48pt Title Here

1
Access Arrangement Technical Rules
Public Information Forum 27 June 2007
2
PRESENTATION OBJECTIVES

• To provide an overview of
• WP regulated business
• Approved Access Arrangement features of
  interest
• Approved Technical Rules
• Other things to note

3
BUSINESS OVERVIEW
4
YOUR ELECTRICITY BILL
ONE UNIT OF ELECTRICITY
14 cents/kWh
Retailer 1 cent
Western Power 4 cents
Generation 9 cents
5
THE ELECTRICITY MARKET
Arrows show money flow
6
REGULATORY FRAMEWORK (ECONOMIC)
7
REGULATORY OUTCOMES

• Price
• Business entitled to a level of income and profit
  to be viable and sustainable to do its stuff
  efficiently
• Service standards
• Declared customer service standards must be met
• Network connections must perform per Technical
  Rules
• Risk
• Access contracts capital contributions now
  structured to share financial risk between
  customers and WP
• Regulation provides balance
• Proxy for competition

8
HOW REGULATED REVENUE IS CALCULATED
9
SOURCES OF INCOME
TOTAL REVENUE ENTITLEMENT
ACTUAL INCOME
Tariff Income (Access Charges) 440M p.a.
600M p.a.
Capital Contributions 150M p.a.
Minor Services 10M p.a.
10
HOW WE USE OUR MONEY

• WP is a self funded corporation (no subsidies
  from Govt) and uses its annual income as follows
  (indicative)

11
ACCESS ARRANGEMENT

• The Access Arrangement is simply the formal
  agreed business rules for how WP goes about
  providing network services to the market
• Includes (amongst lots of other stuff)
• Tariffs
• Customer service standards
• Capital contributions policy
• Standard access contract
• Asset values, forecast expenditures, rate of
  return, etc
• Detailed financial models
• Approved by the ERA after public consultation and
  applies for 3 years

12
ACCESS ARRANGEMENT OVERVIEW
13
REGULATORY SUBMISSION

• Two and a half years from inception to approval
• Originally submitted to ERA on 24 August 2005
• Took further two revised submissions and 200
  detailed amendments to achieve approval on 26
  April 2007
• Submission comprised
• Access Arrangement doc
• Access Arrangement Information doc
• Technical Rules
• Now published in full on both the ERA and WP web
  sites

14
ACCESS ARRANGEMENT (1)

• The AA document is a relatively concise
  quasi-legal document comprising the following key
  matters
• Description of Reference Services
• Service standard benchmarks
• Form of price control
• Investment adjustment mechanism
• Service standard adjustment mechanism
• Cost of capital
• Trigger events
• Pricing methods and prices
• Policy on prudent discounts
• 8 Appendices (see over)

15
ACCESS ARRANGEMENT (2)

• Appendices
• Applications queuing policy
• Transfer relocation policy
• Capital contributions policy
• Standard access contract
• Price list (tariffs)
• Price list information
• Reference services
• Explanatory notes on price control

16
ACCESS ARRANGEMENT INFORMATION (1)

• The AAI document provides all the detailed
  supporting information for the AA, including
• Description of key business drivers
• Recent performance and benchmark data
• Justification for proposed service standards
• Supporting narrative on revenue building
  blocks
• Demand energy forecasts
• Forecast Opex Capex
• Value of WACC
• Depreciation rates
• Asset values (ODV)
• Detailed price methodology
• Appendices detailed reports

17
ACCESS ARRANGEMENT INFORMATION (2)

• Appendices
• Network benchmarking reports (2)
• WACC reports (3)
• Expenditures report, including capital project
  listing
• Asset valuation report
• Revenue model (spreadsheet)
• Demonstration of Code compliance for contract
  policies

18
REVENUE CAPS

• ERA has essentially approved what WP asked for
• Asset valuation
• Depreciation rates
• Rate of return (WACC) 6.76 high end of
  reasonable range
• Expenditure forecasts - minor changes

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19
APPROVED EXPENDITURES (1)
20
APPROVED EXPENDITURES (2)
21
TARIFF EQUALIZATION CONTRIBUTION (TEC)

• Govt policy of uniform network tariffs has always
  subsidized unprofitable Regional areas
• Loss previously absorbed by Western Power
  integrated business
• Now a direct cost recovered through SWIS network
  tariffs (distribution customers only)
• Explicit in Legislation Code
• 70M each year (goes to Horizon)

22
REVENUE PRICE CONTROL

• Annual revenue cap
• Code provides for revenue adjustments in
  subsequent regulatory period due to
• Force majeure events
• Changes in Technical Rules
• Investment Capital Contributions adjustment
  mechanisms
• Tariff setting
• Limit of CPI5 on tariff variations (/-) in
  years 2 3

