Here's how our plans are shaping up - Regulatory Reset Draft Proposal 2021-2025 - Talking Electricity

 
Here's how our plans are shaping up - Regulatory Reset Draft Proposal 2021-2025 - Talking Electricity
Here’s how
our plans are
shaping up
Regulatory Reset
Draft Proposal 2021–2025
Here's how our plans are shaping up - Regulatory Reset Draft Proposal 2021-2025 - Talking Electricity
We’ll deliver a safe, dependable
and flexible network while
reducing our prices
Thank you for reading our draft proposal outlining            As well as facilitating technology and the change that comes
the value and services we’ll provide you in 2021–2025.        with it, we’ll also provide you with the safe and dependable
We aim to deliver a safe, dependable and flexible supply      service you expect. Your wellbeing, and that of our people,
of electricity, while keeping our prices among the lowest     is our number one priority, and as such, we never
in the country.                                               compromise on safety.
As a business, we take pride in delivering electricity to     Being part of the United Energy community means you
over 1.45 million Victorians. We know how important our       already receive among the lowest electricity network
performance is to you, so that every day your household       charges in Australia. We deliver more services to you for
and business can go about their activities.                   each dollar we invest than most other electricity distributors.
As we look to the future, it’s important we keep delivering   While our charges only make up 27% of the average
the services you want. That’s why we’re asking you to         residential electricity bill, affordability has continued to
comment on our investment plans. Your feedback has,           be front of our minds in developing this plan. To help,
and will continue to shape the services we provide.           we’ll reduce our charges in 2021 by an average of $44
                                                              for residential customers and $117 for business customers.
While it’s an exciting time, as the electricity industry
presents you with more opportunities to take control          We appreciate everyone who has already taken the time
of your electricity use (including solar and batteries),      to share their views with us. We’ll keep listening so we
it’s also becoming more complex from our network's            can best meet your needs.
perspective. In preparing our network to accommodate          I look forward to hearing your comments.
this change, we'll be investing in systems that help you
make informed energy choices. This sees us leaning
more on technology and data than ever before in order
to provide you electricity through a smarter network.

                                                                  Tim Rourke
                                                                  Chief Executive Officer
Here's how our plans are shaping up - Regulatory Reset Draft Proposal 2021-2025 - Talking Electricity
We’re part of
your community
We own and manage the electricity distribution network that provides
power across east and south-east Melbourne and the Mornington
Peninsula. Our network includes more than 205,000 poles and
13,000 kilometres of powerlines.
                                                                       +1,450,000  Victorians in our network

Generation                 Transmission
                                                                                                 1,500 km2           distribution
                                                                                                                     area
                                                                                                  53k
                                                                            3.1k
                                                                                                     small
                                                                                                   businesses

                                                                                 big

                                                                                             92%
                                                                             businesses

                                               Distribution
                                                                                             residential
                                                                                             customers

     Retailer
                                                                       We serve customers like you, the small and large businesses in your
                                                                       community, and essential services such as your hospitals and water
                                                                       utilities. We support over 21% of Victoria's GDP, including the peninsula's

                                        t his
                          We ma na ge process to
                                                                       tourism industry and 27% of the state's manufacturing activity.

                          pa rt of t he el ect ri c it y
                          provid e you i l er
                           via your reta

                                                                                             United Energy Regulatory Reset Draft Proposal 2021–2025   2
Here's how our plans are shaping up - Regulatory Reset Draft Proposal 2021-2025 - Talking Electricity
Here’s what we’ve
been doing already
Our draft proposal builds on the work we’ve been doing in recent years. We’re proud of our strong reputation
for operating a safe and reliable network, while at the same time being one of the most cost-efficient distributors
in Australia. Our future investment plans are discussed in the remainder of this document.

     Safe and dependable                                      Flexible                                    Affordable
                                                                                                                                                                       e s e t h ree t h e m es
                                                                                                                                                                     h
                                                                                                                                                     You’ l l see t ot in t his d ocument.
               One of Australia’s most                                                                     Delivered some of the
                                                                                                                                                                   l
                                                                                                                                                  d iscussed aflect t he views a nd r
                                                             With the involvement
    99.99%     reliable networks – available                                                               lowest distribution
                                                             of our customers, used

                                                                                                                                                      T h e s e r e w e h e a r d f ro m o u
               over 99.99% of the year,                                                                    network charges in
                                                             demand management to
               or less than 45 minutes                                                                     Australia, at $316 per

                                                                                                                                                     pref erences ers t hroughout t he
                                                             avoid over $40m of capital
               off supply per annum                                                                        annum for average
                                                             investment since 2016

                                                                                                                                                       sta keho l d ement process.
               on average for customers.                                                                   residential customers.

               27% reduction in ground
               fire starts since 2013.
                                                             Supported over
                                                                                                           One of the top two most
                                                                                                           highly utilised networks
                                                                                                                                                               enga g
                                                             238MW of rooftop solar
               This follows ongoing                                                                        in the country – we get
                                                             and 2MW of battery
               investment of over                                                                          the most out of our
                                                             storage.
               $10m per annum.                                                                             assets, so you pay less.

                                                             We use ‘smart’ meters                         One of the top three most
               71% reduction in public
                                                             to identify and respond                       cost-efficient distributors
               safety incidents since
                                                             to safety risks before they                   in Australia based on AER
               2013. Safety is our number
                                                             occur. We’re making the                       benchmarking. Providing
               one priority always.
                                                             most of your investment.                      you value for money.

                                                                                                                                         United Energy Regulatory Reset Draft Proposal 2021–2025   3
Here's how our plans are shaping up - Regulatory Reset Draft Proposal 2021-2025 - Talking Electricity
Victorian’s already benefit from the lowest network charges in Australia.
Based on analysis undertaken by the Australian Energy Market Commission, Victorian network charges will average
$342 per annum in 2019, compared to other states such as NSW where network charges may exceed $446.

Typical household electricity bill composition by state
$2,500

                                                                             $2,244
                                                                             (Total bill)

                                                                              $391
$2,000

                                                                                                                      Most expensive retail offer
                       $1,687                                                  $79
                       (Total bill)                                                         $1,632
                                                       $1,588                               (Total bill)              Cheapest retail offer
                                                      (Total bill)            $156
                         $262                                                                                         Environmental policy
$1,500
                                                        $294                                                          Wholesale electricity price
                         $225                                                                 $537
                                                        $111                                                          Metering
                                                                              $855
                          $85                           $84                                                           Transmission
$1,000
                                                                                              $102
                                                                                              $90                     Distribution
                         $465
                                                        $492
                                                                               $31
                                                                                              $441
                          $45                                                 $151
                                                         $28
                          $92
 $500                                                   $133
                                                                                               $66
                                                                                                                      $55                    $43
                                                                                               $54
                         $513                                                  $581
                                                         $446                                                        $333
                                                                                              $342                                          $301
   $0

                        QLD                             NSW                      SA            VIC                United Energy         United Energy
                                                                                                                      2020                  2021
Source: Based on typical customer consumption, ranging from 3,865-4,430kWh                                         Based on typical customer consumption of 4,200kWh per annum
per annum, as set out in the Australian Energy Market Commission report,
Residential electricity price trends 2018

                                                                                                                                          United Energy Regulatory Reset Draft Proposal 2021–2025   4
Here's how our plans are shaping up - Regulatory Reset Draft Proposal 2021-2025 - Talking Electricity
You can help shape
your energy future                                                                                                                We want to hear
                                                                                                                                  your f ee dback!

