HK Analyst Briefing Sept 2006 FINAL 280906webcast.streamingpool.com/clp/2006tru/presentation.pdf ·...
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TRUenergy Briefing 29 September 2006
Transcript of HK Analyst Briefing Sept 2006 FINAL 280906webcast.streamingpool.com/clp/2006tru/presentation.pdf ·...
TRUenergy Briefing
29 September 2006
29 September 2006
TRUenergy Briefing
2
Outline
Richard McIndoeSummary and Outlook
Duncan BlackFinancials
Duncan BlackOwnership and Capital Structure
Break
Tracy StevensPortfolio Management andRisk Management
Duncan BlackOperations and Construction
Richard McIndoeRetail
Richard McIndoeTRUenergy Overview
Break
Tracy StevensAustralia Energy Markets
Richard McIndoeBusiness Model and Strategy
Richard McIndoeIntroduction
Introduction
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What is TRUenergy?
• Integrated, diversified energy business
• Generation and retail
• Electricity and gas
• ~A$4.5bn assets, well capitalised
• 4th largest generator in market with
~4,000MW across states and fuels
• 5th largest retailer in market ~1.1m
customers
• Excellent platform for organic growth and
acquisition
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TRUenergy and CLP
• 100% owned by CLP Holdings
• Owns all CLP’s assets in Australia, except Roaring 40s’ wind farms
• CLP Holdings’ largest single investment outside Hong Kong
• Represent 22%¹ of CLP Holdings’ consolidated assets, and 8%² of
consolidated profit before financing and tax
• Significant synergies between TRUenergy and CLP Power
• Senior management drawn from CLP Power Asia
• Board of Directors drawn from CLP Holdings Board and CLP
Holdings senior management
• Sir Rod Eddington is independent, non-executive Chairman
1: As at 30 June 2006
2: For 6 months ended 30 June 2006
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What is it important for you to know…..?
• Australian energy market structure
• TRUenergy’s business model
• Our existing asset base
• Our strategy
• Growth potential and opportunities
• Risk management
• Financials
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South Australia
Queensland
New South Wales
Victoria
Sydney
Brisbane
Melbourne
Adelaide
Yallourn Energy
In the beginning……
• CLP established a presence in Australia
with Yallourn Energy
– Power station and retail to large
industrial customers
• Initially acquired ~73%
interest as part of
PowerGen acquisition
in 2000
• By 2004, had bought out minorities
and owned 100%
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Yallourn Energy
South Australia
Queensland
New South Wales
Victoria
Sydney
Brisbane
Melbourne
Adelaide
Torrens Island
Iona EcogenSEAGas
Acquired TXU MEB and merged with Yallourn…
• Acquired the TXU merchant energy
business in May 2005 from Singapore
Power
• Integrated Yallourn and TXU merchant
energy businesses
• Combined corporate and
portfolio management
functions
• Refinanced as corporate
with A- credit rating
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Iona EcogenSEAGas
South Australia
Queensland
New South Wales
Victoria
Sydney
Brisbane
Melbourne
Adelaide
Torrens Island
Yallourn
And rebranded…
• We rebranded to
TRUenergy in June 2005
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TRUenergy rebranding advertisement
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Tallawarra
South Australia
Queensland
New South Wales
Victoria
Sydney
Brisbane
Melbourne
Adelaide
Torrens Island
Iona Ecogen
Yallourn
SEAGas
Organic growth into New South Wales….
• We expanded into
New South Wales organically
• Organic mass market retail growth
since mid 2005
• Commenced construction
of Tallawarra 400MW
CCGT power station
in June 2006
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Tallawarra
South Australia
Queensland
New South Wales
Victoria
Sydney
Brisbane
Melbourne
Adelaide
Torrens Island
Iona Ecogen
Yallourn
SEAGas
Queensland
Now planning Queensland market entry….
• We are seeking to grow
our integrated business
in Queensland
• Mass market retail
contestability from
July 2007
• Potential future
generation opportunities
Business Model and Strategy
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The business today
Tallawarra Power Station greenfield
Site Comment MW
Yallourn Brown coal-fired base load station 1,480
TIPS Gas-fired intermediate to peaking station 1,280
Ecogen Hedge agreement to 2019 966
Tallawarra CCGT under construction – commercial–operation scheduled for late 2008
400
Retail footprint
I&C customers
Electricity customers
Gas customers
Mass market and SME retail customers
Electricity – approx. 600,000 customer accounts. Primarily Victoria, developing NSW and SA
Gas – approx. 500,000 customer accounts. Primarily Victoria, developing NSW and SA
Torrens Island Power Station (TIPS)
Yallourn
SEAGas Pipeline
Generation assets
Retail assets
Ecogen Hedge (up to 966MW)
Gas Storage Facility(12 PJ)
Other TRUenergy assets
Details
Gas storage facility
Largest gas storage facility in Victoria
SEAGas Pipeline
Foundation shipper agreement ( >50% pipeline capacity) and 33% owner
Multiple gas suppliers
Gas contracts for the next 15 years from multiple suppliers
Yallourn mine
Supplies brown coal to Yallourn power station
Brisbane
Sydney
Melbourne
Adelaide
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What is an integrated energy business…..?
