m in rebates and payment assistance
under the Pensioner Rebates Scheme, Life Support Equipment Scheme
and the Energy Accounts Payment Assistance Scheme, a 9.4% increase
from the previous year. This money is reimbursed to us by the NSW
Government.
Achieved a decrease in customer complaints over last year due
mainly to reduced impact of bushfires and severe storms.
The total of 2,651 complaints about the operation of our network,
equates to around 3.2 complaints received for every 1,000
customers.
Suppliers
Purchased goods and services from more than 2,000 external
suppliers and contractors through an open and transparent
process.
Established long-term relationships with strategic suppliers –
particularly those that fit closely with Integral Energy’s
values.
94% of suppliers were paid on time.
Employees
Paid $114.8m in wages and benefits (including superannuation) to
our employees, a 9% decrease from the $126.6m paid in 2002-2003.
This was due to a range of factors, including an increase in the
superannuation surplus account, requiring no expenditure of prepaid
superannuation contributions.
Providers of capital
Earnings before interest and tax, before capital contributions,
were $202.7m, a 69.1% increase from 2002-2003 and 41.6% above
forecast. Our target for 2004-2005 is $182.1m.
Returned a net profit, after tax, of $102.3m, an 138.2% increase on
the previous year.
Returned $102m in dividend to our shareholder.
Interest on debt and dividend payments was $85.5m.
Public sector
Income tax equivalents were $61.8m, an increase on the $33.9m of
equivalents in 2002-2003.
Performance indicators
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Economic performance
The key contributors to the economic dimension of Integral Energy’s
business performance are investment in, and performance of, the
organisation’s electricity supply network; the contribution of
retail operations; overall financial management for the
organisation; and, ensuring adequate resources are in place to
further support growth of the business.
Over the past five years, Integral Energy has significantly
increased investment in its network to improve the reliability and
safety of electricity supply to customers. As a key generator of
income for the corporation, the network is characterised by ageing
assets attempting to deal with increasing demand through growth,
notably in residential areas, and higher demand through appliance
usage, notably air-conditioning.
Higher levels of investment are required to meet increasing demand
as new areas of the franchise are developed; higher demand from
growing use of air- conditioning; and, to replace assets at or near
the end of their useful life.
The organisation’s supply network, which serves well over two
million people in homes and businesses, spans 24,500 square
kilometres, and has an estimated value in excess of $2b. The
network includes 20 transmission, 144 zone and 26,571 distribution
substations, 312,500 power poles and 173,000 streetlights, bound
together by 33,370km of underground and overhead cable.
Key load centres include Parramatta, Blacktown, Penrith, Liverpool
and Wollongong.
The network is operated and maintained on a day-to-day basis
by:
Engineering Performance, which is responsible for system operations
and development, contestable work operations and performance
review, and development of policies and standards governing the
growth, maintenance and refurbishment of the network.
Asset Management, which ensures that the electrical assets are “fit
for service” through transmission and distribution engineering,
maintenance and construction programs, refurbishment and emergency
response. The group employs almost 900 of the organisation’s staff
in field or support roles.
Capital Solutions, created in July 2002 in recognition of the
rising level of investment in the network, and the need to ensure
delivery of the capital program in the interests of increased
customer expectations and changing consumption patterns. Capital
Solutions’ role is to drive the delivery of this expanding program;
monitor and report on the program’s status; and, provide a range of
services to ensure effective and efficient provision of services to
the network business units.
Reliable electricity supply
Integral Energy is committed to providing long-term customer
service by developing and operating a sustainable and reliable
network. The organisation’s fundamental strategy is that customers
in its region should, on average, receive comparable service
standards to customers in like situations within Australia.
A key service standard is reliability, which is measured as the
number of minutes, on average, that each customer is without
supply, excluding major storms.
The reliability target of 149 minutes per customer was made up of
119 minutes for unplanned events (including high temperatures,
traffic accidents, and impact by animals or falling trees) and 30
minutes of planned outages (such as maintenance or construction
activities on the network).
The overall reliability result for the year was 147 minutes,
including 116.7 minutes unplanned and 30.3 minutes planned. This
was a good result considering the increase in work on the network
as a result of the increasing capital program, and the impact of
key incidents.
Incidents that had significant impact on the performance of the
network included:
In December, an unscheduled outage at Blacktown transmission
substation, which interrupted 13 Integral Energy zone substations
affecting about 83,000 customers and three EnergyAustralia zone
substations.
Between January and March there were 24 days where temperatures
exceeded 35
o C.
In April there was an interruption to approximately 77,000
customers due to a suspected cut to an underground cable, which
caused the loss of eight zone substations.
In June, a large tree, which was being lopped by a private
contractor, fell onto the main transmission line from Shoalhaven to
Huskisson, South Nowra and Sussex Inlet zone substations. The tree
had to be removed and the line repaired before full supply could be
restored.
The 2004-2005 reliability target is 145 minutes (115 minutes
unplanned, 30 minutes planned).
24
Left to right: George Ridolfo, Patrolman, Bowenfels. Val Logan,Tony
Torville and Jag Balaji, Finance (General Ledger) , Huntingwood.
