1. 1 The Ugly, the Bad and the Good – an Alternative View on Electricity Liberalisation from a Large Industrial User Mark Grenning – Chief Advisor Energy Rio Tinto World Forum on Energy Regulation IV Athens, Greece October 18 - 21, 2009

2. 2 Mark Grenning - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009 The “Good” - Regulators say they are on the consumer’s side The national electricity market objective is to promote efficient investment in, and efficient use of, electricity services for the long-term interests of consumers of electricity with respect to price, quality, reliability and security of supply of electricity and the reliability, safety and security of the national electricity system. National Electricity Law – Australia Protecting consumers is our first priority. We do this by promoting competition, wherever appropriate, and regulating the monopoly companies which run the gas and electricity networks. OFGEM Website

3. 3 Bauxite TiO 2 Alumina Talc Diamonds TiO 2 / Iron Borates Copper / Gold / Molybdenum Coal Talc Coal Talc Borates Copper Aluminium Talc Uranium TiO 2 Copper Copper / Gold Diamonds Salt Iron ore Aluminium Coal Bauxite Coal Alumina Aluminium Iron Ore Copper/gold Talc Diamonds TiO 2 Iron Nickel Copper Rio Tinto is a large, geographically diverse international mining house Feasibility & development Existing operation Copper Aluminium Bauxite Alumina Bauxite & alumina Iron ore Aluminium Alumina Uranium Mark Grenning - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009 2008 electricity consumption of 85TWh – 50% internally generated

4. 4 Mark Grenning - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009 More “Good” – what large consumers need Active contract market involving: 1.Wholesale prices reflecting long run capital costs 2.Sharing the risk on fuel costs with active hedging markets available to consumers 3.Pricing of monopoly poles and wires reflecting efficient, benchmarked cost levels 4.High level of grid reliability and security 5.Carbon cost reflecting the scope of international climate agreement and the carbon intensity of their generation source

5. 5 Mark Grenning - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009 The “Bad” – liberalised markets have not always achieved these aims Initial success in lower prices Over time generators able to exercise market power Governments and regulators continue to intervene in liberalised markets e.g –retail price caps –mandatory renewables

6. 6 Mark Grenning - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009 Significant challenges to regulators How to encourage competition where it is possible and efficient regulation where it is not? How to ensure a smooth transition to low carbon power? How to ensure costs and benefits are spread fairly across all stakeholders? How to ensure regulatory models adjust to the changing evidence? But risk if this fails – return to old style Government regulation?

7. 7 Mark Grenning - World Forum on Energy Regulation IV - Athens, Greece - October 18-21, 2009 Significant challenges to regulators How to encourage competition where it is possible and efficient regulation where it is not? How to ensure a smooth transition to low carbon power? How to ensure costs and benefits are spread fairly across all stakeholders? How to ensure regulatory models adjust to the changing evidence? But risk if this fails – return to old style Government regulation? AND THAT COULD BE “UGLY”