• Unregulated
– Perceive more value and growth potential in unregulated sector,
rather than regulated transmission and distribution
• Generation and retail
– Power generation as well as retailing to all types of customer
• Electricity and gas
– Integrated by retailing gas and electricity, gas fired generation
• Portfolio of assets
– Generation, retail and gas assets with complementary
characteristics
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Integrated Energy Business Model
Upstream
Transmission
Distribution
Retail
Generation
• Portfolio of gas supply contracts
• Yallourn coal mine
• Underground gas storage facility
• Yallourn, base-load coal-fired station
• TIPS, gas/oil-fired peaking power station
• Ecogen hedge, gas-fired peaking station
• Tallawarra, site for gas-fired station
• 33% equity interest in SEAGas pipeline and rights to >50% of capacity
• No assets
• ~500,000 mass market & SME gas
• ~600,000 mass market & SME electricity
• Large I&C electricity customers
• Large I&C gas customers
• Assets across value chain
provides earnings stability and
opportunity
• Generation and retail focused
• Not focused on regulated T&D
• No equity in gas – currently
source gas through long term
contracts
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Forward Market
Hedge $
Trader
Hedge $
FuturesExchange Pool
RetailerPool $
Pool $
Spot Market
Bill $
NetworkCharges
$
ConnectionCharges
$
Electricity Market Structure Overview
TransmissionGrid
DistributionNetwork
End Use Customer
Grid
Generator
Ret
ail
Who
lesa
leM
onopoly
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Vertical Integration - the issue…• Vertical integration between generation and electricity retail is a
key feature of TRUenergy’s business model
• Earnings volatility for standalone generator or retailer a result of
pool and contract market volatility, and hedging mismatches
• Vertical integration of generation and retail provides for optimal
outcomes
• Generator - sells generation into electricity pool,
hedges revenue in short to medium term in
forward market
• Retailer - buys generation from electricity pool,
hedges commodity cost in short to medium term
in forward market
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Vertical Integration - the issue…
$15$17$19$21$23$25$27$29$31$33$35$37$39$41$43$45$47$49$51$53$55
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$/M
Wh
CAL 02CAL 03CAL 04CAL 0512 MTHS (360 DAYS MOVING DAILY AVERACAL 06CAL 07
Victorian Electricity Forward Contract prices
12 month moving avg spot price
Regulated Retail tariffs
(Indicative only) IndicativeRetail Margins
GenerationEarnings
• Retail tariffs relatively constant, to a large extent are regulated
• Retail margin has inverse correlation with generation margins
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Vertical Integration - the benefits
• Internalise Margins - combining or internalising retail and
generation margins, resulting in more stable cashflow/income
stream than either standalone
• Reduced Risk – balancing generation output and retail load
reduces earnings volatility
– Reduced cost of debt and equity - TRUenergy’s debt margins
today are one third of Yallourn’s standalone
– Achieved A- credit rating - not possible for standalone generator
or retailer
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Developments
Integrated portfolio is being adopted by competitors
AGL & Origin are key competitors
Snowy, International Power and Santos emerging as potential key competitors
Qld retail sale potentially start of broader NSW/Qld re-structuring over next 3 –5 yrs, driving further consolidation
LegendLarge
Medium
Relative Size to TRUenergy
Cust (%) Gen MW (%)
Competitors are vertically integrating
Starting
Com
petit
ors
Opp
ortu
nitie
sCustomersGenerationUpstream
Gas
TRUenergy
AGL
Origin
Santos
International Power
Snowy
Energex
Integral
EnergyAustralia
Country
Ergon
NSW Gen Co’s
Qld Gen Co’s 60-90---
80-130---
---57
---105
---67
---73
---140
------
8410
12010
7150
41260
100100
Con
tend
ers
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Why target a 20% market share…..?
• Industry consolidating - since privatisation in Victoria,
significant M&A activity resulted in industry consolidation, with
players choosing either the regulated or unregulated space
• End Game - in generation / retail space, likely NEM will follow UK
and New Zealand markets to consolidate to 4 or 5 large vertically
integrated players
– AGL, Origin and TRUenergy key players to date
– Future privatisations in Qld and NSW key next steps
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Current Position and Market Share
Brisbane
Sydney
Melbourne
Adelaide
Qld
NSW
Vic
SA
MacGenDeltaEraring
Energy Australia
Integral Energy
Country Energy
EnertradeStanwellCS-Energy
Energex
Ergon
Tarong
NEM Generation Market Share
17%
12%
11%
11%9%8%
8%
7%
7%6% 4%
Other
Mac Gen
Snowy
Delta
TRUenergy
Enertrade
Int Power
Eraring
CS Energy
Tarong
Stanwell
NEM Retail Market Share
25%
15%
14%10%
10%
7%
7%6% 6%
AGL
Origin
EnergyAustraliaEnergex
TRUenergy
IntegralEnergyCountryEnergyErgon
Other
Custs(m)3.0
1.8
1.6
1.2
1.1
0.9
0.8
0.7
0.7
MW
6800
4900
4450
4200
3700
3100
3100
2900
2800
2400
1600
• 5th largest retailer, 10% NEM share
• 4th largest generator, 9% NEM share
• Strong presence in VIC and SA
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What do we need to achieve a 20% share…
4,3001.3MThe challenge
8,0002.4M20% target
3,7001.1MCurrent
Generation (MW)Retail (customers)
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Market TRUenergy
Customers
Generation
1.06M
3,836MW
Market TRUenergy
Customers
Generation
4.08M
9,067MW
Market TRUenergy
Customers
Generation
4.20M
12,634MW
Market TRUenergy
Customers
Generation
1.90M
11,498MW
The Opportunities
• Qld and NSW provide key
opportunities for
TRUenergy
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To summarise our strategy…
• text
Stage 1Single asset with Yallourn only
• Concentration of financial resources in one asset
• Single asset risks/value limitations(2001-05)
Stage 4Access local capital for growth
• Combine step-wise acquisition with local funding
• Potential local market listing(2007/08)
Stage 3Grow integrated asset base & extend footprint
• Aim for 20% national market share
• Extend business model to high growth NSW & Qld States(2006-08)
Stage 2Acquire/merge with other retailers / generators
• Hedge risks & diversify
• Improve quality of business & earnings(2005)
Australian Energy Markets
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Generation
~40%
Transmission132kV - 500kV
~10%
Distribution415V - 66kV
~40%
Retailing240V~10%
Regulated Natural Monopoly with “open access”
Competition where it is possible…….price regulation and open access where it isn’t
Competitive Competitive
Electricity Supply Chain
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NEM generation by energy
Brown Coal29%
Gas6%
Hydro8%
Black Coal56%
Other0%
Wind1%
NEM Fuel type by capacityWind2%
Hydro17%
Gas10%
Brown Coal17%
Black Coal52%
Other2%
Electricity Fuel Supply
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Production,Processing &
Storage~50%
Transmission(High Pressure)
~5%
Distribution(Low Pressure)
~35%
Retailing~10%
Regulated Natural Monopoly
CompetitiveCompetitive Partially Regulated
Gas Supply Chain
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Australia has significant gas reserves
GippslandBasin5 Tcf
OtwayBasin1.5 Tcf
YollaField
TRUenergy Gas StorageVIC
SA
QLDNT
NSW
WA
Sydney
Canberra
Perth
Brisbane
Adelaide
Darwin
MoombaGas Plant
Ballera
Bayu/Undan
LNG
Wallumbilla
Longford Gas PlantThylacine/Geographe
Fields
Melbourne
Minerva FieldCasino Field
Kipper Field
CooperBasin1.8 Tcf
Coal Seam Methane Projects
2.6Tcf (potentially 5-10 Tcf)
Basin Discovered Gas Resource
Gas Field - undeveloped or under development
Townsville
Gladstone
Gas Processing Plant
Minerva Gas Plant
Otway Gas Plant*
* Under construction
Bass Gas Plant
Orbost Gas Plant
Proposed PNG PipelineGreater NorthWest Shelf
90Tcf
Browse Basin 30Tcf
Timor Sea 25Tcf
Papua New Guinea (PNG) 10Tcf Existing pipeline
Proposed pipeline
1Tcf=1068PJ(Vic uses ~250PJ p.a.)