23
REFERENCE SERVICES (1)
11 reference services at network exit
points Anytime Energy (Residential) Exit
Service A1 Anytime Energy (Business) Exit
Service A2 Time of Use Energy (Small) Exit
Service A3 Time of Use Energy (Large) Exit
Service A4 High Voltage Metered Demand Exit
Service A5 Low Voltage Metered Demand Exit
Service A6 High Voltage Contract Maximum
Demand Exit Service A7 Low Voltage Contract
Maximum Demand Exit Service A8 Street lighting
Exit Service A9 Un-Metered Supplies Exit
Service A10 Transmission Exit Service A11
24
REFERENCE SERVICES (2)
2 reference services at network entry
points Distribution Entry Service
B1 Transmission Entry Service B2
25
REFERENCE SERVICE EXAMPLE (1)
26
REFERENCE SERVICE EXAMPLE (2)
27
PRICING STRUCTURE

• Current pricing structure is maintained
• Cost reflective tariffs for
• transmission connected customers (nodal)
• distribution connected customers gt1MVA (zonal)
• Bundled transmission/distribution tariffs for
  distribution connected customers
• Uniform (non-locational) tariffs for all
  customers lt1MVA throughout the SWIN
• No change to tariff design

28
PRICE OUTCOMES (1)

• Unprecedented expenditure levels (both capex
  opex) are driving up revenues and tariffs
• Note capex forecasts deliberately understated
• Expected annual tariff increase CPI3 average
  for several years
• AA only becomes effective on 1 July 07 change
  from 2005/06 to 2007/08 tariffs on this date
• 2006/07 tariffs approved by ERA (in AA approval)
  but never applied in practice

29
PRICE OUTCOMES (2)

• 2006/07 to 2007/08 price movements limited to
  CPI5 (per AA)
• Effective price changes on 1 July are larger -
  relative to current (2005/06) prices
• Both relative movements detailed in 07/08 Price
  List Information
• NOTE WP intends to maintain current transition
  tariffs only until 30 June 2009

30
PRICE LIST INFORMATION

• Required by the Code to explain cost allocation
  and price setting principles
• Incorporates much of the general information from
  old pricing and charges papers
• Sections 9 10 detail price movements
• Appendix describes method of determining UOS
  prices for new transmission nodes where
  historical data is not available
• http//www.westernpower.com.au/documents/AccessArr
  angement/prices0708/200708PriceListInformation.pdf

31
NON-REFERENCE SERVICES

• Essentially miscellaneous services, including
• Requested relocation of assets
• Planning studies
• High load movements
• Disconnection/reconnection of services
• Insulate make safe aerial conductors
• etc, etc
• Prices not regulated under AA - but dont affect
  profitability (refer Slide 9)

32
DISTRIBUTION SERVICE STANDARDS (1)

• WP originally proposed single service standard
  SAIDI for feeder categories
• Urban (metro Geraldton, Bunbury, Albany
  Kalgoorlie)
• Rural (all other areas)
• ERA insisted on SAIDI SAIFI for feeder
  categories CBD, Urban, Rural Short Rural Long
• Definitions per national reporting guidelines
  (IEEE 1366 SCNRRR standards)
• Target performance based on 25 improvement from
  June 2004 (existing corporate targets)

33
DISTRIBUTION SERVICE STANDARDS (2)

• Targets

34
STREETLIGHTING SERVICE STANDARDS

• Repair times per Customer Charter

35
TRANSMISSION SERVICE STANDARDS (1)

• WP proposed, ERA approved
• 3 service standards
• Circuit availability (primary circuits only,
  excludes zone substations)
• System minutes interrupted (meshed network only,
  teed lines excluded)
• System minutes interrupted (radial network only,
  teed lines excluded)
• Target performance is status quo - current
  performance levels considered OK
• WP must develop measures that include teed
  circuits next time

36
TRANSMISSION SERVICE STANDARDS (2)

• Targets

37
SERVICE STANDARD ADJUSTMENT MECHANISM

• Potentially provides financial penalty (reward)
  for actual performance significantly worse
  (better) than targets
• ERA did not approve this approach for first AA
• Normal performance defined as targets /-10
• WP must explain performance outside normal range
• Financial incentives may apply next time

38
CAPITAL CONTRIBUTIONS POLICY (1)

• Fundamental principles
• Calculation by Economic test i.e.
• Capcon Capital cost -
  Forecast future access revenue
• Capcons can only apply to investments that do not
  meet the New Facilities Investment Test
  (details later)
• Exceptions to 1 2 covered in Extension
  Expansion Policy (details later)