                                                                                                   Visit:
Our revenues are regulated by the Australian Energy Regulator (AER), and every five years
they review our forecast revenue requirement for approval.
This draft proposal sets out the services we’ll deliver over the five-year period starting
1 January 2021. We’re publishing a draft to get your thoughts on our proposal early.
Your feedback will help shape our formal regulatory proposal due to the AER in July 2019.          talkingelectricity.com.au/contact-us
The feedback you’ve provided so far has been reflected in our work plans and forecasts.            to provide feedback to us.
We operate in an ever-changing energy sector, so it’s important we continue to plan for the
future while still meeting your current expectations.                                              You can submit feedback on our
                                                                                                   draft proposal and connections policy
In addition to the investments we’ll make to deliver your preferred services, our draft proposal   through the contact form provided on
outlines the expected changes to your electricity bill.                                            our Talking Electricity website.
We’re also updating our connections policy to ensure our charges remain fair and easy to           We welcome all feedback or questions,
understand. This policy covers our proposed approach to charging new customers who want            no matter how long or short.
to connect to our network. This influences our investment plans, so we’re asking for your
feedback on this with our draft proposal.
We encourage you, our customers and stakeholders, to review our draft proposal and
connections policy and give us your thoughts and feedback.
                                                                                                    What’s next?
                                                                                                    We’ll incorporate your feedback as we
                                                                                                    continue to develop our regulatory proposal.
                                                                                                    We’ll also work with key stakeholders through
                                                                                                    a series of ‘deep dive’ workshops to discuss
                                                                                                    our draft proposal in more detail. These
                                                                                                    workshops will focus on our key investments,
                                                                                                    and help ensure our proposal meets your needs.

                                                                                                                        United Energy Regulatory Reset Draft Proposal 2021–2025   5
Here's how our plans are shaping up - Regulatory Reset Draft Proposal 2021-2025 - Talking Electricity
SECTION:   OVERVIEW:                                      CONTENTS:

 1         We want you to choose                          We’ve asked you what you want                             8
                                                          You’ve told us your energy future                         9

           your energy future.                            What we’ve heard and what we’re doing                     10

 2
                                                          We’re committed to providing a safe environment
           Every day we supply your                       for our customers and workers
                                                          We’re committed to providing a reliable supply
                                                                                                                    13

           household and business with                    of electricity
                                                          We’re committed to providing a safe network that
                                                                                                                    14

           electricity to power your activities.          mitigates bushfire risks                                  15

 3
                                                          We’re making it easier for you to export solar

           We’re preparing the network                    and use batteries
                                                          We’re making it easier for you to connect
                                                                                                                    18
                                                                                                                    20
           to be flexible to your energy needs.           We’re making it easier for you to use your data
                                                          to make informed energy choices                           22

 4         We’re maintaining affordability
           by reducing our prices.
                                                          Our prices are based on well-established
                                                          approaches
                                                          Our total investment forecast is prudent and efficient,
                                                          and will reduce our prices
                                                                                                                    28

                                                                                                                    30

 5         We’re supporting your energy choices
                                                          We’ve designed our price structures to be fair
                                                          and easily understood                                     32

           through fair and simple charges.               We charge you for what you use                            33

                                                   United Energy Regulatory Reset Draft Proposal 2021–2025          6
1
We want you
to choose
your energy
future
We want you to choose your energy future
                                                                                                                                                                                            1

We’ve asked you                                                                                                         We’ve bee n ta lking to
                                                                                                                        you about our regu latory
what you want                                                                                                           proposal since ea rl y 2017

In today’s rapidly changing energy market there’s never been a more critical time for us         Who we spoke with
to understand and respond to your needs. We want to move beyond simply telling you what
we’re doing, to ensuring our proposal delivers what you want. This will allow us to anticipate   • Residential customers              • Retailers
and respond to your changing preferences, support your energy choices, and provide better        • Small and medium                   • Energy Consumers Australia
solutions.                                                                                          businesses
                                                                                                                                       • Councils
We’ve been talking to you about the development of our 2021–2025 regulatory proposal             • Commercial and industrial
                                                                                                    customers                          • Universities
since early 2017. Over the last 18 months, we’ve spoken with 5,000 of our customers who
                                                                                                 • Energy industry experts            • Demand management proponents
provided valuable insights on their energy needs. We’ve also worked together with the other
Victorian distributors, particularly on reforms to our network charges.                          • Community opinion leaders
Throughout our engagement activities, we’ve shared your views with our longstanding
Consumer Consultative Committee. This Committee was first established over 10 years ago
to provide an independent voice in our decision making process. Similarly, we invited
members of the AER’s Consumer Challenge Panel, and our Energy Futures Consumer
Advisory Panel, to independently review our engagement approach and provide guidance.
You can read more about our stakeholder activities and customer insights on our
Talking Electricity website.                                                                     How we engaged them                   What we discussed
                                                                                                 • Interviews                         • Our shared energy future
                                                                                                 • Focus groups                       • Energy values and preferences
                                                                                                 • Deliberative forums                • Role of the distributor
                                                                                                 • Surveys                            • Our value propositions
                                                                                                 • Talking Electricity website        • Various business options
                                                                                                 • Public workshops                   • Network tariffs
                                                                                                                                       • Demand management opportunities

                                                                                                                                  United Energy Regulatory Reset Draft Proposal 2021–2025   8
We want you to choose your energy future
                                                                                                                                                                                               1

You’ve told us your energy future
Our discussions with you so far have focused on our shared energy future. This included your views on the likely take-up of new technologies,
the possible impacts of government policy, and expected customer behavioural responses. A snapshot of these views is shown below.

                                                                                        Around one third
                                                                              1/3       of customers plan to                                    The take-up of
                          Customers expect to see
                                                                                        install solar                                           batteries
                          more renewables                                               during 2021–2025, helped                                is expected to increase
                          in their homes or businesses                                  by government subsidies                                 as rooftop solar grows

Electric                                                  As the size of our network grows,
                                                          timely and
                                                                                                                                      Customers want
                                                                                                                                      access to
vehicles                                                  efficient                                                                   real-time data
will eventually be part of our
transport and energy system                               connections are a must                                                      on their energy use

                                                                              Everyone should have a                                        Customers want us to
                            Customers
                            want energy to be                                 reliable                                                      prioritise safety
                            affordable                                        electricity supply                                            when planning our asset replacements

   Customers are finding                                                                                                              Customers want
   ways to use energy more                                Around half our customers are interested in
                                                                                                                                      savings for
   efficiently                                            rebates for reducing                                                        shifting use
   to save money                                          electricity demand                                                          to off-peak

                                                                                                                                    United Energy Regulatory Reset Draft Proposal 2021–2025    9
We want you to choose your energy future
                                                                                                                                                                                             1

What we’ve heard and what we’re doing
We’ve heard three common themes in our discussions with you. You’ve told us you want flexibility to choose how you use
electricity, a dependable and safe network, and an affordable price. We’ve used these themes, which reflect your views and
preferences, to develop a set of outcomes that our draft proposal will deliver.
These outcomes represent how we’ll deliver value to you, and include ‘business-as-usual’ investment, as well as the
investment required to develop a more flexible network that supports your energy choices.