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Australian Energy Market Size3% annual growth in gas consumption
(1PJ=936Mcf)
2-3% annual growth in electricity consumption, 3-4% growth rates in summer peak demand periods
NorthernTerritory
Victoria
New South Wales
Tasmania
Queensland
South Australia
Western Australia
AUSTRALIA Total NEM NEM share of Australia
Population (m) 19.5 17.1 87%Installed Capacity MW 45,330 36,700 81%GWh consumption 176,100 153,000 87%PJ consumption 1,000 610 61%
QUEENSLAND share of Australia
share of NEM
Population (m) 3.7 19% 22%Installed Capacity MW 11,300 25% 31%GWh consumption 40,000 23% 26%PJ consumption 80 8% 13%
WESTERN AUSTRALIA share of Australia
Population (m) 1.9 10%Installed Capacity MW 5,300 12%GWh consumption 12,000 7%PJ consumption 370 37%
NEW SOUTH WALES & ACT
share of Australia
share of NEM
Population (m) 7.0 36% 41%Installed Capacity MW 12,800 28% 35%GWh consumption 63,000 36% 41%PJ consumption 140 14% 23%
VICTORIA share of Australia
share of NEM
Population (m) 4.9 25% 29%Installed Capacity MW 8,900 20% 24%GWh consumption 39,000 22% 25%PJ consumption 250 25% 41%
SOUTH AUSTRALIA share of Australia share of NEM
Population (m) 1.5 8% 9%Installed Capacity MW 3,700 8% 10%GWh consumption 11,000 6% 7%PJ consumption 140 14% 23%
Note: In WA gas is a significant source for electricity generation.
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TRUenergy Briefing
Note: Gas consumption has been converted from PJ to GWh
Australian Energy Market - Consumption by State
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
NSW & A
CT
VIC
QLD WA SA
TAS NT
Con
sum
ptio
n –
GW
h eq
uiva
lent
LPGNatural GasElectricity
Note: LPG=Bottled Propane Gas
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National Electricity Market in Australia
Key Characteristics
• NEM consists of South Australia, Victoria, New South Wales, Queensland and Tasmania
• Single market operator - NEMMCO
• Settled via ½ hourly gross pool, underlying 5 minute dispatch & pricing
• Common clearing / spot / pool price
• Generators offer price / volume packets of generation into the market
• Maximum pool price A$10,000 / MWh (called Value of lost load (VoLL))
• Primarily a Capacity constrained market
• Generators and retailers enter into derivative contracts to manage price risk
• cash settlement, no physical delivery
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Forward Market
Hedge $
Trader
Hedge $
FuturesExchange Pool
RetailerPool $
Pool $
Spot Market
Bill $
NetworkCharges
$
ConnectionCharges
$
Electricity Market Structure Overview
TransmissionGrid
DistributionNetwork
End Use Customer
Grid
Generator
Ret
ail
Who
lesa
leM
onopoly
Note: Green arrows refer to regulatory fees, red arrows to settlement payments based on market outcomes
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Retail electricity cost stack
Transmission & Distribution
Cost
NEM Fees
PassThrough
Wholesale EnergyCost
PortfolioManagement
RetailCost to Serve
Retail MarginRetail
A$40 – A$50/MWh
A$30 - A$60/MWh
A$5 - A$20/MWh
‘Typical value’
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$20
$25
$30
$35
$40
$45
$50
$55
$60
$65
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Jul/2
006
$/M
Wh
Without vertical integration, fluctuating wholesale costs create variable retail margins
Cal 02 Flat Contract Prices
Cal 03
Cal 08
Cal 07Cal 06
Cal 04
Cal 05
12 Month Moving Average Spot Price Average
Wholesale Cost Included in Vic Retail Tariff
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Forward Trading Activity Manages Price Risk
• OTC or exchange traded• largely OTC, either via brokers or direct with counterparties• futures exchange traded
• Participants• Generators, Retailers & Traders (about 30 participants)• Relatively illiquid 3-4 years
• Common products• Swaps• Futures• Options
– Cap or floor– Collars (combination cap and floor)– Swaptions– Asian options
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Australian Gas Markets
Key Characteristics
• State based systems with integrated transmission system
• Victoria market carriage system
• Open access to transmission and distribution
• Monopoly producers dominate supply but sources of supply are increasing
• Long term supply contracts linked to CPI with price resets
• Currently daily pricing in Victoria
• Intra – day pricing from March 2007
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Eastern Australia Gas Market Development
- Immature market
- Monopoly producers (Gippsland Basin - Esso/BHP Billiton, Cooper Basin - Santos and others) > 90% of supply
- Monopoly retailers (AGL in NSW, Origin in SA, Vic Govt in Victoria)
- Single supply sources to market (Cooper Basin – to Adelaide and Sydney, Gippsland Basin to Victorian)
Late 1990s, to present1960s, 70s and 80’s
TASMANIAHOBART
Existing pipelines. Sale
Townsville
Iona
VICTORIA
SOUTHAUSTRALIA
QUEENSLANDNORTHERN TERRITORY
NEW SOUTH WALES
WESTERN
AUSTRALIA
SYDNEYCANBERRA
MELBOURNE
PERTH
BRISBANE
ADELAIDE
CooperBasin
MoombaMAPS Ballera
SW Qld(raw gas)
EAPL
Existing pipelines. Sale
Townsville
Iona
VICTORIA
SOUTHAUSTRALIA
QUEENSLANDNORTHERN TERRITORY
NEW SOUTH WALES
WESTERN
AUSTRALIA
TASMANIA
SYDNEY
CANBERRA
MELBOURNE
PERTH
HOBART
BRISBANE
ADELAIDE
DARWIN
CooperBasin
MoombaBallera
EGPTGP
SEAGas
- Mature Victorian gas market, other states evolving
- Monopoly producers still dominate supply but new sources competing eg Otway Basin, Queensland Coal Seam Methane
- Competitive retail market dominated by AGL, Origin and TRUenergy
- Integrated network with alternative supply sources to market created by SEAGas and EGP
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Competition and Ownership State by State
Closed
Queensland• Gas industry privatised• PNG pipeline (possibility)• Mass market opening July 2007• Electricity public• Electricity retail to privatise 2006