39
CAPITAL CONTRIBUTIONS POLICY (2)

• New features of approved policy
• Customer can elect to make time payments if
  capcon gt30K
• WP customer may negotiate rebate scheme if
  capcon gt100K
• WP can request security from customer for capcons
  gt50K

40
EXTENSION EXPANSION POLICY

• Essentially preserves WPs existing 100
  contribution supply extension policies
• Subdivisions, UMS, etc.
• Required by Electricity Industry Act approved
  by Coordinator of Energy (OOE)
• Can be varied from time to time
• Practical instrument to implement Govt policy
• Sits outside AA but essential component of the
  AAs capcon policy (by reference)

41
NEW FACILITIES INVESTMENT TEST

• In practice, the test is ultimately convincing
  the ERA that each every project satisfies the
  NFIT criteria (prudency benefits)
• WP building this test transparently into
  business cases investment approval processes
• ERA is currently developing NFIT guidelines

42
ALTERNATIVE OPTIONS TEST

• Equivalent to NFIT but applies to OPEX capacity
  solutions e.g. local generation
• Must pass same tests i.e.
• Prudency
• Provide either a revenue, general or
  safety/reliability benefit

43
REGULATORY TEST (1)

• To assess efficiency of large (individual)
  projects
• Tx projects gt15M
• Dx projects gt5M
• WP must submit major augmentation proposal to
  ERA for approval
• Demonstration that network enhancement is the
  best economic outcome compared with alternatives
  such as local generation, demand management, etc
• Always additional to NFIT
• Hefty penalties apply for non-compliance

44
REGULATORY TEST (2)

• Code provides for streamlined approval (or
  waiving) where alternatives clearly dont exist
  e.g. new generator connection
• Market Rules provide process for IMO to call for
  public proposals on alternatives
• In practice, expect
• customer driven projects and most major
  reinforcements to be routinely approved (or the
  test waived)
• full Reg Test process to apply to incrementally
  large investments e.g. Geraldton 330,
  distribution edge-of-grid
• Does not apply to projects committed before 1
  July 2007

45
REGULATORY TEST (3)

• WP building this test transparently into
  business cases investment approval processes
• Geraldton 330kV proposal will be first
  application of Reg Test
• Guidelines currently being developed by ERA

46
STANDARD ACCESS CONTRACT (1)

• Electricity Transfer Access Contract (ETAC)
• Developed from model access contract in Code
• Used for access and connection
• Standard ETAC applies to each reference service
• Approved ETAC to WPs satisfaction with 1
  exception
• Customer has the right to contract for any
  capacity, whether used or not
• WP argued this could be gamed and lead to over
  investment in new capacity ERA didnt agree

47
STANDARD ACCESS CONTRACT (2)

• Main differences between the ETAC and Access
  Agreements (current)
• All references to Access Arrangement, not old
  Regulations - obvious
• Some flexibility in security arrangements
• Liabilities no longer strict now only for
  negligence default
• Liabilities are determined in accordance with
  number of connection points and voltage levels
  and reset annually
• Note Interconnection Works Contract for network
  reinforcements not part of the Access Arrangement

48
APPLICATIONS QUEUING POLICY (1)

• Aim of policy is to manage connection
  applications and development of access contracts
  in a timely and equitable manner
• It covers the process for
• Making applications
• Management of the application queue
• Amendment or withdrawal of applications
• Processing applications making access offers
• Developing new or modified access contracts

49
APPLICATIONS QUEUING POLICY (2)

• First come, first served principle continues to
  apply
• Covers applications for both transfer
  connection applications
• Access offer now in a form that becomes the
  access contract (ETAC) when signed
• Bypass test can be applied to stalled or dormant
  connection applications
• Priority rules for both amended applications and
  applications associated with tenders

50
APPLICATIONS PROCESS IMPROVEMENTS

• Time taken is perennial cause of customer
  dissatisfaction
• WP will respond to enquiry (pre-application)
  within 20 business days
• WP has undertaken major process review
• Still a complex process
• Key parts undergoing further detailed re-design
• Time expectations for access offer for major
  projects still 6 -12 months

51
TRANSITION FROM REGULATIONS TO ACCESS
ARRANGEMENT (1)

• Changes to Regulations under way (OOE) to
  facilitate transition
• Existing Access Agreements
• Regulations remain in force contractually
• Regs changes will transfer some major things
  (such as prices, capcons policy) to AA provisions
• E.g. existing contracts subject to AA Price List
  from 1 July (subject to individual contract
  details)
• No urgency in converting existing contracts to
  new Access Contracts under the AA