Steve Williams, Regional Services Manager, Central, Hoxton
Park.
25
Demand continues to grow
The organisation’s asset management planning results in the
development of short-term and long-term initiatives and areas for
network and non-network investigations.
Much of the investment and areas of investigation in the short term
are driven by the need to match the huge growth in residential,
commercial and industrial customer demand being experienced across
the network supply area, but concentrated in a number of key
regions.
Following close assessment of the nature of customer growth, the
following issues have been recognised and addressed:
Changes in historical consumption patterns, which have led to major
changes in the distribution network loading and design criteria for
the reticulation on new subdivisions.
A shift from a winter peak in energy consumption to a summer peak,
which changes the nature of demands on network assets.
A large shift in the volume of energy for short periods within the
network supply area, driven largely by an increase in commercial
and
residential air-conditioning load in Western Sydney.
Rapid take up of land use – particularly in new development areas
in north-west and Western Sydney. In some new areas, such as
Glenmore Park, average household consumption has doubled.
Rezoning of residential areas from low to medium density. This has
resulted in greater numbers of group townhouses and villa homes,
increasing the load density of established areas.
Significantly higher reliability expectations among customers due
to the growth in home offices and increased reliance on the
Internet as a means of conducting business.
In response to growing demand, a wide range of capital and
maintenance programs were planned, commenced or continued during
the year, including by geographic region:
South-west
Mamre zone substation establishment ($13m): Required to supply a
new industrial development in the Mamre area and to supply the
residential area of Erskine Park.
Hawkesbury
North Richmond zone substation ($7m): Enhanced and new zone
substations to improve reliability of electricity supply to
customers in the Hawkesbury area, and the Richmond RAAF base.
Penrith
Glenmore Park zone substation ($6.5m): Upgrading the capacity of
the zone substation in response to a doubling of average household
electricity demand in Glenmore Park, largely as a result of
increased use of air-conditioning.
Blacktown
Baulkham Hills zone substation ($7.5m): A new zone substation will
be established within the Baulkham Hills transmission substation to
ensure we can deliver ongoing supply reliability to customers in
the Seven Hills industrial area and surrounding residential
area.
Quarries zone substation ($8m): Following the release of major
tracts of land for residential and industrial development, the
existing Quarries zone substation was upgraded to supply the
expected initial demand.
Case study 1 In the sweltering summer, homes and business in
Sydney’s western suburbs really feel the heat. As air-conditioners
go on, the capacity of Integral Energy’s electricity substations
come under pressure – but only for a relatively short period. For
the rest of the year they operate well under capacity.
These are ideal conditions for Demand Management (DM) strategies.
Acknowledged as an industry leader in seeking out and applying DM
initiatives, Integral Energy has begun yet another major program.
For the first time in Australia, the corporation has contracted two
energy efficiency companies – Energy Conservation Systems and Big
Switch Projects – to investigate the opportunities to reduce
electricity demand during periods of peak demand.
The focus is on the Blacktown-Seven Hills district of Western
Sydney, where Integral Energy is seeking to defer capital
expenditure on upgrading a new substation at Leabons Lane,
Blacktown.
This three-year project seeks to defer the $3m upgrade cost,
allowing public investment to be put to better use. Under the
program, Integral Energy provided free energy efficiency reviews,
helping major business customers uncover ways to save energy. Any
customer that invests in projects that reduce peak power demand
will be given a subsidy towards those projects.
Leading the project is Frank Bucca, Integral Energy’s Demand
Management/ Network Utilisation Manager. Frank dedicates most of
his time to projects that deliver wide benefits – lower
electricity
bills for customers and cutting greenhouse emissions (the
Blacktown/Seven Hills program will reduce emissions by 6,750 tonnes
each year, equivalent to removing 1,500 cars from NSW roads each
year).
Economic performance
South Coast
Shellharbour zone substation ($4m): Upgrading of Shellharbour zone
substation to match demand from the new residential release area of
Shell Cove, as well as existing residential areas of
Shellharbour.
Across the network
Summer power factor correction ($14m): The increasing use of
industrial, commercial and domestic air-conditioning has resulted
in higher reactive power demand on the network, affecting supply
reliability. This project, which began in 2001, involves the
installation of power factor correction capacitors at various
existing zone substations to address the issue of increased
reactive power demand and increase supply security.
Transmission system refurbishment ($66m): During 2004-2005,
refurbishment will be completed on major system assets throughout
Western Sydney, the Illawarra, the Blue Mountains and the Southern
Highlands. This will help maintain customer service levels, and
improve the safety and environmental impact of the electricity
system.
Distribution system maintenance ($17.5m): The investment includes
the maintenance and repair of overhead and underground systems,
regular inspection of the electricity system and repair of the
system following incidents such as storms and vehicle
impacts.
Preventative vegetation management ($15m): Vegetation growth is
managed in an environmentally sensitive manner, with an eye towards
minimising the impact on customer electricity supply.
Industrial and commercial customer connections ($9.5m): Connection
of electricity to new industrial customers often requires the
upstream system assets to be augmented or rearranged. This program
will streamline the connection of new industrial or commercial
customers to the electricity system in Western Sydney, the
Illawarra and Southern Highlands.