New South Wales & Snowy• Electricity public• Gas private• Gas & electric retail markets open• Retail price caps• Privatisation uncertain
Victoria• Fully privatised• Market fully open &
competitive• Retail price caps
Tasmania• Electricity public• Gas being developed • Basslink completed
2006• No Retail competition
South Australia• Fully privatised• Retail fully open &
competitive• Retail price caps
Western Australia• Electricity public• Gas privatised• Competition
beginning Partially Open
Open
Northern Territory• Electricity public• Market fully open • No competition
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Retail Energy Market Reform
• State markets have opened to retail competition in tranches
• Industry has driven the approach to Mass Market Systems capability
• Regulatory framework• Regulated pricing for mass market - negotiated multi year
retail price paths in Victoria, New South Wales and South Australia
• Regulated customer protection framework covers all retailing functions, for example billing, sales & marketing
• Extensive but inconsistent compliance programs in place in each State to comply with varying State compliance and compliance reporting obligations
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Major Areas of Continuing Retailer Regulation
• Consumer Protection• Minimum Terms for Customer Contracts (Retail Codes)• Hardship policies• Compliance and compliance reporting / audits• Ombudsman schemes provide independent arbitration and mediation
between consumers and retailers• Market Rules, for example
• National gas market development• Transmission Regulated prices to Australian Energy Regulator
• Retail Pricing• Retail price caps and reviews
• Greenhouse policy• Victorian Renewable Energy Target (VRET)• Emissions Trading Scheme consultation
TRUenergy Overview
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TRUenergy Business Structure
TRUenergy business comprises functional areas:
• Retail
• Operations & Construction
• Portfolio Management
• Corporate
– Finance
– Information Systems
– Legal & Corporate
– Human Resources
– Business Development
– CLP Internal Audit
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Attract and retaincustomers by
delivering onour promise
to putcustomersfirst
Manage our accessto generation to
meet customerneeds and
create valuethroughwholesale
trading of gasand electricityand I&C sales
Deliver efficient and reliable production of gas and electricity from our power
stations and gas plants
Build and leverage
relationships with
government and regulators
Identify and analyse growth opportunities and manage investmentprojects
Provide robust risk controls as well as monitor and report for energy market
activities
Protect our business and assets with
appropriate insurance and effective incident management systems
Assist business to minimise legal risk and establish sound
governancestructures and
processes
Maintain our facilities and business premises
Ensure accurate and efficient finance/tax
planning and reporting
Provide corporate financing and cash
management services
Manage procurement of the goods and services we need to run our
business
Recruit, support, develop and reward employees
Deliver excellence in information technology
solutions to meet business needs
Ensure effective communication with stakeholders and develop our corporate reputation
TRUenergy vision:
To be the leading integrated energy
business in Australia
Procurement
Corporate Finance
Planning, Accounting & Tax
Facilities Management
Legal
Enterprise Risk
Public Affairs
Market Risk
Business Development
Human Resources
Information Services
Government & Regulatory Affairs
Portfolio Management
Retail
Operations and Construction
Attract and retaincustomers by
delivering onour promise
to putcustomersfirst
Manage our accessto generation to
meet customerneeds and
create valuethroughwholesale
trading of gasand electricityand I&C sales
Deliver efficient and reliable production of gas and electricity from our power
stations and gas plants
Build and leverage
relationships with
government and regulators
Identify and analyse growth opportunities and manage investmentprojects
Provide robust risk controls as well as monitor and report for energy market
activities
Protect our business and assets with
appropriate insurance and effective incident management systems
Assist business to minimise legal risk and establish sound
governancestructures and
processes
Maintain our facilities and business premises
Ensure accurate and efficient finance/tax
planning and reporting
Provide corporate financing and cash
management services
Manage procurement of the goods and services we need to run our
business
Recruit, support, develop and reward employees
Deliver excellence in information technology
solutions to meet business needs
Ensure effective communication with stakeholders and develop our corporate reputation
TRUenergy vision:
To be the leading integrated energy
business in Australia
Procurement
Corporate Finance
Planning, Accounting & Tax
Facilities Management
Legal
Enterprise Risk
Public Affairs
Market Risk
Business Development
Human Resources
Information Services
Government & Regulatory Affairs
Portfolio Management
Retail
Operations and Construction
TRUenergy Business Structure
29 September 2006
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Experienced Management Team
Managing DirectorRichard McIndoe
Dir. Retail Karen Lowe
Dir. Human ResourcesMargie Hill
• IT Strategy & Planning
• Business Solutions
• Business Improvement
Dir. Portfolio Management
Carlo Botto
• Electricity
• Gas
• Physical
• I&C Customers
• Regulatory Affairs
Dir. Business Development Sam Bristow
• Yallourn
• TIPS
• UGS
• Tallawarra
General Counsel & Corp Sec.