           We’ve heard...                                             We’re doing...

                You want a
                                       Providing a safe                   Providing                    Providing a safe
            safe and                  environment for our             a reliable supply                 network that
           dependable                   customers and                   of electricity                    mitigates
                 network                    workers                                                     bushfire risks

            You want a
           flexible                                                                                                                       We’d like to know more
                                      Making it easier for            Making it easier             Making it easier for you
                                      you to export solar             for you to make             to use your data to make
                                                                                                                                          about your pref erences...
           network that
          supports your                and use batteries             a new connection             informed energy choices
             choices

                                                                                                                                             1.	We’d like to test if we’ve heard you correctly.
                   You want an              Reducing                  Making prudent                   Designing price                           Does a safe, dependable, flexible and
                                                                                                                                                 affordable supply of electricity reflect what
                affordable                  our prices                 and efficient               structures that are fair
                                                                                                                                                 you want? Have we missed any key themes
                     network                                           investments                 and easily understood                         that are important to you?

                                                                                                                                             Visit talkingelectricity.com.au/contact-us/
                                                                                                                                             to have your say.

                                                                                                                              United Energy Regulatory Reset Draft Proposal 2021–2025      10
2
Every day we supply
your household
and business with
electricity to power
your activities
Every day we supply your household and business with electricity to power your activities
                                                                                                                                                                                                                       2

A safe and dependable supply of electricity is critical each and every day.
We all use electricity to keep our food fresh, and light, heat or cool our homes. We all need        Our network reliability is measured by:                               Our network safety is measured by:
electricity to operate the plant and equipment at our offices or businesses to create jobs and
grow our economy.                                                                                    • Frequency and duration of outages across our network               • Number of public and workplace
                                                                                                        (minutes off supply per customer per annum)                           safety incidents
As your electricity distributor, we take great pride in the role we play in providing an essential
                                                                                                     • Frequency and duration of outages in remote areas                  • Number of fire starts from our assets
service for our communities. How we manage our poles and wires impacts your lifestyle and               (minutes off supply per customer per annum)                        • The condition and health of our assets
the economy, so we follow international best practice. This includes measuring outcomes you
                                                                                                     • Network resilience in extreme weather (number of faults)
value, so you can be confident you’ll have electricity when you need it at an affordable price.
Our investment in the period from 2021–2025 to maintain a safe and dependable network

                                                                                                                                                                                        Our invest ment
represents a major part of our total works. This is because our network is complex and covers        Forecast investment to replace existing assets
                                                                                                     ($ million, 2020 dollars)
                                                                                                                                                                                        is increa sing to
such a diverse area.

                                                                                                                                                                                        mainta in reliabil it y
An overview of our forecast investment to replace existing assets across our network in the          100

2021–2025 period is shown in the next column. These investments are further discussed
in this section.
                                                                                                                                                                                         as our network ages
                                                                                                      80

Our investment decisions to replace assets in the next regulatory period are increasingly relying
on smart technology and data analytics. For example, we’re currently partnering with a number         60

of universities across Australia to identify better ways to manage our assets. This helps us to
make data-driven decisions to replace our poles, wires and major electrical plant inside our          40

zone substations, and to identify and resolve safety hazards before they occur.
We’ve also received funding from the Australian Renewable Energy Agency (ARENA) to                    20

investigate innovative and affordable options to manage electricity use during times of peak
electricity demand. Ultimately, this lowers your bills.                                               0
                                                                                                           2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
To ensure we continue to supply your household and business with electricity to power your
activities, we commit to providing a:
• safe environment for our customers and workers
• safe network that mitigates bushfire risks
• reliable supply of electricity.

                                                                                                                                                United Energy Regulatory Reset Draft Proposal 2021–2025               12
Every day we supply your household and business with electricity to power your activities
                                                                                                                                                                                                                  2

We’re committed to providing
a safe environment for
our customers and workers
Your safety, and that of our workers, is our first priority
– we never compromise on safety.
Our workers are extremely well trained, and follow best          One of the safety-driven investments included in our draft
practice safety management to protect us all. This includes      proposal is $12 million to test and replace service cables             Our work with universities
a strong culture of reporting all safety incidents (including    connecting your home to our powerlines. A component of
near misses), no matter how small, so we all continue to         these cables includes a protective covering that can degrade
                                                                                                                                        helps to improve our network
learn and improve our processes.                                 in certain conditions. However, instead of just replacing all
We’ve also embraced technology to provide better ways to         service cables, we’re using data analytics to select particular        In partnership with Swinburne University, we're testing the strength
                                                                                                                                        of our pole cross-arms that carry our lines to understand when they
proactively ensure the safety of our workers and community.      at-risk properties.                                                    may break. This research will allow safer and more affordable
                                                                                                                                        decisions about when to replace assets.
This follows the increased availability of data about our        Another safety program we discussed during our stakeholder
                                                                                                                                        We're also working with Victoria University and the Department of
network since the introduction of smart meters in Victoria       forums is relocating selected powerlines around traffic 'black         Environment, Land, Water and Planning to remotely identify broken
in 2009.                                                         spots'. We haven’t included specific investments for this in our       lines. This research will help us turn off power on broken lines
                                                                 draft proposal, but instead, we’ll continue to assess the value        quickly to mitigate safety and bushfire risks.
In particular, we’ve established a data analytics team within                                                                           Our other research projects include:
our business to help further improve the safety of our           of any relocations in our day-to-day works.
                                                                                                                                        • research into early fault detection with RMIT to detect outages
network. Our innovative use of data analytics provides           When developing our investment plans for major plant and                  before they occur
both a safer and more affordable network.                        equipment, we also place a value (or a benefit) on reducing            • working with the University of Queensland to better manage
                                                                                                                                           the life cycle of power transformers
Notwithstanding our preventative measures, some network          safety and environmental risks. This approach embeds safe
                                                                                                                                        •s
                                                                                                                                          upporting Monash University's project for net zero emissions
assets will still fail on occasion (often due to extreme         outcomes in all our investment decisions.
                                                                                                                                        • customer recruitment study for demand management with
conditions) and may pose a safety threat. We undertake a                                                                                   Deakin University
range of activities to reduce the impact should an asset fail.                                                                          • solar forecasting with the Australian National University to better
                                                                                                                                           utilise our network.
This includes maintaining safe distances between our assets
                                                                                                                                        Identifying and implementing new ways to solve network problems
and the community.                                                                                                                      leads to safer, more reliable and affordable networks.