Underground residential development ($9.5m): This program ensures
that construction of new underground distribution assets in new
urban land release areas occurs in a timely manner to meet customer
needs.
Distribution substation refurbishment ($13m): System analysis has
revealed the need to augment a number of distribution transformers
to help bolster supply reliability. This ongoing program involves
the replacement of transformers with larger capacity units.
Distribution works program ($6m): Identifying essential
distribution system development works required throughout the
franchise area to maintain community safety, customer service
levels and business performance.
Environmental enhancement program ($1m): An ongoing program of
works that will reduce the impact of the network on the
environment, mainly through insulation of overhead lines and/or
their replacement with underground cables.
Reliability enhancement projects ($1.7m): This ongoing program
targets the poorest performing areas of the system for corrective
action.
Projects planned for the future include:
South-west
Wetherill Park transmission and zone substation ($22m): Designed to
address the significant industrial development activity in the
area, with the first stage due for completion in 2005-2006.
East Liverpool transmission substation ($33m): Augmentation in
response to increasing demand for electricity in the Liverpool CBD
and surrounding areas, driven primarily by commercial and
high-density residential activity.
Parramatta
Parramatta CBD east zone substation ($18m): Future investment is
required to ensure capacity and reliability. While there are
opportunities for demand management, the current network option is
to establish a Parramatta CBD east zone substation, and a second
substation in the Parramatta CBD when required.
South Coast
Springhill transmission substation ($40m): The substation, which
has reached the end of its effective service life, will be replaced
by a new substation to ensure ongoing reliable electricity supplies
to Wollongong and the Port Kembla industrial area.
Focus on demand management
Integral has always had as a primary goal, the reliable and safe
delivery of electricity to customers. In recent years, however,
there has been added emphasis for Integral to do this in the most
energy efficient and environmentally safe manner.
A broad range of Integral’s stakeholders are driving this new
imperative.
The NSW Government is seeking to ensure better management of
electricity demand including the reduction of peak loads,
greenhouse gas emission abatement and improved appliance
efficiencies. Agencies such as the Department of Energy, Utilities
and Sustainability, the Department of Infrastructure, Planning and
Natural Resources and the Department of Environment and
Conservation have expectations that energy companies will increase
demand management solutions where feasible.
The Independent Pricing and Regulatory Tribunal (IPART) is
specifically concerned with the State’s growing demand for
electricity, the increasing peaks in demand and lowering the cost
of service provision.
26
Left to right: Carl Stratton, Judy Fuller and Andrew Burton,
Finance, Huntingwood. Evan Blye, Electrical Fitter Mechanic,
Construction, Penrith. Tracey Simmons, Sales, Retail and Customer
Services, Huntingwood.
27
Environmental groups recognise the environmental implications of
increasing fossil fuel consumption and are moving towards
partnering with industry and government to resolve complex issues
such as demand management.
Customers are becoming increasingly more aware about environmental
issues such as greenhouse gas emissions, and may modify their
electricity consumption if provided with the necessary information,
flexibility of options and economic incentives. Retailers are
actively focusing on demand management as a way of differentiating
their product and recognise the flow-on effects to the network
businesses in the form of potential reductions in capital
expenditure and peak load demands.
Integral has responded by developing an organisation-wide demand
management strategy that considers the above stakeholder
requirements and links directly to our organisational vision – “to
be Australia’s leading energy business”.
Since 2001, Integral has published annual planning statements that
seek to engage the community and encourage proposals for
alternative non-network solutions to specific forecast system
constraints. These statements were prepared in accordance with
requirements, documented in the NSW Demand Management Code of
Practice.
Customer response
Continuing its strategy of locating field crews as close as
possible to within 60 minutes travel of work sites, the
organisation opened new depots at Narellan, near Camden, and
Springhill, south of Wollongong.
Receipt and delivery of essential equipment was also enhanced with
the opening in May 2004 of a purpose-built central logistics
facility at Glendenning, near Blacktown. The store’s location gives
access to the main traffic routes to all parts of the network
franchise area. Access and delivery times will be further
improved with the completion of the M7 orbital road in 2007.
At year-end, the new pole yard at Penrith was nearing completion,
replacing the facility that has operated at Schofields for many
years.
Plans are also being prepared for the refurbishment of office space
at Shellharbour, and development of the Hoxton Park depot.
Elsewhere, the Board has approved the construction of new depots at
Picton and Moss Vale (to replace Bowral).
Following a number of break-ins, the Board has also approved an
upgrade in security at Narellan, and extension of the security
fencing program to 39 substations.
Connecting customers
Customer connections increased by 17% in 2003-2004, with 5,586
applications comprising 1,523 subdivisions and 4,063 connection of
load.
Also, more than 67,000 notifications of electrical or service work
by contractors were processed, with more than 17,000 subdivision
and project inspections.
Although registered by the NSW Department of Energy, Utilities and
Sustainability, the standard of work and methods of Accredited
Service Providers (ASPs) are monitored and inspected by Integral
Energy to ensure compliance with its standards and to protect the
safety of its customers and the public.