Amanda Barnett
• Retail Strategy and Devt
• Sales and Marketing
• Commercial Business Segment
• Customer services
Dir. Information System
Phillip Nesci
• Legal
• Intellectual Property
• Company Secretarial
• Corporate Governance
• Facilities Management
• Public Affairs
Chief Financial Officer
Duncan Black
• Financial Control
• Reporting
• Treasury
• Tax
• Planning
• Procurement
• Risk Management
Dir. Operations & Constructions
Michael Hutchinson
• Greenfield Power Station Development
• Acquisitions
Internal Audit
• Human Resources
Retail
29 September 2006
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Role of Retail
• To manage TRUenergy’s mass market and small business customer base with the aim of retaining existing customers and winning new customers whilst improving profitability and customer service
• To provide required back office services including call centre and billing
29 September 2006
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Overview of TRUenergy Retail
• Currently 1.1m customers• Majority located Victoria• Growing presence South Australia and New South Wales
• Strengths• Brand recognition• Successful migration of customers from Government Regulated
Tariffs to Market Based Tariffs• Customer churn performance better than industry average• Customer complaints lower than industry average
• Opportunities• Queensland
• Retail market opening 1 July 2007
• Further organic growth in South Australia and New South Wales
29 September 2006
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52
Victorian Market Churn Since Deregulation
-
10,000
20,000
30,000
40,000
50,000
60,000
2002-1 2002-7 2003-1 2003-7 2004-1 2004-7 2005-1 2005-7 2006-1 2006-7
Tran
sfer
s pe
r mon
thGas - Per Month
Elect - Per Month
22%
27%
20%
13%
29 September 2006
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Trends in the Market
3%5%5%2003
8%
7%
5%
Victoria
6%10%2006
5%7%2005
3%5%2004
New South Wales
South Australia
Average Market Discounts*
* Include upfront incentive
Number of Players in the market
2002 2003 2004 2005 2006VIC 3 5 7 8 11SA 3 5 5 8 8NSW 4 4 4 7 11
Discounts in the market
29 September 2006
TRUenergy Briefing
54
Retail competitors are using a myriad of marketing and pricing tools to win and retain customers, such as
• Strategic– Loyalty rebates– Tiered exit fees (years 1 to 3)– Fixed price contracts– 1, 2 and 3 year contracts– Usage and supply discounts (ranging from 5%-12% currently in the
market)– Product bundling (gas / electricity / insurance etc.)
• Tactical incentives– DVDs, shopping vouchers, memberships– Direct debit discounts– Pay on time discounts– Loyalty rewards (eg Frequent Flyer Points)
Retail Market Levers
29 September 2006
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TRUenergy speed dating advertisement
Operations and Construction
29 September 2006
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Asset Overview
Tallawarra Power Station greenfield
Site Comment MW
Yallourn Brown coal-fired base load station 1,480
TIPS Gas-fired intermediate to peaking station 1,280
Ecogen Hedge agreement to 2019 966
Tallawarra CCGT under construction – commercial–operation scheduled for late 2008
400
Torrens Island Power Station (TIPS)
Yallourn
SEA Gas Pipeline
Generation assetsGeneration assets
Ecogen Hedge (up to 966MW)
Gas Storage Facility(12 PJ)
Other TRUenergy assetsOther TRUenergy assets
Details
Gas storage facility
Largest gas storage facility in Victoria
SEAGas Pipeline
Foundation shipper agreement ( >50% pipeline capacity) and 33% owner
Multiple gas suppliers
Gas contracts for the next 15 years from multiple suppliers
Yallourn mine
Supplies brown coal to Yallourn power station
Brisbane
Sydney
Melbourne
Adelaide
29 September 2006
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Yallourn provides up to 1,480MW of cost competitive base-load generation
• Yallourn is a 1,480MW power station and coal mine located in the Latrobe Valley
• Coal mine adjacent to power station providing a secure, low cost source of fuel –Reserves for power station needs to 2032–Mine operation and maintenance through
alliance contract with RTL, a joint venture between Roche, Thiess and Linfox
• Yallourn is a key generation asset–Provides ~23% of Victoria’s electricity needs–Average availability since privatisation 89%–Multi-skilled workforce–New digital control system –Operated by TRUenergy, maintenance by
alliance contract with Siemens/Thiess JV
Yallourn Power Station — OverviewYallourn Power Station — Overview
Asset Installed capacity Details
Availability (June 2006
ytd)
Yallourn 1,480MW 2x360MW
2x380MW
91.9%
Technical specificationsTechnical specifications
Yallourn Power Station Location
`
29 September 2006
TRUenergy Briefing
59
Yallourn - Significant Improvement Projects
ImprovementImprovement
Control & Instrumentation UpgradeControl & Instrumentation Upgrade New Mining MethodNew Mining Method
DetailsDetails
• Project to modernise power station control & instrumentation systems
• New central control room and power plant simulator
• Units 3 & 4 operational• Supplied under alliance with ABB
• New method uses dozers (D11 Cat) and feeder-breaker technology
• Upgrade of coal handling, conveying systems• 3 of 5 dredgers now decommissioned, one
maintained for ongoing overburden removal and one for emergency coal supply
BenefitsBenefits• Improvements relating to availability• Improved control related run-up costs
• Improved capability, reliability at lower cost– Production per man hour more than doubled– Coal supply reliability increased to 99.9%
TimingTiming• Commenced: 2002• Scheduled completion: 2008
• Dredger mining operations replaced with dozer mining system in 2002/3
29 September 2006
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ImprovementImprovement Diversion of Morwell RiverDiversion of Morwell River Industrial Relations ImprovementsIndustrial Relations Improvements
DetailsDetails
• Design, supply and construction contracted to RTL
• Contract value A$116m• Project planned over 4 dry seasons
(November to June)• Completed on schedule and to budget• Scope of work
– 11 million cubic metres of earthworks.– 3.5km of clay lined watercourse.– 1,246m of conveyor tunnels through
embankment
• AIRC made an MX Award in Oct 2001 after failed EBA negotiations
• Delivered a team based culture, enabled reduction in manning levels and introduction of new technology providing significant flexibility and right to manage
• Subsequent major changes implemented without industrial action• Outsourcing of mine O&M to Alliance• Power station maintenance reorganisation• I&C, new mining method, MRD
