The ElectricityIndustry In South Australia

Structure, issues and strategies

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Contents

• History & background• Industry breakup• Generation• Transmission• Distribution & retailing• Regulation• Industry status & key issues• Strategies

History & background

• Industry was vertically integrated.

• Entire industry owned by the South Australian state government.

• Objectives were social and community as well as financial.

• Generation is a mix of coal and gas.

• No surplus of generation - imports about 35% from Victoria

History & background

• Approximately 725,000 retail customers.

• Total revenue approximately $980 million, with NOPAT $120 million.

• Asset base of approximately $3.2 billion.

• Approximately 1,500 staff (reduced from 5,400 in 1988).

Industry breakup

• State government decision to restructure the industry to encourage efficiencies and allow participation in the NEM.

• First step was to split off generation into Optima Energy, leaving ETSA with transmission, distribution and retailing.

• Further reforms were required as this breakup did not address key concerns.

Industry breakup

• Since decided that ETSA will be split into 3 core functions - transmission, distribution and retailing.

• Optima would also be split into 3, with a further 4th company to manage and trade gas.

Generation

• ETSA Generation was split off from ETSA and renamed Optima Energy.

• Industry capacity approximately 2,400 MW including 360 MW of peaking plant.

• NatPower’s 500 MW Pelican Point station is expected to be available in April 2001.

• Boral likely to expand generation assets in the south-east.

Generation

• Former ETSA generators will compete with inter-state imports and the new entrants (NatPower and Boral).

• Comprises Northern and Playford B power stations along with Leigh Creek coal mine.

• Total capacity is 760 MW.

• Located near Port Augusta, about 400 km north of Adelaide.

Flinders Power

• Comprises Dry Creek, Snuggery, Port Lincoln and Mintaro peaking units.

• Total capacity is 360 MW.

• Various locations throughout SA.

Synergen

• Optima will be slimmed down by further reforms to comprise only Torrens Island A and B stations.

• Total capacity is 1,280 MW of gas-fired steam turbines.

• Located near Adelaide.

Optima Energy

• Subsidiary of National Power plc.

• Building a 500 MW plant at Pelican Point.

• Expected to be in service in April 2001, with 160 MW available by November 2000.

NatPower

• Core assets comprise 5,500 km of 275, 132 and 66 kV lines.

• System control functions retained.

• Core transmission assets are the 275 kV double-circuit lines from Davenport to Mt Gambier.

• Spur 132 kV lines from Davenport to Leigh Creek and Port Lincoln.

Transmission

• Interconnects with Victoria (also provides indirect interconnect with NSW) - possibility of increasing the capacity of the Victoria link.

• TransEnergie are seeking to build a non-regulated interconnect with NSW.

Transmission

Distribution & retailing

• Contestability being introduced in 4 tranches based on consumption - fully contestable by 1 January 2003.

• Assets will be held separately by holding companies, but will operated as a consolidated entity.

• No cross-subsidisation to retail from distribution.

Distribution & retailing

• All customers will remain with ETSA until contestability is introduced.

• No restriction on licensing, hence the generators and inter-state traders are expected to enter the retail market - could eventually number 25.

• Billing will unbundle all costs - energy, transmission, distribution and retailing.

Regulation

• Key roles will be….• Licensing of industry participants• Customer liason in association with the

Energy Industry Ombudsman.• Pricing, until this responsibility is passed

to the ACCC in 2003.

• Generation will not be regulated - inter-state competition will set prices.

Regulation

• Prior to full competition, retail costs to all customers will decline in real terms due to vesting of a protected energy source.

• Transmission and distribution will be subject to incentive regulation.

Industry status

• Currently vertically disaggregated to promote fair competition.

• Still fully owned by the state government, although privatisation is in the early stages.

• Some grid interconnection with Victoria and NSW.

• Expected increase in generation capacity may force prices down.

Key issues

• Retail markets will become increasingly complex as more players enter.

• Possibility that some high-cost assets may be stranded by the introduction of competition - could be significant for coal-fired plant.

• Surplus capacity probably won’t be as much of a problem as it has been in other states.

Key issues

• Likely to be intense battles for market-share between electricity and gas.

• SA government seems determined to learn from the deregulation processes in other states.

• Privatisation process will most likely see the entry of US utilities (some have already entered the gas industry).

Strategies

• Cost reduction will be a critical factor in generators gaining market share.

• Applying technology to metering and data capture will be a critical factor in reducing retailing costs.

• Correct assessment of commercial risks will be critical for many large players, particularly for inter-connects.

Strategies

• Backward integration into gas would be an ideal strategy for Optima, however the gas market may be designed to prevent this.

• Development of other electricity products such as peak MW, black starting etc may be critical for the long-term success of Synergen.

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