The organisation held seminars to broaden awareness of the
organisation’s expectations of Level 2 ASPs, and to provide
orientation for new Level 3 ASPs (designers). Integral Energy also
issued safety, procedure and equipment notices, and a further
information session on network connection policy.
During the year, 24 Level 2 ASPs (service connectors) were
suspended from working on Integral Energy’s network for breaches of
safety and related work practices.
Future challenges include addressing the present shortage of Level
3 ASPs in the marketplace in order to adequately respond to
burgeoning residential and commercial demand. Although Integral
Energy used to provide these services, it was forced to withdraw
from the market at the beginning of 2003 in order to focus on its
own capital program.
In recognition of the gap this has created in the marketplace,
Integral Energy has recently reviewed its decision and plans
increased involvement in 2004-2005.
Metering and meter data
The meter data group, including InfoMet, continued to provide
services to numerous retailers and end-use customers, and
maintained its accreditation with the National Electricity Market
Management Company (NEMMCO).
A key challenge during the year was the introduction of improved
processes for testing meters. This included upgrading field testing
equipment to help ensure timely and accurate billing of
customers.
The bulk meter change process was also re-introduced, resulting in
the replacement of about 10,000 old meters, mainly for residential
and small business customers.
In response to some customer complaints about billing errors, the
meter data unit undertook improvements in validation processes for
meter reading to ensure timely and accurate billing. This resulted
in an improvement in the error rate from one in 1,700 to one in
3,000.
Vegetation management
Vegetation contact with overhead power lines is a common cause of
supply interruptions. Integral Energy seeks to minimise
interruptions of this nature through a planned program of
vegetation management totalling $15m that balances environmental
needs with network reliability. Vegetation management cycles have
been reduced from 18 months to 12 months.
Economic performance
In 2003-2004, the program was extended to include pre-summer
bushfire inspection of private lines, part of the organisation’s
Bushfire Risk Management Plan. Pole inspections are carried out by
helicopter, with regional staff inspecting the condition of private
lines.
During the year, more than 280 bushfire defects were identified and
corrected, while private line inspections revealed 1,458 defects
involving either vegetation or hardware faults.
Further information on environmental initiatives can be found in
the environment report on page 36.
Systems management program
Integral Energy’s commitment to network investment includes
computer-based systems that underpin the operation and performance
of the network. In order to drive improvements in systems, the
organisation established the Integrated Asset Information
Management Strategy
(IAIMS) to evaluate existing business systems and processes, and
assist in making optimal decisions about upgrades to or new
investments.
Progress on three key projects so far includes:
replacement in December 2002 of the organisation’s Geographical
Information System (GIS), a database showing the location of all
network assets;
replacement of the organisation’s Field Inspection System (FIS),
used to inspect all of the organisation’s electricity poles and
towers, implemented in December 2002; and,
creation of a corporate equipment register and work management
system to replace disparate legacy systems, together with the
integration of the equipment register and works information with
the organisation’s GIS and FIS ( implemented in May 2004).
IAIMS has a long-term vision and, on successful completion, will
provide asset and works managers with access to best practice
processes, systems and information for the effective ongoing
management of the organisation’s asset base. This, in turn,
will:
provide improved reliability of supply for our customers;
promote the safety of the community and our staff;
improve our network performance;
provide our shareholder with increased value.
28
Case study 2 South Coast windstorm wreaks havoc
On Sunday, 24 August 2003, the South Coast region of Integral
Energy’s electricity network was hit by the worst storm in 22
years. As trees fell, and roofing blew from residential and
commercial buildings, more than 140,000 customers lost supply, more
than half in Integral Energy’s southern region. Beyond the
Illawarra and South Coast, freak winds caused widespread damage in
Lithgow, the Blue Mountains, Hawkesbury and the Southern
Highlands.
While many customers had power restored within 48 hours, others had
to wait for up to six days. Emergency teams removed hundreds of
trees and other debris from power lines, enabling repair crews to
complete their work.
Among the crews were Brad Rossiter (Nowra) and Michael Cullen Seven
Hills, pictured during Live Line training.
A detailed study of the storm and its aftermath has led to major
changes in the way Integral Energy will plan its recovery from
storms and major network incidents. Upgrading of equipment has also
made it easier for customers who phone to gain more information
about network problems during emergency incidents.
Left to right: Lyne Deveney and Tranquilino Javier, Billing, Retail
and Customer Services, Huntingwood. Chris Pett, Leading Hand
Lineworker, Construction, Penrith. Sharon Kokoszka, Marketing,
Retail and Customer Services, Huntingwood.
29
Regulatory management
The Independent Pricing and Regulatory Tribunal (IPART) regulates
Integral Energy’s network revenue and network pricing. In June
2004, IPART delivered its NSW Electricity Distribution Pricing
2004/05 to 2008/09 Determination.
This Determination sets the network revenue that Integral Energy
will be allowed to earn over the 2005-2009 regulatory period. The
Determination marked the culmination of a long process, commencing
late in 2002 with the release of an Issues Paper by IPART and
entailing a number of detailed submissions from Integral Energy and
other stakeholders.