BenefitsBenefits
• Enables mining of East Field extension to 2010 and Maryvale Field beyond 2010
• Resulted in competitive advantage for Yallourn
TimingTiming• Commenced: October 2000• Completed: May 2005
• Continuous change since October 2001• New EBA signed in August 2004 without
dispute
Yallourn - Significant Improvement Projects
29 September 2006
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South Australia peaking/mid-merit capacity provided by Torrens Island Power Station
• Located on Torrens Island, approx 15 km northwest of Adelaide
• Consists of two plants, TIPS A and TIPS B• 1,280MW from 8 gas fired steam turbines• Largest generation plant in South Australia
providing ~40% of capacity • TXU acquired the 99-year lease of TIPS from
the South Australian government in 2000 for A$295m
• Historically, TIPS was supplied with gas from central Australia, but now gas sourced mainly from Victoria through SEAGas Pipeline
TIPS OverviewTIPS Overview TIPS LocationTIPS Location
Technical specificationsTechnical specifications
`
TIPS A TIPS B Capacity 480MW 800MW Units 4x120MW 4x200MW Market Role Peaking Intermediate Fuel Type Gas/Oil Gas/Oil Commissioned 1967-71 1975-1980
29 September 2006
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Additional peaking plant capacity provided under the Ecogen Master Hedge Agreement (MHA)
Asset Rated
capacity Details Newport 500 MW Single turbine
Gas/steam generator Located south-west of Melbourne
Jeeralang 466 MW 7 units Gas generator Located in the Latrobe Valley east of
Melbourne
Ecogen Generation PlantEcogen Generation Plant
• Ecogen MHA provides 966MW of capacity over a 20 year period
• Ecogen plant - Newport and Jeeralang gas-fired peaking power stations
• The MHA is a contract between TRUenergy and Ecogen– TRUenergy has no ownership or operational
control– Contract commenced on 6 May 1999 and runs
for 20 years until 6 May 2019– Ecogen dispatches plant into market– TRUenergy receives pool revenue and provides
for guaranteed return of operating costs and return of capital
– TRUenergy supplies gas to Ecogen
Overview of Ecogen MHAOverview of Ecogen MHA
29 September 2006
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Gas Storage facility providing the ability to manage portfolio gas position
• Gas storage and processing facility near Port Campbell in south west Victoria– Commissioned in 1999 - capacity of 12 PJ– Plant capacity represents ~25% of peak-day
Victorian retail gas demand• Connected directly to Victorian gas
transmission system and SEAGas Pipeline• TRUenergy must make certain storage
capacity available to other participants• Underground storage capacity
– Reduces supply shortage risk to TRUenergy gas customers and generation assets
– Allows TRUenergy additional supply flexibility to that under gas supply contracts
• Gas processing for nearby gas fields in addition to storage services
Underground Gas Storage (“UGS”) - overview Iona gas storage reservoir-technical parameters
• 260TJ/day withdrawal deliverability• 100 TJ/day of injection deliverability• 12 PJ of storage capacity
UGS schematic
Iona gas processing plant
(320 TJ/d)
Iona compression
facilities
SWP
SEAGas
North Paaratte Wallaby Ck
Heytesbury
Santos offshore
Iona reservoir (12.2PJ cap)
50 TJ/d
50 TJ/d
125 TJ/d
250 TJ/d
70 TJ/d
320 TJ/d Max
100 TJ/d
260 TJ/d 90 TJ/d
165 TJ/d
29 September 2006
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SEAGas pipeline capacity provides flexibility for gas business, equity interest stable cashflows
• 685km pipeline from near Melbourne to Adelaide, operational from January 2004
• JV together with International Power and Origin — TRUenergy 33.3% equity interest
• Project financed, non recourse to owners
• Provides an alternative in South Australia to Cooper Basin gas
• Gas switching flexibility in Victoria / SA
• TRUenergy has rights to > 50% of capacity for 15 years—390 TJ/day capacity
• SEAGas pipeline secures additional supply option for TIPS and provides significant flexibility to TRUenergy gas strategy
• 33.3% equity interest provides stable return
Overview of SEAGas Pipeline SEAGas Location
Sydney
Canberra
South Australia
New South Wales
Victoria
Adelaide
Melbourne
SEAGas pipeline
29 September 2006
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The combined portfolio well integrated across merit order to support business’ retail load
Combined portfolio a good combination of assets to support retail business
EB generation assets provide TRUenergy with diversification by fuel, units, states and across the merit order
Generation portfolio has significant presence in Victoria and SA
CommentaryVictoria and South Australia generation merit order
Victoria capacity
Osborne 6%
Thomas Playford7%
Pelican Point16%
Dry Creek GT5%
Ladbroke Grove 3%
Torrens Island A 15%
Torrens Island B25%
Northern 17%
Snuggery/Port Lincoln
3%Mintaro GT3%
Loy Yang B13%
Hazelwood20%
Newport7%
Jeeralang6%
Loy Yang A 25%
Yallourn18%
Southern Hydro7%
Anglesea2%
Morwell (Energy Brix)
2%
Total TRUenergycapacity
31%
South Australia capacity
Cumulative capacity (MW Traded)
Total TRUenergycapacity
40%
Dry
Ck/
Min
taro
238M
W
10,0006,0002,000 4,000 8,000
10
20
30
40
50
150
Yallo
urn
1,32
0MW
Loy
Yang
A 1
,840
MW
Loy
Yang
B 9
20M
W
Haz
elw
ood
1,44
0MW
Sout
hern
Hyd
ro 4
69M
WM
orw
ell
(Ene
rgy
Brix
) 17
6MW
Angl
esea
135M
W
Nor
ther
n (F
linde
rs)
514M
WO
sbor
ne 1
71M
WLa
dbro
ke G
rove
78M
W
Mar
gina
l Cos
t (A
$/M
Wh)
Average PeakAverage Off Peak
TRUenergy owned / contracted
New
port
475
MW
Torr
ens
B 76
0MW
Jeer
alan
g46
8MW
Torr
ens
A 38
0MW
29 September 2006
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Tallawarra Summary
• 400MW A$400m CCGT in construction in NSW,
TRUenergy Balance Sheet financed
• EPC Contract with Alstom, issued Notice to
Proceed in early June 2006
• Commercial Operations Date scheduled for late
2008 to hit summer peak
• Constructed on site of former coal-fired power
station, acquired from NSW govt
• Access to cooling water, close to gas
transmission, connection to electricity
transmission
29 September 2006
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Tallawarra Overview
• NSW largest market in the NEM
• NSW forecast to require new generation supply in 2008/9
• Tallawarra lowest cost new entrant by virtue of site benefits
• Key contributor to NSW Greenhouse Gas Abatement Scheme (NGAC)
• Strong source of incremental earnings growth for TRUenergy
