genesisenergy.co.nz Commerce Commission Electricity Lines Business (ELB) Regulation Information Disclosure Genesis Energy 17 March 2005

genesisenergy.co.nz Presentation Outline Retailer’s perspective Purpose of information disclosure Problems with current regime Suggestions for improvement Main focus: to offer suggestions for disaggregated information disclosure to promote consumer engagement –Other points presented in written submission Disclaimer: Inclusion of third party material does not imply endorsement of the proposals presented here by those parties

genesisenergy.co.nz Information Disclosure: a Retailer Perspective Genesis Energy supplies about 640,000 customers (elec & gas) throughout NZ We use all ELB’s in NZ – annual spend ~$400M ELB’s are our transportation suppliers Our customers generally hold us responsible for transportation as well as energy supply Our ability to monitor ELB performance (on behalf of customers) relies on the information disclosure regime

genesisenergy.co.nz Information Disclosure: what does it do? Disclosure is intended to help achieve the same outcomes as an efficient, competitive market Consumers must be able to adequately judge the combination of service-quality-received vs price- paid – against alternatives Disclosure is not enough: it needs to be coupled with a mechanism to substitute for mobility/choice by consumers Consumer choice requires relevant information

genesisenergy.co.nz Present problems with Information Disclosure In many cases, lines charges cannot be readily calculated or compared at consumer level –Many ELB’s use “wholesale” charging methods –Inconsistency in price-structures between ELB’s makes direct comparisons difficult or invalid Line charges are usually aggregated across many security/reliability-of-supply classes –Assumes exact cost balance between all classes (eg low density rural vs high density urban) –Ignores physical differences in supply security/reliability –Encourages a consumer misconception of common security/reliability for all Lines Charges often not consumer oriented

genesisenergy.co.nz Problems with Current Information Disclosure Service performance results are (in most cases) highly aggregated –A single global result for all consumers does not allow meaningful assessment at consumer level – either intra- or inter-ELB comparisons. –Powerco is one notable exception – comprehensive reporting of feeder level service attainment Worst performing feeders individually identified Specific explanation of causes –Note: Information is meaningful to consumers provided they know what feeder they are supplied from Service Performance reporting too general

genesisenergy.co.nz Feeder-level reporting - Powerco example Taken from Powerco Asset Management Plan NB includes impact of unusually adverse weather in 2004

genesisenergy.co.nz Suggested Basis for Information Disclosure Every consumer (as part of a larger group) is supplied by a specific 11kV feeder in their area. Reliability data is already collected at feeder level, then aggregated All feeders are classified according to a security standard (Feeder class) Feeder class thus appears to be a good basis for improved information disclosure – for both service performance and (ideally) line charges Feeder-class appears a suitable disaggregation basis

genesisenergy.co.nz What is “Feeder class”? All ELB’s design and manage their networks according to a set of security criteria or standard –Defines classes of service (security/reliability) –Drives the resources (capital, maintenance staff etc) required to achieve service levels –Depends on a range of factors aggregate demand, geographical features, consumer density, economic impact of failure –All 11kV feeders are allocated to a class reflecting their security/reliability level –Note: there is no consistent industry standard

genesisenergy.co.nz Example of Security Criteria Taken from Unison Networks Asset Management Plan 2004

genesisenergy.co.nz Service – Price Trade-off Service-price trade-off requires consumers to: –Understand the security/service component of the price paid –Understand their own service level –Understand the alternative service-price options available Consumers can then (collectively) choose an alternative service price option for their feeder The options should be apparent from the published line charges schedule and service performance results (ie information disclosures) A Service-Price trade-off essentially involves choices about feeder class

genesisenergy.co.nz Suggested Consumer “score card” Largely based on existing data Publication could be achieved via the web Consumers could access their own service performance report, by referencing their ICP number Could be continually updated as data acquired ICP EN32115 Small Street, Anytown Feeder/Zone: Branch Street/Central Feeder Class: 3 - Urban Underground Target Outage Time/Rate60 mins/2 pa Class Performance: median=62, max=94, min=27 Outages for y/e Jun 06: 78 minutes/3 Comment:Severe storm on 4 July 05 caused 53 outage minutes

genesisenergy.co.nz On-going Monitoring Within-ELB for each feeder class –5 year longitudinal trend analysis –Cross-sectional analysis (eg median/range) –Results weighted by consumer numbers –Cross-reference to prices based on security and service levels –Include in ELB disclosures Comparisons between different ELB’s –For each feeder class –Security/service -based prices –Include in disclosure summary Regular trending and comparative analysis

genesisenergy.co.nz Regulatory Compliance In competitive markets, consumer choice and mobility provide the feedback and discipline. –A substitute is required for ELB’s We anticipate the service-price trade-off, as revealed by feeder-level disclosure, would be included in the thresholds regime Genesis Energy’s proposals are offered as a starting point for further discussion A substitute for consumer power

genesisenergy.co.nz Summary ELB’s do not trade in a competitive market – consumers actually have no choice Regulation is intended to substitute for consumer- power: Information Disclosure is an important part of the regime Disclosures must be more disaggregated to better inform consumer-level value judgements. –We have proposed a possible basis Disclosure must be supported by effective monitoring & compliance