Integral Energy welcomed the final decision by IPART as it
delivered balanced outcomes on key issues related to the rate of
return, expenditure allowances and pricing impacts. While there
have been some refinements, IPART largely accepted Integral
Energy’s expenditure proposals.
The final Determination provides for Integral Energy to
significantly increase its capital investment in the network to
$1.2b over five years. This level of expenditure will allow us to
deliver on our network strategy and meet electricity demand
(expected to grow by 32%) associated with population growth and
increased use of air-conditioning, and to replace ageing and
deteriorating assets.
The challenge for Integral Energy is to deliver its ambitious and
necessary capital program. In 2003-2004, Integral Energy achieved a
record system capital spend of $164m and plans to substantially
increase this level of system capital spend over the coming
years.
Other features of IPART’s Determination are:
the weighted average cost of capital was set at 7% pre-tax
real;
introduction of a weighted average price cap as the form of
regulation over the next regulatory period;
a network price increase of CPI+5% in 2004-2005 followed by
CPI+1.5% in the remaining years of the regulatory period;
implementation of a paper trial for a service quality
mechanism;
the inclusion of a pass-through mechanism for certain future costs
not yet quantifiable; and,
an improved demand management framework.
During the year Integral Energy progressed proposals for tariff
reform with IPART to improve price signals to customers. This need
has been largely driven by the proliferation of air-conditioning in
Integral Energy’s network area – particularly in Western Sydney –
and the impact this has had on our network assets.
In June, IPART approved the organisation’s 2004-2005 pricing
proposals as being in line with the regulatory requirements and
other pricing principles and methodologies outlined in the
Determination.
From 1 July 2004, as part of its tariff reform, Integral Energy
introduced an increasing block tariff structure in its domestic and
business network tariffs. This two-part structure charges a premium
for energy consumption above a threshold. In 2004-2005, the second
“block” in the network tariff will cost about 5% more than the
first “block”.
Thresholds have been set at 7,000 kWh a year for residential
customers and 21,000 kWh a year for general supply customers. As
the network price accounts for approximately half a customer’s
overall bill, this 5% differential will translate to approximately
a 2.5% difference between blocks at the retail level.
While this differential is conservative, it provides Integral with
the ability to monitor customer reaction to this relatively small
price signal. Over time it is intended that the price difference
between blocks will be increased so that a greater price signal is
delivered to those users with higher consumption levels and who are
placing most strain on the network.
Economic performance
Cost to date completion Description 2002-2003 2003-2004 Total
(2yrs) date Comments
North Richmond $3,780,134 $763,961 $4,544,095 Complete Augment
North Richmond ZS to ZS augment a 2 x 25MVA.
Power Factor $18,103,843 $7,912,351 $26,016,194 September 99 x 11kV
5MVAr units have improvement 2004 been installed and 82 units
commissioned to address issues with Integral Energy's power factor
as seen by Transgrid.
Bow Bowing ZS $3,475,065 $317,406 $3,792,471 Complete Installation
of equipment to augment improve system capacity and
reliability.
Quarries ZS $1,533,375 $4,425,049 $5,958,424 August 2004 Building
complete. Final install of equipment and commissioning.
Glenmore Park ZS $1,464,505 $1,916,433 $3,380,938 September
Required to meet increasing load in the augment 2004 developing
Glenmore Park area.
Lennox ZS $255,894 $932,706 $1,188,600 April 2005 Install third
transformer and replace augment two existing transformers.
Shoalhaven TS $303,594 $910,944 $1,214,538 September Augment power
transformer to augment 2004 60MVA and install 132kV bussection
CBs.
Kembla Grange ZS $179,873 $1,019,742 $1,199,615 July 2004 Install
second power transformer and augment new 11kV switchgear
section.
Wallgrove ZS Nil $536,003 $536,003 August Temporary 45MVA zone
substation 2004 with significant customer funding.
Homepride ZS $59,768 $1,972,309 $2,032,077 June 2004 Install third
transformer and new 11kV augment switchgear section.
Kenthurst ZS $1,597,225 $67,268 $1,664,493 Complete New 132/33kV
transformer in service. augment
Blacktown TS $1,597,255 $1,892,422 $3,489,677 Complete Installation
of equipment to augment improve system capacity and
reliability.
South Coast SCADA $2,006,967 $572,250 $2,579,217 Ongoing Replaced
existing outdated systems upgrade at 14 sites.
33kV Circuit Breaker $1,462,626 $472,376 $1,935,002 Ongoing Program
to replace units at various replacement program locations that have
been identified as
being at the end of their useful life.
30
Left to right: Patricia Munton, Sales, Retail and Customer
Services, Huntingwood. Leigh Albrecht, Senior Customer Service
Officer, New Contracts, Huntingwood. Justin Pennings, Electrical
Fitter Mechanic, Construction, Penrith.
Strengthening our Retail business
In an increasingly competitive market, more than 600,0000
electricity customers in NSW have exercised choice and moved to
negotiated agreements since the introduction in January 2002 of
full retail contestability (FRC) for residential and small business
customers. Despite the intensity of competition among retailers,
Integral Energy has continued to successfully deliver against its
key objective of maximising positive contribution in the retail
market.