                                                                                                                                       United Energy Regulatory Reset Draft Proposal 2021–2025                   13
Every day we supply your household and business with electricity to power your activities
                                                                                                                                                                                                            2

We’re committed to providing
a reliable supply of electricity
We know from talking to you that network reliability is important.      Unplanned outages a typical customer experiences
Therefore, we regularly inspect and record the condition of all         (minutes)
our assets:                                                             350

• assets in high bushfire risk areas are inspected at least every      300

                                                                                                                                               We’d like to know more
   three years, and every five years in low bushfire risk areas         250

                                                                                                                                               about your pref erences...
• for assets in declining condition, more frequent monitoring          200
   is scheduled                                                         150

• if the condition warrants, assets will be removed, repaired          100
   or replaced.                                                          50

We use a range of inspection techniques such as laser                     0
                                                                                                                                                  2.	Our planned investments are designed
                                                                              2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
technology and traditional field crew inspections. These                                                                                              to maintain reliability for the average
inspections drive our $195 million pole and line replacement                                                                                          customer. We will not receive funding
program over the 2021–2025 period.                                      Unplanned outages a typical customer experiences                              to improve service levels for customers
                                                                        (number of)                                                                   who currently experience lower than
Overall, the investments outlined in this draft proposal are                                                                                          average reliability. Are there alternative
designed to maintain both affordability and the long-term health        2.0                                                                           ways to better support these customers,
of our electricity assets. This includes investments needed to                                                                                        rather than continuing to make
maintain current reliability levels on average across our network       1.5
                                                                                                                                                      compensation payments for frequent
                                                                                                                                                      or extended outages?
(we note that factors such as the weather will still drive variances
each year).                                                             1.0
                                                                                                                                                  3.	Our use of data analytics supports our
                                                                                                                                                      risk-based approach to resolving safety
In practice, however, we’ll work to improve reliability where you                                                                                     outcomes (e.g. only targeting selected
value the improvement more than the cost to deliver it. As shown,       0.5                                                                           assets to be replaced, so as to responsibly
we’ve been improving our reliability and will strive to maintain this                                                                                 balance risk and affordability). Do you
                                                                                                                                                      support the specific replacement
trend. Activities we’ve undertaken to improve reliability include       0.0
                                                                              2008 2009 2010 2011 2012 2013 2014 2015 2016 2017                       investments we identified?
installing additional switches and monitoring devices. When there
is an electricity outage, this equipment helps us restore your
                                                                                                                                                  Visit talkingelectricity.com.au/contact-us/
supply more quickly by remotely identifying and segmenting fault                                                                                  to have your say.
locations for our field crews to attend.

                                                                                                                                            United Energy Regulatory Reset Draft Proposal 2021–2025        14
Every day we supply your household and business with electricity to power your activities
                                                                                                                                                                                                           2

We’re committed to providing a safe
network that mitigates bushfire risks
Victoria is one of the most fire prone regions in the world, so mitigating bushfire risk is           A further bushfire mitigation measure we investigated is installing rapid earth fault current
paramount. Fire starts can occur, for example, if bad weather blows vegetation onto our lines         limiters (REFCLs) that can reduce the risk of a fallen line or vegetation contact causing
or animals make contact with our assets.                                                              a fire start. REFCLs operate like a giant safety switch, and when a powerline comes into
It’s impossible to eliminate fire starts completely, but as shown, the trend in ground fire starts    contact with vegetation or the ground, they stop dangerous current levels almost
from our assets is decreasing. We’re confident our draft proposal includes projects to continue       instantaneously.
to effectively reduce the risk of bushfires:                                                          We currently have two REFCLs on our network, with work underway on a third. Once that
• In high bushfire risk areas, we inspect our network assets more often – on a three-year cycle,      is commissioned, we'll have coverage over almost 60% of our risk area. The cost of
  rather than a five-year cycle used in other locations. Additionally, we inspect the clearances      installing additional REFCLs hasn’t been included in our draft proposal, as our recent
  between vegetation and all our lines every year prior to the fire season beginning.                 estimates suggest they would not provide sufficient customer benefits in the targeted
                                                                                                      locations. This approach is consistent with the feedback you provided during our customer
• Some customers – typically those with rural properties – have privately owned lines on their        engagement process – you said we should only install these devices if supported by robust
  property. While it’s these customers’ responsibility to ensure their lines are safe, in high-risk   economic reasoning.
  areas we also inspect private lines every three years to make sure they’re in good operating
  condition.                                                                                          Asset-related ground fire starts
• We’re undertaking a targeted inspection and replacement program for ‘double-staked’ poles           (number of)

                                                                                                                                                          We're red ucing s
  to further reduce the risk of failure. For example, for some older poles, we’ve installed           200

                                                                                                                                                         ground fire sta rt
  support beams on either side to prolong their use.
                                                                                                                          186
• We’re investing $6 million to replace selected types of high voltage switches with enclosed
  types. The original, uncovered switches have been installed up to 50 years ago, and our             150
                                                                                                              157
  replacement program will target these assets only. When uncovered switches operate, hot
  pieces of metal could fall to the ground and start a fire – this investment will prevent this
                                                                                                      100                                                                  114
  occurring.                                                                                                                          103           99

                                                                                                                                                                78
                                                                                                      50

                                                                                                       0
                                                                                                            2012–2013   2013–2014   2014–2015    2015–2016   2016–2017   2017–2018

                                                                                                                                                United Energy Regulatory Reset Draft Proposal 2021–2025   15
3
We’re preparing
the network to
be flexible to your
energy needs
We’re preparing the network to be flexible to your energy needs
                                                                                                                                                                                                                          3
You’re changing the way you use, store and sell electricity.
Rooftop solar is already well established, and as the price of technology falls, the                Forecast take-up of new technologies
take-up of batteries for your home is forecast to increase. Likewise, electric vehicles are         Rooftop solar
expected to become increasingly affordable, meaning you may use more electricity in             (number of rooftop systems)

the future.                                                                                                  116,000
                                                                                                                                                                   Electric vehicles
Electricity demand during peak periods is a key driver of our investment requirements.                                                                               (number of cars)
As part of our stakeholder engagement, we held a forum to explore future electricity
                                                                                                                                                                                                                   tt erie s
                                                                                                                                                                              6,116
scenarios. We asked you about your current and future energy use, and the role of new
                                                                                                                                                                                                Use of so la r, ba hic les
                                                                                                                                                                                                 a nd el ectric ve rise
technologies.                                                                                       65,280

                                                                                                                                                                                                 will continue to
Our forecasts for peak demand from 2021–2025 are shown below. These forecasts are
                                                                               1                                                       Batteries
                                                                                                                                (number of battery systems)
consistent with the scenario you considered most likely, where existing solar and battery
                                                                                                                                                2,300
trends continue at a similar pace to today. These assumptions are consistent with
forecasts provided by the Australian Energy Market Operator (AEMO).2
                                                                                                                                                                     743
You also told us we should be taking steps to prepare for a future driven by increased                                                260
solar, batteries and electric vehicles. These technologies provide you with opportunities
                                                                                                      2018      2025                  2018          2025              2018     2025
to minimise your spend on electricity, for example, by offsetting your usage or feeding
surplus electricity you generate back into the network for others to use – and be paid
                                                                                                                                                                                                                      and
                                                                                                                                                                                               We expect peak d em %
for this. Supporting this, CSIRO forecast that electricity customers will have access to

                                                                                                                                                                                                  to increa se by 1 .0 5
demand response markets worth over $2.5 billion per annum by 2050.
                                                                                                    Peak demand forecast
                                                                                                                                                                                                                      02
                                                                                                                                                                                               ea ch year in 2021 –2
Over the next regulatory period, we’ll invest to allow you to benefit from this                     (MW)
transformation. We propose to make it easier for you to:
                                                                                                    2500
• make new connections to our network
                                                                                                                                                           2,058   2,076      2,103
                                                                                                                              2,004      2,021
• export solar and use batteries                                                                    2000
                                                                                                               1,998

• use your data to make informed energy choices.
                                                                                                    1500

                                                                                                    1000

                                                                                                     500

                                                                                                       0
                                                                                                                 2020          2021          2022          2023     2024       2025

