United Energy Distribution

Revenue streams

UED’s distribution business generates predictable, regulated revenues. Approximately 90% of UED’s total revenue is regulated and includes network tariffs charged for the use of UED’s distribution network and metering revenue. 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 that UED 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, apply for periods of five years.

Diverse customer base

Energy consumption in UED’s distribution area is evenly spread across residential, commercial and industrial users, making UED less vulnerable to variations in energy use in any one of these markets.

Regulation

In October 2010, the Australian Energy Regulator (AER) released its final decision for the period 2011–2015.

The final decision provides for a price increase of 0.37% above CPI in 2011 and an average increase of 3.7% per annum above CPI in the following four years.

• The initial price increase or Po for 2011 is CPI + 0.37%
• For 2012 the price increase is CPI + 1%; 2013 price increase is CPI + 2%; 2014 price increase of CPI + 6%; 2015 price increase of CPI + 6%
• Allowed gross capital expenditure is approximately 70% higher than the allowance for the 2006–2010 regulatory period.

On 22 November 2010 UED announced that it had appealed several aspects of the AER’s final decision. These appeals concern the cost of capital, operational expenditure, S-factor payments and asset values. The outcome of the appeal process is expected in Q4 2011.

The next regulatory reset date for UED’s access arrangement is 1 January 2016.

Smart metering – Advanced Meter Infrastructure (AMI) program

In December 2008 UED commenced the final design and procurement stage for the roll out of approximately 650,000 new smart meters to all customers in UED’s service area.
The roll out is expected to be completed by the end of 2013, with a total project cost of $345 million.

The project involves replacing old-style meters with new smart meters and significantly enhancing UED’s information systems to process the increased amount of data.

These smart meters can be read remotely, and allow electricity usage to be recorded in 30-minute intervals. Benefits include the introduction of innovative, more flexible tariff structures to reduce peak power consumption and costs and, potentially, to provide customers with pricing information to enable them to respond to pricing signals and reduce their overall cost of electricity.

Other benefits of smart meters can include rapid detection of outages, enhanced monitoring of quality of supply; detection of meter tampering, remote connection of electricity services, provision of information on network loads; more suitable electricity pricing plans; and a point‑in‑time display of greenhouse gas emissions. Ultimately, smart meters will become a critical piece of infrastructure supporting UED’s ‘smart network’, providing automated outage detection and management, supporting home and embedded electricity generation from solar, wind and energy storage devices.

As at June 2011 UED had installed approximately 140,000 meters, which amounts to 22% of its meter base. Related computer systems went live in June 2010 and installed AMI meters are now being read remotely.

Transition of operating and corporate functions

During the period UED planned for the transition of its business operating model, on expiry of the fixed price Operating Service Agreement on 30 June 2011. UED has now successfully transitioned key corporate, financial and asset management functions in-house. The transition will provide UED with greater control and transparency over its operations that should result in improved customer service and network performance and allow UED to optimise operating and capital expenditures.

Network operating and field maintenance functions remain outsourced, and contracts were placed with two service providers for the provision of services for five-year periods commencing in January 2012. The new outsourcing arrangements include incentive and penalty arrangements under which the service providers are incentivised to improve efficiency and network performance.

Distribution system augmentation project

To address the growth in peak demand in the region, UED has embarked on a major program to enhance the capacity and reliability of the distribution system. The project has identified distribution transformers and substations that are nearing their capacity limits for replacement with larger units. The program aims to enhance the reliability of supply to UED’s customers, particularly during periods of very high demand on hot days.

IT infrastructure renewal

As part of the transition to UED’s new business model, a major project has been implemented to secure and enhance UED’s information technology infrastructure and bring major systems up to date. The project encompasses the establishment of a new data centre, and segregation and renewal of major IT systems. The project is currently meeting all of its key milestones and budgets and will enhance system reliability and security.

Bushfire prevention

In July 2010, the Victorian Bushfire Royal Commission released its final report. As a result, UED has engaged with the AER and ESV and has adopted a number of initiatives designed to improve the safety and reliability of its network and reduce the potential for fire starts. Programs under way include steel conductor replacement, fitting of vibration dampers, armor rods and spreaders as well as expansion of the scope of vegetation clearance works.

Operational overview

	Year to 30 June 2011	Year to 30 June 2010
Network connections
Small (residential & unmetered)	579,136	572,658
Medium size business	55,503	55,342
Commercial & industrial	3,352	3,206
Total	637,991	631,206
Electricity load - GWh
Small tariff	3,037	3,098
Medium tariff	1,497	1,518
Large tariff	3,537	3,498
Total electricity load	8,071	8,114
Distribution network statistics*
SAIFI (number of interruptions)	1.0	1.2
MAIFI (number of interruptions)	1.1	1.1
SAIDI (minutes)	117	71
Occupational health and safety
Lost time injuries	0	2
Environmental
Scope 1 CO2e emissions 0		6,603 t

FY2011 performance

In the year ended 30 June 2011 UED reported revenues of $403 million and EBITDA of $274 million.

Financial summary

$ million
	Year to 30 June 2011	Year to 30 June 2010
Distribution revenue	303	300
Total revenue	404	370
EBITDA	274	263

Capital management

UED completed a $500 million bank debt refinancing transaction in April 2011. The facility included a $260 million capex facility. The new debt facilities, comprising three and seven year tranches totalling $380 million and $120 million respectively, will fund growth capital expenditure requirements over the medium term and replace UED’s $450 million facility which matured in June 2011.

In FY2011, UED repaid all of its $184 million of SOLA subordinated debt owed to DUET.

Credit ratings

Rating levels as at period end were:

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

* Does not include Excluded Events as defined by the AER.