Significant progress was made in the performance of the residential
and business segments, driven by the movement of customers on to
negotiated agreements. The acquisition, retention and renewal of
profitable customers through the use of sales/direct marketing,
outbound telesales and door-to-door sales continued, and this has
been enhanced by the implementation of a new contract management
system.
Integral Energy now has well over 800,000 business and residential
customers and annual consumption has grown 2% over the year as a
result of our retail activities and through natural growth.
Major results include:
Significant gains among non-franchise customers, won by a dedicated
team of door-to-door sales agents and direct sales people.
Continued success with cost-effective direct marketing campaigns,
securing existing profitable customers onto contract.
An increasing number of small retail customers secured on a
negotiated contract.
Completion of a research program identifying the key customer value
drivers relating to our products.
Retention of a significant proportion of large business
customers.
In the business segment we were successful in securing many
thousands of customers during this year. Since FRC, a major focus
of the Small to Medium Enterprises (SME) business sales team has
been on building our ability to meet the needs of customers with
multiple site requirements, and on developing strategies to
leverage our strength in the market.
As an indication of the strength of the organisation’s strategy, a
number of major contracts were secured.
Critical to our success in targeting these multi-site customers has
been the launch of the Master Billing product, which allows
consolidation of billing for companies. Additionally, the large
business sales team implemented a range of improved business
processes designed to boost our capabilities. Their strong focus on
account management has returned results for Integral Energy despite
the high price competitiveness of the market.
Indirect sales activity has built on the success of previous years,
with hundreds of thousands of customer contacts made using
door-to-door sales in non-franchise areas of NSW. Tens of thousands
of customers have been signed to negotiated contracts.
Customer service
The organisation’s customer interaction centres at Huntingwood and
Coniston handled more than 1.2 million inbound customer calls
during the year. The call centres delivered a significant
improvement in the average speed of answer for incoming calls,
reducing the time taken from 225 seconds to 25 seconds over the 12
months. Calls abandoned improved from 20% for the first six months
to 5% for the second six months.
The number of staff trained to answer emergency calls increased
over the year, resulting in a smoother, more efficient handling of
customer calls during emergency situations. Resources were tested
when a windstorm in August 2003 caused widespread damage and power
outages across large parts of the Illawarra and south coast. This
was the worst storm of its kind in the past 10 years, affecting
140,000 customers. Improvements in call centre technology enabled
information to be given to 38,000 customers during the
windstorm.
This storm and information from customer surveys led to a
substantial review of the type and frequency of information
required by customers during emergency situations. As a result,
Integral Energy has introduced new systems that provide customers
with more detailed information about problems on the network by
making a phone call.
New contract operations
During 2003, the New Contracts Operation team underwent a major
restructure, designed to deliver better customer service. The
addition of 10 permanent roles and the formation of key processing
teams within the department resulted in a reduction in the average
number of complaints.
The team was involved in the design, development, testing, training
and implementation of the new contract management system. In
addition, there was a significant effort in data cleansing
activities relating to the existing contract system. All staff in
the team completed training in customer service principles in
November and use of the new system in May.
31
Maximising the contribution of our Retail and Customer Services
business
Economic performance
Trading
The past year presented significant challenges to our Trading
activities as the portfolio composition changed following continued
growth in sales activity as more customers took advantage of full
retail contestability. The need to match wholesale contract
purchases with variable load shapes sold to customers required
continual management.
The key responsibility of Trading is to hedge long-term customer
load already signed with Integral Energy while continuing to offer
competitive prices to the sales and marketing team in Retail and
Customer Services. Trading continued to strategically reposition
its energy portfolios, adjusting them for new forecasts, sales
campaigns and changes in wholesale market conditions.
The business continued to develop wholesale relationships in order
to meet the changing requirements of the organisation’s retail
portfolio. At the same time, the development of sophisticated
analysis techniques has enabled Trading to execute innovative
wholesale transactions to fulfil wholesale requirements.
Developments in energy markets
As well as improvements that have seen forecasts move closer to
actual settled load, the energy futures market has provided the
organisation with the ability to move in and out of the market to
position the portfolio with regard to changing forecasts. Steady
growth in this market, which commenced in September 2002, has
provided the liquidity to enable entry to and exit from the market
in a timely and cost-efficient manner.
Working with the Regulator
Integral Energy operates in an increasingly complex regulatory
environment, which impacts substantially on the retail operation
through the prices we charge, the type and standard of service we
provide and how we are required to relate to customers.
Much of the retail focus has been on compliance with the Energy
Industry Marketing Code of Conduct. This has resulted in much work
being undertaken to ensure that our systems and training were
robust and that the organisation complied with all elements of the
Code, particularly with the introduction of our new door-to-door
supplier. The last financial year saw a continued improvement in
our compliance with the Code with breaches at the lowest levels
since the commencement of FRC over two years ago.