                                                                                                    Source: National Institute of Economic and Industry Research

1 These forecasts may be updated for our regulatory proposal to include the most recent data.
2 AEMO is an independent body responsible for the administration and operation of the
   wholesale national electricity market.
                                                                                                                                                             United Energy Regulatory Reset Draft Proposal 2021–2025    17
We’re preparing the network to be flexible to your energy needs
                                                                                                                                                                                                    3

We’re making it easier for you
to export solar and use batteries
When you use solar panels to generate electricity, you may want to export any surplus to          Investing in our network to enable solar and batteries
your own needs back into the electricity network. This allows you to receive payments for
                                                                                                  To give you more choice in how you use, store and sell electricity, we’ll invest $15 million on
any excess electricity you generate. You could also choose to sell your excess electricity
                                                                                                  network improvements. This includes re-balancing the number of customers connected to
when the network is overloaded, or when the supply of electricity is tight, through the use
                                                                                                  each network asset, installing devices to manage voltage rises, and installing new assets that
of batteries.
                                                                                                  can accommodate more exports. This investment is underpinned by our data analytics team
When multiple customers in the same community or region export electricity at the same            – using smart meters, we’ve been finding the ‘hotspots’ in our network and determining the
time, the amount of electricity pushed into our network may go beyond what it can handle.         lowest cost solution to address them.
This is because our network was originally designed to transfer electricity only in a single
                                                                                                  We’re also investing $20 million in ‘flexible grid’ technology. This technology will improve our
direction (i.e. from centralised generators to end-use customers). An overload may only
                                                                                                  ability to monitor and control our network in real time so we can divert exported electricity away
occur at limited times during the year, but can cause costly network damage.
                                                                                                  from points where our network is overloaded. Essentially, we’re redirecting traffic to stop jams
Solar and battery use may also result in varying voltage levels on our network. We supply         before they occur. This means we can connect more solar and batteries without exceeding the
electricity to your home or business at around 230V. When solar and battery use increases         network’s capacity or voltage limits. It will also enable the development of new markets that you
– for example, as more customers install these systems – we need to manage any                    can participate in.
corresponding voltage fluctuations, as these can cause wear and tear on your household
                                                                                                  There may be occasions when we still need to limit exports to avoid network damage and
appliances or cause them to fail.
                                                                                                  maintain the safety of our electricity supply, but our solar enablement investments will allow us
To avoid damaging our network, or your appliances, one option is to limit customers from          to minimise the time of these export limits. In this way we may limit exports for minutes, rather
exporting their excess solar energy. We recently asked customers if they felt we should limit     than permanently throughout the full peak period.
solar exports and they said ‘no’. We don’t believe this is the best solution either, because it
                                                                                                  This combination of approaches is the most cost-effective way to accommodate your export
hampers your ability to take control of your electricity bill – we want you to get the most out
                                                                                                  needs now and in the future. New standards for solar installations are also helping to reduce
of your solar and batteries.
                                                                                                  the need for network investment.

                                                                                                                                     United Energy Regulatory Reset Draft Proposal 2021–2025     18
We’re preparing the network to be flexible to your energy needs
                                                                                                                                                                                                                            3

Everyone will benefit as a flexible network defers investment
A flexible grid will help everyone, not just those with solar and battery installations. Our                         Demand management on the Mornington Peninsula
business-as-usual investment in constructing the network to take electricity from centralised                        and our 'Summer Saver' program
generators to you is shown below. Once our flexible grid technologies are installed, a major
benefit will be the opportunity to delay or reduce investments we’d otherwise need to meet
                                                                                                                     We've been leading the industry in identifying and implementing opportunities to deliver savings
peak demand for electricity on our network, or to connect renewable generation. This deferred                        to you through demand management. In the period to 2021, our demand management initiatives
capital investment – equal to $142 million – is a subset of the overall benefits of a flexible grid.                 have already deferred over $40 million of investment.
                                                                                                                     For example, instead of investing $30 million to build 50 kilometres of new line on the Mornington
We’ll also continue to manage demand as an alternative to constructing more poles and wires.                         Peninsula, we worked with GreenSync to identify 11MW of demand response from the local
We’ll do this with targeted demand management programs, and by publishing details of all                             community. We hope to continue this program into the future, so you continue to benefit.
major investments in advance of any construction activity. This provides an opportunity for                          We've also been recognised within Australia and internationally for establishing our Summer Saver
                                                                                                                     program. This program engages with over 1,000 customers each year to manage their usage in
stakeholders across our network to propose alternative, lower-cost solutions.                                        overloaded parts of our network, and provides funds directly to those participating in the program.
                                                                                                                     This is a cheaper alternative to investing in new infrastructure – so far it's avoided more than
                                                                                                                     $10 million of capital works.

Forecast investment to accommodate growth
($ million, 2020 dollars)
80

70

60

50

40

                                                                                                                          e t wo r k wi l l d ef e r
30
                                                                                                            A flexibl e nest ment ot herwise
20
                                                                                                             ca pita l inv n our network
10

0
                                                                                                                 nee d ed o
      2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

     Augmentation with flexible grid
     Augmentation without flexible grid
                                                                                                                                                           United Energy Regulatory Reset Draft Proposal 2021–2025         19
We’re preparing the network to be flexible to your energy needs
                                                                                                                                                3

We’re making it easier
for you to connect                                                          $6m to upgrade
                                                                            our Doncaster zone
                                                                            substation and
                                                                            nearby lines

Connecting to a network is the first step
that you take as an energy customer to                                                                                       $7m to upgrade
receive electricity. Every year, we connect   $7m to upgrade                  Melbourne                                      our Keysborough
                                              our East Malvern                                                               zone substation
approximately 15,000 new households,          zone substation
                                                                                                        BURWOOD
                                                                                                                             and nearby lines
                                              and nearby lines
businesses and generators.                                                                           MOORABBIN

                                                                                                          DANDENONG
We need to ensure our network can                                         PORT PHILLIP BAY

accommodate this growth. That's why
we're upgrading our ageing depots.                   $8m to upgrade                                                          Demand management
                                                     our Mornington
                                                                                                          FRANKSTON
                                                                                                                             to defer $30m
Our investments also support major                   zone substation                                                         of investment
                                                     and nearby lines
infrastructure projects that help grow
                                                                                                        MORNINGTON
                                                                                                                             between Hastings
                                                                                                                             and Rosebud
the Victorian economy.                                                                                  HASTINGS

A selection of our key projects is
                                                                                          ROSEBUD
                                                                            PORTSEA

shown opposite.
                                                                                          FLINDERS
                                                                                                                      WESTERN PORT

                                                                                  $59m to upgrade and
                                                                                  expand ageing depots
                                                                                  across our network

                                                                             United Energy Regulatory Reset Draft Proposal 2021–2025        20
We’re preparing the network to be flexible to your energy needs
                                                                                                                                                                                                           3

Connection process and charges
We’ll continue to invest in our business processes so we can connect all new customers           Forecast investment to connect new customers
                                                                                                                                                                                                        ions
more easily and quicker than before. This includes introducing our online eConnect platform      ($ million, 2020 dollars)                                                               Our connect c rea sing
                                                                                                                                                                                                   is in
to remove the need for paper forms. Putting the connections process online allows us to easily
                                                                                                                                                                                     invest ment ’s economy,
                                                                                                                                                                                      wit h Victoriarl y in our
                                                                                                 100
track the progress of your connection request, and ensure we provide accurate cost

                                                                                                                                                                                        pa rt icu l a h a rea s
estimates. Most importantly, it saves time and effort for you or your electrician.