• Growing TRUenergy retail business provides natural hedge to generation
• 600Ha site provides property development upside
Portfolio Management and Risk Management
29 September 2006
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Fuel Generation Wholesale Retail
Long Term Gas
Supply and Transportation Agreements
GasMarket
ElectricityMarket
I & C
Underground Storage
Wholesale
Mass MarketAnd
Small Business
Pool
I & C
Wholesale
Mass MarketAnd
Small Business
TIPS / MHA
Yallourn
TallawarraLiquid Fuel
Yallourn Coal
TRUenergy’s comprehensive wholesale portfolio extracts value across the energy value chain
Integrated Wholesale Portfolio
29 September 2006
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Role of Portfolio Management
• Portfolio Management’s objective is to protect and enhance the value of TRUenergy’s assets
• Generation/Gas Supply and customer usage/load
• As TRUenergy is a vertically integrated energy company, Portfolio Management’s core role is managing the residual position between physical supply and customers’ demand by:
• Contracting supply or hedging asset cash flow to optimise earnings• Bidding and dispatching/scheduling generation and gas to monetise asset value
• Portfolio Management’s wholesale market expertise provides a platform for TRUenergy to contribute to the development of Australia’s energy markets
• Portfolio Management engages with industry and government stakeholders to develop sustainable energy policy
29 September 2006
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TRUenergy’s Risk Management Framework
TRUenergy’s energy trading activities are conducted within a strong
governance framework
• Comprehensive Risk Management Policies
• Strong oversight of operations by Risk Management and Audit
• Functional and organisational separation of front, middle and back office energy trading activities
• Systems and processes minimise operational risk
• Portfolio risk measures provide early warning indicators around cash, contribution and value
TRUenergy’s risk management policies, procedures and systems were
reviewed in early 2006 by Protiviti, a US-based consultant, which found
risk management at TRUenergy to be “fit for purpose” whilst identifying
a number of areas for improvement which are currently being pursued
29 September 2006
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Commercial& IndustrialCustomers
Counterpartiesand BrokersNEMMCO/VENCorp
Front Office
Physical Markets
Bid development & submittal
Market & asset monitoring & re-bidding
Co-ordination with asset management and plant operations
Operational liaison with NEMMCO & VENCorp
PlantOperations
Director Portfolio Management
Execution Strategy - forward market, bidding, stakeholders
Counterparty & customer relationship management
Operational infrastructure management
Electricity Portfolio
Counterparty relationship development
Position monitoring & management
Forward transaction execution
Contract pricing & information gathering
Risk
RMP & procedures
Compliance
Development
Credit management
Forward curve
Position Monitoring & Reporting
Valuation
Middle Office
Settlements
Pool Settlements
Contract Settlements
Contract Confirmation
Back Office
ManagingDirector
Large Customer Portfolio
Customer relationship development
Product development
Account management, including billingenquiries, network and market information
Customer information and business process management
I&C Billing
Customer transfers
Metering data
Billing
Governance & Oversight
Risk Management Committee
Gas Portfolio
Counterparty relationship development
Position monitoring & management
Contract management
Contract pricing & information gathering
Counterparties
Risk Consultative Committee
Executive Committee
GroupInternal Audit
Internal Audit
Audit
Risk Management Framework - Segregation
Ownership and Capital Structure
29 September 2006
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TRUenergy Group
CLP AustraliaHoldings Pty Ltd
CLP Australia Finance Pty Ltd
CLP Australia Energy Holdings Pty Ltd
TRUenergy Australia Pty Ltd
TRUenergy Yallourn Pty Ltd
CLP Power Asia Ltd
• Yallourn Power Station
• Yallourn Mine
CLP Australia Pipelines Pty Ltd
• Investment in SEAGas
TRUenergy Pty Ltd
TRUenergy Gas Storage Pty Ltd
TRUenergy SA Generation Pty
Ltd
• UGS • TIPS • Retail Business
• Ecogen MHA
• Gas Supply Contracts
• Finance Company
• Syndicated Bank Debt
• Aust MTN
CLP Holdings
29 September 2006
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TRUenergy borrowing structure
• CLP Australia Holdings Pty Ltd is holding company for the Australian operating subsidiaries:• TRUenergy Yallourn Pty Ltd (Yallourn
Power Station and Mine)• CLP Australia Energy Holdings Pty Ltd
(owns business acquired from Singapore Power in May 2005)
• CLP Australia Finance Pty Ltd• The borrowing structure for the senior debt
has the following terms• Negative pledge - no security interests
over assets of the guarantor group other than permitted security interests
• Subordination - Senior indebtedness to rank ahead of all other indebtedness
• Requirement to hedge interest rate exposure
• The following financial covenants will be tested semi-annually:• Interest Cover• Debt to Total Capitalisation
Ownership and borrowing structureOwnership and borrowing structure
CLP Australia Finance
Operating Subsidiaries
TRUenergy Yallourn Pty Ltd
Senior debt
A$2,300m
CLP Australia Energy
Holdings Pty Ltd
Equity
Perpetual notes
Shareholder loans
CLP Australia Holdings
29 September 2006
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Senior Debt - Capital Structure
A$1,600m senior debt facilities
• Syndicated A$1,600m senior bank debt facility (syndicate of 14 banks)
• Comprises of two tranches: • 3 year A$650m revolver facility; and • 5 year A$950m revolver facility
• The terms of both tranches allow for early repayment and redraw• Margin based on a pricing grid linked to credit rating
• Syndicated A$1,600m senior bank debt facility (syndicate of 14 banks)
• Comprises of two tranches: • 3 year A$650m revolver facility; and • 5 year A$950m revolver facility
• The terms of both tranches allow for early repayment and redraw• Margin based on a pricing grid linked to credit rating
A$700m Australian MTN
• Australian domestic A$ Medium Term Note issuance on A$2 billion program
• Comprises three tranches:• 7 year A$325m Fixed Rate Notes• 7 year A$325m Floating Rate Notes• 10 year $50m Floating Rate Notes
• Australian domestic A$ Medium Term Note issuance on A$2 billion program