52
TRANSITION FROM REGULATIONS TO ACCESS
ARRANGEMENT (2)

• New access offers/contracts per AA from now
• Transfer of the Access Application Queue
• Position in queue will be a seamless transfer
• Management of transferred applications will be
  per new Applications Queuing Policy from 1 July
• New applications managed per new Policy from 1
  July

53
TRANSFER RELOCATION POLICY

• Details the conditions under which a network user
  may
• Assign or novate rights and obligations under an
  access contract
• Re-assign contracted capacity from one location
  to another

54
DISCOUNT POLICIES

• 2 policies for applying discounts to published
  tariffs
• Prudent discounts
• Apply where a prospective network user can source
  an equivalent service at a lower price than that
  offered by a reference service (network bypass)
• Discounts for distributed generation
• Apply where connection of a generator at a
  particular location results in reduced capital or
  operating costs
• The amount of discount is recoverable from other
  users

55
NEXT ACCESS ARRANGEMENT ?

• Submission due 30 September 2008 !
• Planning has already commenced
• The Code contemplates
• 5 year regulatory term
• Price control (rather than revenue control)

56
TECHNICAL RULES
57
TECHNICAL RULES (1)

• Do not form part of the AA per se, but are
  required by the Code to be submitted concurrently
  (effectively underpin service standard and
  expenditure proposals)
• Approved by the ERA on 26 April 2007
• AA contains provision for adjustment of revenues
  where there is a material change in the Technical
  Rules

58
TECHNICAL RULES (2)

• Apply to
• Western Power
• Quality of supply standards (not reliability)
• Network planning criteria
• Operation of the network, including under
  emergency conditions
• Generators loads connected to the network
• Design operation of connected plant and
  equipment

59
TECHNICAL RULES (3)

• The technical part of WPs regulatory contract
  with the ERA
• for the expenditures revenue approved
• Provide transparency clarity to
• Users of the network (existing prospective)
• ERA
• WP planners, designers operators

60
TECHNICAL RULES (4)

• Amalgamate pre-existing codes

61
TECHNICAL RULES (5)

• Considered good outcome compared with National
  Electricity Market where the following apply
• National Electricity Rules, plus
• State rules, plus
• Utility rules

62
TECHNICAL RULES (6)

• Chapter 1
• Legal background
• Responsibility to act reasonably
• Dispute resolution
• Exemptions
• Rule change process

63
TECHNICAL RULES (7)

• Chapter 2
• System performance standards
• Load shedding
• Planning criteria
• Protection requirements

64
TECHNICAL RULES (8)

• Chapter 3
• Connection requirements for all users
• Generators
• Loads
• Small generators lt10MW - Section 3.6
• Roof-top inverters Section 3.7

65
TECHNICAL RULES (9)

• Chapter 4
• Inspection, testing, connection, disconnection
• Chapter 5
• Operation and coordination of plant not covered
  by Market Rules

66
TECHNICAL RULES (10)

• Acknowledge did not get everything right
• Some agreed amendments were overlooked in final
  documentation subject of first rule change
• WP agreed to undertake further work on small
  generator protection standards national
  approach to be taken

67
TECHNICAL RULES (11)

• User Guide for small generators lt 10MW
• To assist Users planning to connect
• Addresses planning, design and operational issues
• Explains the requirements of Section 3.6 clause
  by clause
• Example calculations provided
• Enables Users to do self-evaluation
• Draft complete - to ERA early July for review -
  anticipated publication in September

68
TECHNICAL RULES (12)

• Rules do not apply retrospectively
• Transitional provisions where Rules have changed
• Process for exemptions
• Code allows
• WP to approve individual cases
• WP can refer blanket exemptions to ERA for
  approval
• Late application not a fait accompli
• WP must treat all people equally
• Everything is on public record precedents

69
OTHER THINGS TO NOTE
70
SYSTEM MANAGEMENT

• Two distinct roles Network Market management
• Network management costs included in AA
  recovered via network tariffs
• Market function
• Concerned with security of the transmission
  network and dispatch of generators in accordance
  with Market Rules
• Costs not part of AA recovered via IMO from
  market participants (about 4.5M per year)
  subject to review audit by IMO ERA

71
LOSS FACTORS

• IMO now publishes loss factors annually
• Market Rules require WP to calculate Tx Dx loss
  factors as service to IMO, by 1 June each year
• Market participants can request IMO to audit WPs
  calcs
• No longer published by WP with tariffs

72
FURTHER INFORMATION

• Lots more info is available
• Visit www.westernpower.com.au/networkaccess
• OR
• Contact your WP account manager
• OR
• Contact WP Regulation Pricing on 9326 4911
• Peter Mattner, Greg Turnbull, Neil Gibbney,
• Hugh Smith, Zoran Bozic