                                                                                                                                                                                         urba n growt
                                                                                                 80
You also asked us to ensure our connection charges remain fair. That’s why we’re consulting
with you on our connections policy as part of our draft proposal. Our connections policy
                                                                                                 60
covers our proposed approach to charging new customers who want to connect to our
network. This may include requiring larger new customers to contribute some of the cost
                                                                                                 40
of network upgrades needed to support their connection.
Our total forecast connections investment is shown opposite. This chart separately shows
                                                                                                 20
the investment funded directly by those customers who make a connections request.

                                                                                                  0
                                                                                                        2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

                                                                                                       Net connections
                                                                                                       Customer contributions

                                                                                                                                           United Energy Regulatory Reset Draft Proposal 2021–2025       21
We’re preparing the network to be flexible to your energy needs
                                                                                                                                                                                                     3

We’re making it easier for you
to use your data to make
informed energy choices
The electricity industry is becoming more complicated.         Enabling our customers                                               More data, more often
You’re being asked to choose between hundreds of retail
                                                               To support you in making more informed energy choices,               New regulations are coming into effect that require us
offers, whether to install solar and batteries and what time
                                                               or for you to choose whether you want third parties to use           to remotely read your electricity meters every five minutes.
of day to use electricity to reduce your bill.
                                                               this data to tailor services to your needs, we’ll develop a single   This will enable us to provide you with your own electricity
Now, more than ever, data on your energy usage can help        system or one-stop-shop to access your electricity usage             use on a five-minute basis so that you can better control
you make these decisions. You’ve told us you want better       data and connection requests. This will remove the existing          how much electricity you use.
access to this data, and you’d like us to help you make        need for separate account details across multiple online             Our required investment to meet these new regulations
better use of it.                                              portals.                                                             is $35 million, and will start in 2021. This includes the need
                                                               Our new system will help you manage your bills – for example,        for a six-fold increase in the capacity of our communications
                                                               it will:                                                             network. The Australian Energy Market Commission
                                                               • allow you to pre-populate your electricity usage data into         determined that reading meters this frequently will reduce
                                                                 the Victorian Government's retail price comparison website         everyone’s electricity bills over the longer term.
                                                               • provide easy access to the status of your connection
                                                                 requests, including through web-chat facilities
                                                               • show you if your rooftop solar system is under-performing
                                                               • show you if your appliances are using a lot of electricity
                                                               • notify you about electricity outages, and provide a simple
                                                                 way for you to report network faults.
                                                               Implementing this system will require an investment of around
                                                               $4 million.

                                                                                                                                     United Energy Regulatory Reset Draft Proposal 2021–2025       22
We’re preparing the network to be flexible to your energy needs
                                                                                                                                                                                                                     3

                                                                                                                                                      We’d like to know more
                                                                                                                                                      about your pref erences...
Keeping your data secure                                            Our IT investment provides the building
                                                                    blocks for a flexible network                                                        4.	We’re investing in flexible-grid technology
Unlike in other states, Victorian customers’ electricity use
                                                                                                                                                             and data services to support your energy
is measured by smart meters. These meters have a number             The above investments are all part of our information                                    choices. How important are these services
of advantages over traditional meters, including:                   technology (IT) requirements. These are necessary                                        to you?
• automatically notifying us of electricity outages so we can       as we become an increasingly digital network that is                                 5.	What other information about your
  restore your power earlier                                        better able to service your needs.                                                       electricity use or our network can we
                                                                                                                                                             provide to support your energy choices?
• enabling you to view your electricity use in 30-minute            Our total IT investment is also driven by the need to
  intervals (or in the future, five-minute intervals) – this can    periodically upgrade existing business-as-usual systems –
  help you select the best electricity retail offer or understand   from 2023, for example, we’ll invest $21 million to modernise                        Visit talkingelectricity.com.au/contact-us/
  and manage your household’s electricity use                       our SAP system that was originally installed in 1996. This                           to have your say.
• supporting fairer charges and enabling you to decide when         system supports our entire business, including managing the
  to export excess solar energy or to receive benefits for          network programs and daily corporate functions.
  saving electricity
• allowing us to monitor the quality of electricity supplied        Forecast investment in IT
  to you, which can impact the health of your household             ($ million, 2020 dollars)
  appliances and equipment                                          60

• providing us with more information about the performance
  of our assets leading to improved safety outcomes and             50

  better targeted asset replacements.

                                                                                                                                                                                      vest ment in w
                                                                    40
With all this data, which will continue to grow over time,
                                                                                                                                                                    c r e a s e d  in
security is clearly important. As recognised by the Australian                                                                                              T he in            2  is d riven by
                                                                                                                                                                                                 ne
                                                                    30
                                                                                                                                                                a n d   2  02
                                                                                                                                                           2021                     obl igat ions
Cyber Security Centre, malicious cyber activity against
Australian organisations and businesses is increasing in            20
                                                                                                                                                                compl ia nce
frequency, scale, sophistication and severity.
                                                                    10
Our draft proposal includes $9 million to keep pace with
our data security needs. We’ll use this to put new security
                                                                    0
measures in place to ensure we can respond quickly if there              2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

is a threat to our network.

                                                                                                                                                       United Energy Regulatory Reset Draft Proposal 2021–2025      23
4
We’re maintaining
affordability by
reducing our
prices
We’re maintaining affordability by reducing our prices
                                                                                                                                                                                                          4

We know energy affordability is a major concern for you.
You’ve told us you expect access to cheap and reliable electricity. As cost of       Average United Energy household electricity bill composition
living pressures continue to challenge us all, we’ll keep delivering a safe and      (2020 dollars)
dependable electricity supply while reducing our prices.
This proposal allows us to reduce our revenues in 2021. As shown in the table                                                                $174           Retail margin
below, this reduction is followed by four years of no real revenue increase. We’re
interested in your views on this revenue path – an alternative, for example, could
                                                                                                                                             $163           Retail costs
be to smooth changes more evenly across the regulatory period.
                                                                                                    $132                                      $99           Environmental policy
Our revenues are falling in 2021
Year                 2021     2022     2023     2024    2025                                        $109
                                                                                                     $9
Revenue change       -8.7%     0%       0%      0%       0%
                                                                                                                                             $511           Wholesale electricity price
Our revenue changes will contribute to a total reduction in average network                         $439
charges in 2021 of $44 for residential customers and $117 for business
customers. Network charges are the component of your electricity bill that we
control, and in total, also include the reduction in our metering charges and
                                                                                                    $17                                       $62           Smart meters
expected growth in customer numbers.                                                                $84                                       $77           Transmission

Our prices have remained stable since 2007
Keeping our prices low continues our trend of real price stability over many                        $318                                     $316           Distribution
                                                                                                                                                                                              cont ribut ed
                                                                                                                                                                                We ha ven’t l bil l rises.
years. For example, the Australian Competition and Consumer Commission’s
recent report on retail electricity prices showed that average network costs
in Victoria (excluding metering) have not increased in real terms for over a                   2007–2008                                   2017–2018                            to resid ent iaordabl e t ha n
                                                                                                                                                                                             ff
decade. In 2007–2008, our average network costs were $318 and have                                                                                                             We're more a d eca d e ago.
                                                                                                                                                                                            a
                                                                                     Source: Chart adapted from ACCC analysis to reflect
declined in real terms in 2017–2018 to $316.                                         our network circumstances on a per customer basis
                                                                                                                                                                                  we wer  e
Our charges are also among the lowest in Australia.