The Independent Pricing and Regulatory Tribunal (IPART) regulates
the electricity prices that Integral Energy can charge customers
supplied under a standard form customer supply contract. In June
2004, IPART handed down its NSW Regulated Retail Tariffs 2004/05 to
2006/07 Determination.
While there are some concerns with specific elements of IPART’s
ruling, the final Determination will allow the organisation to
address long-term issues associated with its regulated
tariffs.
IPART has set target tariffs that it considers are at
cost-reflective levels, calculated by summing the network component
(network charges) and the retail component (retail costs). However,
Integral Energy’s regulated retail tariffs are currently below
these target levels.
IPART’s Determination requires Integral Energy to move these
tariffs toward the target levels, subject to limitations in annual
price increases. The final Determination means that regulated
tariffs should achieve target levels by 2005-2006.
Key features of the Determination are:
continuation of the network-plus-retail framework in establishing
the target level for regulated tariffs;
limiting annual increases in regulated retail revenue to
CPI+2.5%;
limiting annual increases in a customer’s bill to CPI+5% or $35,
whichever is the greater;
setting annual retail operating costs at $70 a customer; and,
setting the retail net margin at 2%.
Retail tariff reform has also been a key activity during the year.
Mirroring the introduction of an increasing block tariff into the
domestic and general supply network tariffs from 1 July 2004 (see
page 29), Integral Energy’s regulated retail tariffs for domestic
and general supply also adopted the same two-part structure from 1
July 2004.
The same annual thresholds of 7,000 kWh for residential customers
and 21,000 kWh for general supply customers applied at the retail
level and the charges for consumption above these thresholds are
priced, on average, 2.5% higher than for consumption below the
thresholds.
While this price signal is conservative, customer reaction to this
relatively small price signal is being monitored and will be
analysed with a view to increasing the price differential between
blocks so that, over time, an effective price signal is delivered
to large users.
32
Left to right: Alan Haynes and Lisa Richards, Fixed Assets,
Finance, Huntingwood. Peter West, Senior Engineer, Transmission
Substations Development, Huntingwood. Ray Jeavons, Electricity
Worker, Construction, Penrith.
Integral Energy will continue to investigate other pricing
initiatives, including time of use metering, interruptible tariffs
and projects aimed at testing customer response to greater price
signalling within tariffs.
Green energy
Reducing greenhouse gas emissions is one of the key challenges
facing the energy sector, and in particular the electricity
industry. This is further highlighted by the number of schemes
arising both at a state and federal level, with numerous
obligations to be met under each scheme.
This year Integral Energy again met its renewable energy
obligations under the Mandatory Renewable Energy Target Act 2000
(MRET), and is the only state-owned retailer based in NSW to have
met its target. MRET is a federal scheme, which imposes a legal
liability on wholesale purchasers of electricity to proportionately
contribute towards the generation of an additional 9,500 GWh of
renewable energy per year by 2010.
The year saw the continuing success of the organisation’s
accredited Green Power products in the residential market, with
growing numbers of customers choosing between 20% and 100% of their
electricity supply to be sourced from 100% renewable
generation.
Approval was also gained for products in the small and medium
business markets. Green power generators are accredited by the NSW
Sustainable Energy Development Authority (SEDA), an independent
body, under the strict requirements of the national Green Power
program. These generators are required to produce over and above
what is required to be met under the MRET scheme.
Customer care
Integral Energy takes pride in playing an active role in the
community and recognises that at times individuals may have
difficulty in meeting their financial commitments. In response to
these situations, customer service policies were revised to provide
greater flexibility when dealing with hardship cases. These
revised
policies came into effect in February, and early results indicate
that it has greatly benefited those customers committed to paying
their bill but who are unable to do so for various reasons.
During the year, our customer care team handled more than 13,000
cases, an increase of 45% on the previous year. These contacts
related mainly to energy consumption, debt recovery and billing
issues.
In 96% of cases, the issues were resolved within 30 days. An
enhancement to our complaints system enabled staff to cope with the
increase in correspondence without impacting negatively on response
times.
33
Case study 3 Underground philosophy
More often than not, the debate on where power lines – new or
upgraded – should go often ends up with an apparently simple
choice: overhead or underground. Integral Energy supports the
undergrounding of power lines in cases where it is economically
viable.
The organisation estimates that 95% of all power lines in post-1970
residential estates within the franchise are underground: about 39%
of the low voltage network and 17% of the high voltage network are
underground.
In new and future residential estates the costs of undergrounding
are shared between Integral Energy and the developers. The issue of
who pays, however, becomes contentious in developed areas where
there is a push to place existing overhead power lines
underground.
In these cases, Integral Energy supports the user-pays model. This
view was endorsed by the NSW Independent Pricing and Regulatory
Tribunal (IPART) in its 2002 review that attempted to quantify the
costs and benefits of undergrounding power lines in NSW.
Economic performance
Supporting our people
Further progress was made on establishing a working environment
that supports and recognises individual and team performance.
Integral Energy’s focus on people issues over the past three years
has built on strategies for recruitment and retention of staff, the
development of skill sets and career planning, as well as an
organisation- wide reward and recognition program.
