1. The Australian Energy Regulator SA Electricity distribution determination 2015–2020 Consumer/stakeholder forum 3 September 2014

2. Topics Welcome & introductions Session 1: ◦ Introduction to regulatory framework Session 2: ◦ Recap of last meeting – (March) ◦ Reset timeline ◦ CCP presentations/discussions ◦ Consumer issues and next steps 2

3. Introduction to regulation Energy market regulation Role of AER Incentive based regime How we assess regulatory proposals ‘Building blocks’ 3

4. Energy market regulation 4

5. The AER’s role in energy Wholesale gas & electricity markets Transmission networks & pipelines Distribution Networks for gas/electricity Retail & other distribution We monitor wholesale markets and enforce rules Prices in the NEM are set by the market subject to the NER AER monitors market outcomes and behaviour We regulate revenues of transmission businesses Charges set by AER Transmission loss factors method set by AEMO Regulatory investments tests – AER assesses compliance We regulate revenues of distribution businesses Distribution prices and structures – AER approves annually subject to determination and NER Reliability standards – set by SA Govt Incentive schemes – defined in NER and set by AER at reset Rate of return – NER and AER guideline – set at reset for 5 years We will regulate non- price retail activities National Energy Customer Framework - AER Retail price approach – SA Govt Adoption of NECF – SA Govt

6. Incentive based regime Ex ante revenue determination based on forecasts Revealed costs to pass savings to consumers Incentives to draw out efficient behaviour We don’t regulate the detail Pricing comes after revenue has been set 6

7. How we assess proposals (1) We must make decisions that contribute to the achievement of the NEO (to the greatest degree). NEO – promote efficient investment in, and efficient operation and use of, electricity services for the long term interests of consumers of electricity with respect to – ◦ Price, quality, safety, reliability of supply of electricity; and ◦ The reliability, safety and security of the national electricity system. 7

8. How we assess proposals (2) Key aspects of NER: ◦ Regulatory asset base – not re-valued ◦ Rate of return – benchmark efficient firm ◦ Capex objectives – efficient, meet demand, obligations ◦ Opex objectives ◦ Depreciation ◦ Tax allowance ◦ Incentive schemes 8

9. How we assess proposals (3) Control mechanism – revenue cap or price cap? Classification of services – what services will we regulate Other distribution services (e.g. public lighting) Prices derived from the ‘building blocks’ 9

10. How we assess proposals (4) The building blocks: 10

11. How we assess proposals (5) Incentive schemes: ◦ Service target performance incentive scheme (STPIS) ◦ Efficiency benefit sharing scheme (EBSS) ◦ Capital expenditure sharing schemes (CESS) ◦ Demand management incentive scheme (DMIS) 11

12. Other relevant points Pricing ◦ Arrangements for setting prices for 5 year period set at determination ◦ Prices are set annually (with year 1 prices set in determination) Metering Changes to the NER ◦ Pricing, demand management, role of DNSPs in metering 12

13. Recap of last CCP meeting Date: 2 June 2014 Key issues discussed: ◦ SAPN’s consumer engagement ◦ vegetation management, reliability, impact of solar, undergrounding lines ◦ effectiveness of incentive schemes ◦ the need for education on the regulatory framework ◦ CCP presentations on key features of SAPN, drivers of cost and comparison with other businesses 13

14. Reset timeline 14 30 April 2014 F&A published 31 Oct 2014 Businesses submit regulatory proposals 10 Dec 2014 Public forum – Question the business on proposals. Also release Issues paper 31 Jan 2015 Submissions on regulatory proposals close 30 April 2015 AER publishes preliminary determination Predetermination conference TBC but likely May 2015 2 July 2015 Submissions on preliminary determination close 31 October 2015 AER publishes final determination

15. Future drivers of price Downward pressure ◦ Regulatory rules have been strengthened ◦ Cost of capital has fallen (10% => ?%) ◦ Consumption is much weaker Upwards pressure ◦ Asset base additions – aged asset replacement 15

16. Consumer Challenge Panel Presentations 16

17. SA consumer issues Discussion of SA consumer issues leading into the 2015-20 reset 17

18. SA reset - AER contacts SAelectricity2015@aer.gov.au Moston Neck - 07 3835 4669 Robyn Lowien - 07 3835 4659 18