                                                                                                                                             United Energy Regulatory Reset Draft Proposal 2021–2025     25
We’re maintaining affordability by reducing our prices
                                                                                                                                                                                                                                                 4

Our charges are among the lowest                                                               We benchmark better than other distributors
in Australia                                                                                   The evolution of new energy markets means we must remain
                                                                                               relevant with competitive services. The AER’s independent
How we compare – distribution charges                                                          benchmarks show we’re one of the most cost-efficient distributors.
across Australia (2020 dollars)
                                                                                               Operating expenditure productivity index (2006–2017)

                                                                                                                                                                                                                f t h e m o st
                   $257 Evoenergy (ACT)

                                                                                                                                                                                               W e’r e  o n e o
                                                                                                                                                                                                                   ist ributors
                                                                                                                                                            0.96   Powercor (VIC)
                        $291    CitiPower (VIC)

                                                                                                                                                                                             cost-eff icie nt dra l ia
                                                                                                                                                          0.92   CitiPower (VIC)
                         $316        United Energy (VIC)

                                $363     Powercor (VIC)
                                                                                                                                                   0.85    United Energy (VIC)
                                                                                                                                                                                                       in Aust
                                                                                                                                            0.78    SA Power Networks (SA)
                                 $366 Ausgrid (NSW)
                                                                                                                                          0.75 TasNetworks (TAS)
                                 $378      Jemena (VIC)
                                                                                                                                         0.73 AusNet Services (VIC)
                                           $452    Endeavour (NSW)
                                                                                                                                     0.69 Jemena (VIC)
                                           $455     AusNet Services (VIC)
                                                                                                                               0.62 Energex (QLD)
                                                $482     SA Power Networks (SA)
                                                                                                                            0.58 Endeavour (NSW)
                                                $498      Energex (QLD)

                                                                                                                            0.57   Essential (NSW)
                                                  $506       TasNetworks (TAS)
                                                                                                                         0.51 Ergon (QLD)
                                                                 $639    Essential (NSW)

                                                                                                                  0.46     Evoenergy (ACT)
                                                                         $704    Ergon (QLD)
                                                                                                                  0.45     Ausgrid (NSW)
0       100       200          300        400          500         600      700        800

                                                                                               0           0.2     0.4             0.6              0.8             1.0
Note: Excludes metering costs

                                                                                               Source: AER data

                                                                                                                                                                                    United Energy Regulatory Reset Draft Proposal 2021–2025     26
We’re maintaining affordability by reducing our prices
                                                                                                                                                                                                                                          4

Our network is highly utilised                                                                        Our high network utilisation reflects our strong capital          We balance capital and operating
                                                                                                      governance practices. This means you pay for investments          investment decisions
Another way we deliver you value is by operating
                                                                                                      only when they’re needed – we don’t waste your money by
our network closer to its full capacity than most other                                                                                                                 We pay close attention to the immediate price impact of all
                                                                                                      building excess capacity too early.
distributors. That is, we get the most out of our assets.                                                                                                               our investment decisions. Operating investments may have
                                                                                                                                                                        immediate price impacts, but provide flexibility to respond
Network utilisation, 2017
                                                                                                      We market-test contracts to get better rates
                                                                                                                                                                        to the future state of electricity markets as they evolve.
(%)                                                                                                   One of the key ways we deliver you value is through market
                                                                                                      testing our works program. This includes our high-volume          Alternatively, capital investments can balance affordability
                                                                       73%       Powercor (VIC)       works (e.g. the routine replacement of common network             concerns. Capital investments generally have only a small
                                                                                                      assets), as well as major construction projects.                  impact on our prices because the investment is recovered
                                                            62%      United Energy (VIC)
                                                                                                                                                                        over the life of the assets, and our assets typically last for
                                                          58%   Jemena (VIC)
                                                                                                      For high-volume works, we have agreed rates with our              a long time. For example, a $1 million capital investment
                                                                                                      contractors. This ensures you benefit from the contractors'       equates to less than eight cents per customer.
                                                      57%       SA Power Networks (SA)
                                                                                                      ability to undertake works at scale – because they're repeating
                                                  53%      Ergon (QLD)                                similar jobs over and over, they can offer a lower price.         Incentives
                                                51%       CitiPower (VIC)                             For larger jobs, we require quotes from a panel of accredited     The regulatory framework we operate under provides
                                               49%    AusNet Services (VIC)                           businesses. This competitive process guarantees we receive        incentives that allow us to earn extra benefits if we outperform
                                                                                                      the best market rates.                                            benchmarks the AER sets for us. These benchmarks are
                                               48% Endeavour (NSW)
                                                                                                                                                                        continually reviewed by the AER, so our performance must

                                                                                                                     a t ion
                                           47%       Evoenergy (ACT)
                                                                                                                                                                        continually improve too.
                                     43%        Energex (QLD)
                                                                                                   Our high ut il isud ency                                             Ultimately, you benefit from these incentives through lower

                                                                                                  supports t he prita l
                               36%    Ausgrid (NSW)
                                                                                                                                                                        prices – when we outperform our expenditure targets

                                                                                                      of o u r ca p
                             34%     TasNetworks (TAS)                                                                                                                  (i.e. if we come in under budget), you receive approximately
                                                                                                                                                                        70% of the benefit. For the 2016–2020 period, we expect
                                                                                                        invest ments
                   26%       Power and Water (NT)
                                                                                                                                                                        you’ll benefit from around $240 million in total realised savings.
             20%        Essential (NSW)

0       10         20         30          40         50         60          70      80

Source: AER RIN data

                                                                                                                                                                         United Energy Regulatory Reset Draft Proposal 2021–2025         27
We’re maintaining affordability by reducing our prices
                                                                                                                                                                               4

Our prices are based on
well-established approaches
In developing our investment requirements for the period from   Forecast operating expenditure                  Representative base year
2021–2025, we’ve tried not to reinvent the wheel. Instead,      ($ million, 2020 dollars)                       The costs of running our daily operations for a recent
where practical, we’ve used well-established processes.         800
                                                                                                                year are a reasonable starting point for forecasting our
This includes adopting the approaches already used by                                            +38    710     future expenditure needs – particularly given we
                                                                700                  +36
the AER when it assesses the efficiency of our forecasts.               635                                     benchmark among the best distribution networks from
                                                                600
                                                                                                                an operating cost perspective. When we finalise our
Operating expenditure – consistent with                         500                                             operating expenditure forecasts, 2019 will be our most
the AER approach                                                400
                                                                                                                recent ‘base’ year with audited data.
We need to maintain our assets and run our business on          300                                             Forecast trends
a day-to-day basis. These costs, for example, cover our                                                         Our operating costs take account of expected trends,
                                                                200
ongoing maintenance programs, vegetation management,                                                            including likely increases in labour and contract prices.
                                                                100
fault response, our corporate staff and many vital customer                                                     These trends are based on independent benchmarks
support services.                                                0
                                                                                                                or known price changes, which show the cost of these
                                                                       Base         Trend        Step   Total
Consistent with the AER’s longstanding practice, our                                                            services will increase at a rate greater than inflation.
operating expenditure forecasts for the 2021–2025 period                                                        Our operating forecasts are also scaled to reflect
have been developed using a 'base, trend and step'                                                              growth in the size of our network (e.g. as customer
approach.                                                                                                       numbers increase, so will our work volumes).