Key human resources initiatives over the past year included:
strengthening the Safety Group to further drive a culture of safety
throughout the organisation;
establishment of a special team to compile safe work method
statements for more than 600 field jobs;
providing a wide and varied range of training programs for all
staff;
further refining policies and procedures that guide our
practices;
enhancing graduate and cadet engineer programs;
preparing for the 2004 staff attitude survey; and,
continued efforts to apply common skill sets to a range of
field-based positions through the Competency Project.
Full details are given in the Social performance report on page
50.
Information technology and communications
Information Technology and Communications (IT&T) is a key
enabler to the business, supporting a complex set of business
processes, connecting our assets, customers and staff across a wide
geographic area. Our philosophy is one of pragmatic alignment to
business needs.
In addition to supporting the business in the delivery of the IAMS
strategy, and projects such as the contract management system, IT
achieved a significant upgrade of the enterprise resource planning
(ERP) software, covering finance, payroll and logistics operations,
through the introduction of the Ellipse program.
A major project under way is the re- tendering for supply of
outsourced IT&T services, focusing on infrastructure,
communications and applications support. During February 2004,
Integral Energy went to market for the provision of IT&T
Services. The scope of the outsourced services was separated into
two proposals – telecommunications services, and infrastructure and
applications support. The objective of the IT&T outsourcing
project is to select service providers that can deliver:
increased service performance;
decreased costs while maintaining a high quality of service;
and,
flexibility in relation to scope, performance requirements, terms
and conditions, price and exclusivity.
Responses to these proposals were received from a range of IT&T
suppliers. Following an extensive evaluation process, the
organisation is now in the process of negotiations with the
short-listed proponents with a view to achieving a solution that
delivers the best commercial and operational results for the
organisation. A final decision is expected to be announced by
December 2004.
The organisation recently embarked on a review of its IT&T
strategy in order to ensure IT is enabling better business
performance. The first priority is to ensure IT&T delivers an
assured business platform while delivering cost-effective IT&T
services.
We will then look to the next level of performance to facilitate
enhanced business operational efficiency.
Achieving this level of business efficiency is increasingly
dependent on the effective use of information. The strategy is
therefore focused on optimising the returns from information
management. This strategy will ensure that IT delivers on its role
as a key business enabler of service delivery to our customers,
stakeholders and staff.
Property and security
Integral Energy has made significant progress in restructuring its
property portfolio to support operational objectives and ensure
property assets match our targeted cost structure. The program
provides for establishing new facilities, winding back on leasehold
properties and disposal of surplus facilities.
New facilities have been established at Smeaton Grange (known as
Narellan Field Support Centre) to replace the Minto depot, which
was too large for operational needs and was being encroached upon
by residential development. Negotiations are under way for the
disposal of the Minto site.
34
Left to right: Mark Ireland, Billing Services, Retail and Customer
Services, Huntingwood. Steve Gurnett, Project Manager, Hoxton Park.
Geoff McGown, Electrical Fitter Mechanic, Construction,
Penrith.
35
In addition, a new central logistics facility has been opened at
Glendenning, near Blacktown, as part of the relocation from leased
accommodation at Seven Hills. The site also consolidates the
essential spares store with the main material supply store.
Further land has been purchased at Glendenning to accommodate the
Transmission Branch from Seven Hills.
Land has also been purchased at nearby Kings Park to accommodate
the Distribution Branch from Seven Hills. The leasehold property at
Seven Hills will then be terminated.
The leasehold depot premises at Coniston have been vacated with the
new Field Support Centre opening at Springhill in Unanderra.
Shellharbour and Nowra Field Support Centres will be refurbished in
2004-05.
Following on from state and federal security initiatives, Integral
Energy has been working with a number of security agencies to
establish appropriate arrangements for sites designated as critical
infrastructure. These arrangements include extensive use of various
security services at critical sites, random security checks
conducted by the organisation’s security branch, and the ongoing
program of remotely monitoring selected sites.
These initiatives are in addition to measures taken in previous
years, which continue to reduce the number of security related
incidents across the organisation.
Moving ahead
The 2004-2007 Corporate Plan includes the following objectives and
key performance indicators in the economic dimension:
Objectives Strategic initiatives Key performance indicators
Build value in the network Improve maintenance planning. Network
reliability <145 minutes lost per customer, Vision: Customers in
Integral’s region should, Achieve capital delivery. excluding
storms. on average, receive comparable service standards Implement
resource capability planning. Achieve capital program. to customers
in like situations within Australia. Focus on system, data and
Achieve maintenance program.
information provision.
Maximise the contribution from the Retail and Maintain Integral
Energy’s competitive Achieve required margin. Customer Services
business market position. Improve customer satisfaction. Vision:
All Integral Energy retail customers will have Manage retail risk.
Ensure trading policy compliance. their electricity provided by a
responsive retailer.
Ensure support systems are in place Deliver cost effective IT&T
systems. Manage stakeholder needs. Review approach to
governance
and risk management.
20 00
-0 1
20 01
-0 2
20 02
-0 3
20 03
-0 4
11 4.
Major works in progress
Maximising the contribution of our Retail and Customer Services
business
Ensuring support systems are in place