• Comprises three tranches:• 7 year A$325m Fixed Rate Notes• 7 year A$325m Floating Rate Notes• 10 year $50m Floating Rate Notes
A$250m working capital facility
• In addition to the base capital structure, a A$250m working capital facility is in place to meet guarantee requirements and support intra-period working capital fluctuations
• In addition to the base capital structure, a A$250m working capital facility is in place to meet guarantee requirements and support intra-period working capital fluctuations
29 September 2006
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950
50
650
500
100
200
300
400
500
600
700
800
900
1000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
600 Un-
drawn
Facility A
650Facility B
7yr MTN
10yr MTN
Maturity DateFacility A 22/08/2009Facility B 22/08/20117yr MTN 16/11/201210yr MTN 16/11/2015
Debt Maturity Profile
29 September 2006
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Financing Capacity
505010yr Floating AUD MTN
1,7002,300Total
3253257yr Floating AUD MTN
3253257yr Fixed AUD MTN
9509505yr Bank Loan
506503yr Bank Loan
Drawn Amount (A$m)
Facility Amount (A$m)
Facility
Senior Debt Facilities
• CLP Australia Holdings and TRUenergy rated A-/stable by Standard & Poor’s
• Conservative gearing <40% providing significant financial flexibility
• A$600m of undrawn committed debt facilities
Financials
29 September 2006
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2006 Interim Results
• High mass market electricity and gas sales volumes resulting from hot summer and cold winter despite strong retail competition
• Electricity sales volumes ~ 30% higher than 1H 2005
• Gas sales volumes ~ 20% higher than 1H 2005
• 2H earnings usually ‘flatter’ than 1H
• Focus on operating expense synergies
• Debt repayment reducing interest costs
Income Statement HK$m
Electricity Portfolio 2,007
Gas Portfolio 233
Total Gross Margin 2,240
Profit before financing and taxation 628
Earnings for the period 287
CLP Australia HoldingsPeriod ended 30 June 2006
29 September 2006
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Seasonality of Earnings
• Earnings profile is seasonal
• Electricity greater determinant of earnings than gas
• Electricity customer consumption typically higher over southern hemisphere summer, particularly January & February
• Gas customer consumption peaks in southern hemisphere winter due to demand for heating
• 2H earnings usually ‘flatter’ than 1H; summer & winter ‘peaks’impact largely felt in 1H
Electricity Volumes
Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
GW
h
Gas Volumes
Jan Feb Mar Apr May June July Aug Sept Oct Nov Dec
TJ
Note: Indicative only
Summary and Outlook
29 September 2006
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The business today
Tallawarra Power Station greenfield
Site Comment MW
Yallourn Brown coal-fired base load station 1,480
TIPS Gas-fired intermediate to peaking station 1,280
Ecogen Hedge agreement to 2019 966
Tallawarra CCGT under construction – commercial–operation scheduled for late 2008
400
Retail footprint
I&C customers
Electricity customers
Gas customers
Mass market and SME retail customers
Electricity – approx. 600,000 customer accounts. Primarily Victoria, developing NSW and SA
Gas – approx. 500,000 customer accounts. Primarily Victoria, developing NSW and SA
Torrens Island Power Station (TIPS)
Yallourn
SEAGas Pipeline
Generation assets
Retail assets
Ecogen Hedge (up to 966MW)
Gas Storage Facility(12 PJ)
Other TRUenergy assets
Details
Gas storage facility
Largest gas storage facility in Victoria
SEA Gas Pipeline
Foundation shipper agreement ( >50% pipeline capacity) and 33% owner
Multiple gas suppliers
Gas contracts for the next 15 years from multiple suppliers
Yallourn mine
Supplies brown coal to Yallourn power station
Brisbane
Sydney
Melbourne
Adelaide
29 September 2006
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Strengths Opportunities
Weaknesses Threats
TRUenergy SWOT
• Vertically integrated business with diverse assets
• Strong position Vic & SA – retail and generation, low cost base load generation
• Brand recognition
• Robust Risk Management practices
• A- credit rating, significant funding capacity
• Greenfield power station developments, for example Tallawarra
• Qld retail market opening
• NSW retail growth
• Potential NSW privatisation
• Retail growth delivers reduced cost–to-serve
• Customer appetite for churn
• Irrational pricing by government owned competitors
• Market consolidation and acquisitive nature of competitors
• Regulatory policy, for example, emissions trading potential impact on greenhouse intensive generation
• Lack of NSW & Qld presence
• Lack of retail scale
• Large brown coal generator
• Age of plant
• No upstream gas investment
29 September 2006
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To summarise our strategy…
• text
Stage 1Single asset with Yallourn only
• Concentration of financial resources in one asset
• Single asset risks/value limitations(2001-05)
Stage 4Access local capital for growth
• Combine step-wise acquisition with local funding
• Potential local market listing(2007/08)
Stage 3Grow integrated asset base & extend footprint
• Aim for 20% national market share
• Extend business model to high growth NSW & Qld States(2006-08)
Stage 2Acquire/merge with other retailers / generators
• Hedge risks & diversify
• Improve quality of business & earnings(2005)
29 September 2006
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Strong pipeline of growth opportunities….
•Organic growth - well positioned to grow organically into NSW, Qld
– Generation - proven development capability, gas availability
– Retail - strong retail capability, strong branding and products, customer growth provides scale to reduce cost to serve
•Acquisition - demonstrated ability to acquire and integrate businesses, in short to medium term a number of opportunities
– Qld Retail - privatisation of retail businesses in Qld ongoing
– NSW Retail - potential future privatisation of 3 retailers
– Generation Privatisation - potential future in Qld and NSW
– Others - acquisition of niche retailers, gas assets
29 September 2006
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Tallawarra
South Australia
Queensland
New South Wales
Victoria
Sydney
Brisbane
Melbourne
Adelaide
Torrens Island
Iona Ecogen
Yallourn
SEAGas
Queensland
TRUenergy Vision
• Vision to be the leading
integrated energy business
in Australia
• Grow from strong VIC and
SA position into NSW and
QLD
• Target 20% national
market share in retail and
generation