                                                                                                                 United Energy Regulatory Reset Draft Proposal 2021–2025      28
We’re maintaining affordability by reducing our prices
                                                                                                                                                                                         4

Step changes                                                      Proposed step changes                                   Rate of return – consistent with the
We adjust our base year for significant changes we know will      ($ million, 2020 dollars)                               AER approach
occur during the 2021–2025 period. These ‘step’ changes
                                                                                                 Forecast     Deferred    We earn a return on the value of our assets. This return
may increase or decrease our operating costs. Often a step         Proposed
                                                                                                 operating     capital    is a large driver of the total revenue we receive – equal
change is needed so we can meet new legislation that               step change
                                                                                                investment   investment   to approximately 33% – and accordingly, is subject to
changes our operational requirements – we must comply with
                                                                   New regulatory obligations                             a rigorous review by the AER.
these obligations. We also include changes where we pay                                            28.9         N/A
                                                                   related to market changes
third parties to reduce demand (instead of building a bigger                                                              The AER has recently completed its review of the rate of
network), or where we switch to using operating instead of         New regulatory obligations                             return. We participated in this review process and have
capital expenditure (e.g. where we start leasing services).        related to safety and            1.5         N/A       accepted the AER’s final decision. At approximately 5.7%,
                                                                   environment                                            the AER’s rate of return is at an historically low level.
The list of step changes we expect to include in our regulatory
proposal is shown opposite. These changes are particularly         Demand management                3.3         42.4
important for our business, given our lean operating structure
                                                                                                                          Depreciation – consistent with the
– as highlighted in the AER’s benchmarking analysis on             Expenditure trade-offs           4.6          5.2      AER approach
page 26. That said, we haven’t sought to capture all likely                                                               When we build our network – for example, our poles and
cost increases, as we’ve heard your concerns regarding                                                                    wires – these assets can last for up to 50 years. Therefore,
affordability. Instead, we’ll keep costs low by improving                                                                 we only recover a portion of the costs of our assets in any
our everyday productivity.                                                                                                given year.
                                                                                                                          This approach is consistent with well-established accounting
                                                                                                                          practices. It is also consistent with the AER’s methods.

                                                                                                                          Tax – consistent with the AER approach
                                                                                                                          The AER provides an allowance for tax based on a
                                                                                                                          benchmark firm. This recognises that all distributors incur
                                                                                                                          tax liabilities as they operate their networks.
                                                                                                                          We have applied the AER’s taxation approach, as set out
                                                                                                                          in its final report in December 2018 on estimating
                                                                                                                          corporate tax costs for regulated energy networks.

                                                                                                                           United Energy Regulatory Reset Draft Proposal 2021–2025      29
We’re maintaining affordability by reducing our prices
                                                                                                                                                                                                       4

Our total investment forecast is prudent
and efficient, and will reduce our prices
Our total investment forecast discussed in this draft proposal is used to set the total revenue allowance
we propose to recover from our customers. A summary of this investment is provided below.

                                                                                                                                                  We’d like to know more
Forecast operating and capital investment for 2021–2025

                                                                                                                                                  about your pref erences...
($ million, 2020 dollars)

               38
          36                                                          98
                                                                70                                   Replacement
                                                                                                                                                     6.	We’ve heard from you that affordability
                                                                                       390           Augmentation (incl. network control)                is a primary concern, and this has been
                                            Base                                                                                                         reflected in our capital and operating
               $710m                                      171          $1,130m                       Connections (net)
                                            Trend                                                                                                        investment forecasts. Have we struck the
                total                                                    total                                                                           right balance between flexibility, safety,
               opex                         Step                        capex                        IT
                                                                                                                                                         dependability and affordability?
                                                                                                     Property, fleet and land
                                                                176                                  Overheads and equity raising costs              Visit talkingelectricity.com.au/contact-us/
                      635                                                      225                                                                   to have your say.

                                                                                                                                       United Energy Regulatory Reset Draft Proposal 2021–2025        30
5
    We’re supporting
    your energy
    choices through
    fair and simple
    charges
We’re supporting your energy choices through fair and simple charges
                                                                                                                                                                                                          5

We’ve designed our price structures
to be fair and easily understood
Our aim is to set simple and fair price structures for electricity,    We believe these new price structures are fair because:             Large business and industrial customers
so we’ve been working with the other Victorian networks to             • you can make savings if you’re able to change the time you        We'll continue to adopt a 12-month rolling kVA demand
design consistent price structures for residential, and small            use electricity (e.g. by setting your dishwasher and washing      charge structure for large businesses and industrial
and medium business customers throughout the state. We’ve                machine timers to operate outside peak times, or even             customers, where demand is measured in 30-minute intervals.
also held two separate customer forums, but we want to hear              using a battery to store electricity for later)                   Our commercial and industrial customers have been charged
from more of you before settling on the final price structure for
                                                                       • customers who use a lot of electricity at peak times pay          based on their demand for a number of years, so most
our network.
                                                                         for the costs they impose on the network – this is fairer than    understand this pricing structure well.
Based on your feedback so far, we’ve narrowed the price                  charging other customers the same amount when their               Following in-depth interviews with our larger customers,
structure options for residential, and small and medium                  electricity use has less impact on the network                    pricing options that reward customers for reducing demand
business customers to those set out below.                             • by encouraging you to change the time you use electricity,        at network peak times are being considered. Options include
                                                                         we can build in less capacity to the overall network and          rebates or replacing the current fixed charge with a network
Our aim is to set simple and fair price structures                       lower everyone’s charges.                                         peak pricing signal.
    Price                                                              We’re also interested in your views on how quickly we should
                                    Description
  structure
                                                                       move towards these pricing structures. Each of our customers
                  The price of the electricity changes throughout
                                                                       is assigned a pricing structure by a retail electricity business.
  Time of use     the day. It is higher at peak times and lower at
                  other times.                                         The sooner customers are assigned to a new pricing structure
                                                                       that provides an incentive to move usage away from peak
                  The charge for your package would be the same
  Peak usage
                  each month based on your level of electricity
                                                                       times, the sooner network cost savings will be realised.
   packages                                                            However, this may come at the expense of some individuals
                  use at peak times.
                                                                       in the short term. The pace of change will depend on whether
                  Your monthly charge would be based on your
   Demand         maximum electricity demand at peak times for         all customers are assigned to a new pricing structure by default
                  that month.                                          (unless they opt out), or whether new structures only apply
                  Your price structure would not change. Most          to customers who opt in.
                  customers are currently charged a fixed daily        We’ve published a consultation paper with more detail
  Status quo
                  rate plus a charge for electricity use that varies
                                                                       on our price structure options. This paper is available
                  with how much you use each day.
                                                                       on our Talking Electricity website.

                                                                                                                                            United Energy Regulatory Reset Draft Proposal 2021–2025      32
You can also read
NEXT SLIDES ... Cancel