United Energy

 

www.unitedenergy.com.au


United Energy (UE) provides safe, reliable electricity to approximately 665,000 customers across east and south-east Melbourne and the Mornington Peninsula.

The distribution network transports electricity from the high voltage transmission network to residential, commercial and industrial electricity users. It covers 1,472kmand includes 47 zone substations, approximately 215,000 poles, 13,000 distribution substations, approximately 10,071km of overhead power lines and 2,783km of underground cables.

UE’s distribution area is largely urban. While it covers only about 1% of Victoria’s land area, it is home to around 25% of the state’s population. Approximately 90% of UE’s end customers are residential.

The distribution of electricity is an essential service and UE exists within a heavily regulated environment, operating as a natural monopoly within its distribution area.

Snapshot
Ownership interest 66%
Revenue ($ million) 535
EBITDA ($ million) 382
Regulatory reset date 1 January 2021

UE's latest results are contained in the latest Management Information Report.

Revenue streams

United Energy’s distribution business generates predictable, regulated revenues. Approximately 92% of United Energy’s total revenue comes from network tariffs and metering charges, for the use of United Energy’s distribution network and for the use of the transmission grid. The tariffs are levied on electricity retailers, who pass these costs on to their customers. Growth in network tariff revenue is driven by volume growth and regulated network tariff charges.

Other revenue comes from services which United Energy provides to its customers, such as relocating assets at the request of our customers, extending existing distribution networks, providing public lighting to local council areas, and access charges for the use of electricity distribution poles to telecommunication companies.

The regulatory price determinations, which regulate the majority of these revenues, are undertaken by the Australian Energy Regulator (AER) every five years.

Mature Network, Stable Customer base

United Energy’s distribution area is largely urban. While it covers only about 1% of Victoria’s land area, it is home to around 25% of the state’s population. Approximately 90% of United Energy’s end customers are residential.

The distribution of electricity is an essential service and United Energy exists within a heavily regulated environment, operating as a natural monopoly within its distribution area.

Energy Demand Management

In recent years the industry has witnessed growing levels of public debate around energy issues caused by a variety of interrelated customer, technology, political and regulatory changes in the external environment.

High penetration of solar PV and the emergence of battery storage technology has focused attention on how Australians might manage their energy needs in the future. It is important to note that the penetration of solar PV on the United Energy network is currently lower than in many parts of Australia’s east coast and even in comparison to some other regions in Victoria. Current installed PV on United Energy’s network accounts for around 0.9% of displaced load.

While the grid will remain integral to the energy system, the way customers are using this energy infrastructure is changing. In the future it is anticipated that the grid will play more of a facilitation role as customers use it as a platform on which to trade energy.

While overall consumption has been flat to slightly declining in recent years, peak demand has continued to grow. This has required United Energy to continue to increase the capacity of some parts of its network to accommodate the increasing peak demand.

UE, along with the other Victorian electricity distributors, are looking at ways to temper the increase in peak demand and the associated capital expenditure to service the increased load profile. Recently, UE introduced customer-led demand management initiatives to reduce usage at critical periods.

One of these initiatives, a Virtual Power Plant Trial which utilises solar and energy storage technology to reduce peak demand and defer network augmentation, won the Clean Energy Council’s 2016 Innovation Award.

Tariff Reform

UE has been a leading advocate for tariff reform to introduce cost-reflective energy pricing for all customers. It is working with industry, customers, government and regulators to achieve better alignment between individual customer use profiles and their resultant cost on the network.
 
The desired effect is a move away from traditional energy consumption only tariffs which do not provide accurate price signals of the time cost of network capacity required to meet short periods of maximum network demand.

Cost reflective energy pricing is expected to:
  • Reduce cross subsidies between different types of residential users;

  • Reduced expected overall network investment as customers respond to price signals by shifting discretionary load to off-peak periods, subsequently reducing load in peak demand periods;

  • Deliver better alignment of pricing signals to encourage efficient investment in new technology such as solar PV and battery storage; and

  • Help realise the full benefits of the Victorian smart meter roll out, with customers able to accurately monitor their energy usage and respond to pricing signals appropriately.

 

Operating Initiatives  

Smart Meter Benefits

UE continues to deliver benefits from the successful roll out of smart meters across its entire network that improve safety, enhance reliability and provide savings to customers directly through access to energy usage data and increased efficiency of capital investment.
 
These benefits include: 
  • Remote fault identification, thereby avoiding wasted truck visits;

  • Faster supply restoration;

  • Hazardous ‘loss of neutral’ faults can now be detected remotely;

  • Neutral integrity testing can be undertaken remotely, avoiding site visits and manual testing at premises;

  • Enhanced monitoring of supply to life support customers during storm events;

  • Improved data on transformer peak loads to identify required transformer upgrades or to facilitate more efficient use of existing capacity;

  • Rebalancing of over loaded phases, enabling improved network utilisation on peak demand days, thereby reducing the need for network augmentation; and

  • Enhanced load switching which enables better management of expected peak demand days in high risk areas of the network.


Business Transformation Project

UE has partnered with a Tier 1 global consulting firm to commence a Business Transformation Program. The objective is to review the UE operating model and streamline business processes to achieve further operational efficiencies, to maintain its ranking as one of Australia’s most efficient electricity network according to regulatory benchmarks. Net efficiency gains from the transformation project are expected to start from FY18.

Regulation

UE is in the first year of its current regulatory period, which runs until 2020. The Australian Energy Regulator (AER) published its final decision for UE on 26 May 2016. The final decision was an improvement on the AER’s draft decision, with UE receiving a 14.1% increase in allowed nominal revenue over the regulatory period. UE has lodged an appeal with the Australian Competition Tribunal (ACT) in relation to the estimation for the valuation of taxation credits, or gamma.

The outcome of the ACT’s review is expected in the first half of calendar year 2017.

Benchmarking

The AER continues to apply benchmarking across regulated network businesses nationally to provide a measure by which to compare businesses in different jurisdictions and encourage efficiency in the long-term interests of customers.
 
The AER’s latest benchmarking analysis shows UE’s average annual cost per customer continues to be one of the lowest in Australia. As an efficient distribution business, UE is in the top quartile of its peers and has sustained this performance over many years. The Business Transformation Program is aimed at extracting further operating efficiencies; demonstrating that UED is responding to incentive regulation; consistently delivering value for money to its customers.

Operational overview

 
Year to 30 June 2016 Year to 30 June 2015
Network connections
Small (residential & unmetered) 606,492 604,395
Medium size business 55,803 56,083
Commercial & industrial 3,310 3,288
Total 665,605 663,766
Electricity load - GWh
Small (residential and unmetered) 2,800 2,785
Medium sized business 1,426 1,431
Commercial and Industrial 3,597 3,525
Total electricity load 7,823 7,741
Distribution network statistics
SAIFI (number of interruptions) 0.87 0.9
MAIFI (number of interruptions) 1.1 1.0
Unplanned SAIDI (minutes) 60.2 70.6
Occupational health and safety
Lost time injuries 0.6 0.4
Total recordable injuries 2.4 7.2
Environmental
Scope 1 CO2-e emissions n/a 9,948 t

Financial summary

$ million
Year to 30 June 2016 Year to 30 June 2015
Distribution revenue 390 381
Total revenue 535 510
EBITDA 382 360
Regulated Asset Base* 2,357 2,255
*As at 30 June    

Credit ratings

Rating levels as at 1 September 2016:

S&P BBB (stable)
Moody's Baa2 (stable)

 



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