cbi ni energy conference: shane lynch
DESCRIPTION
Presentation by Shane Lynch, chief executive, Utility Regulator at the CBI NI energy conference. February 2012TRANSCRIPT
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CBI NI Energy Conference 29th February 2012
Stormont Hotel
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“Understanding Gas and Electricity Prices in Northern
Ireland and the likely impacts for 2012 and beyond”
Shane Lynch Chief ExecutiveUtility Regulator
29 February 2012
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Contents
1.What makes up your Electricity and Gas bills?
2.How are these price components determined?
3.Price Outlook for 2012 and beyond
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What makes up your Electricity and
Gas Bills?
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Typical Electricity Tariff components
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Electricity Network
Costs22%
Wholesale Electricity Cost64%
Operating Cost and Margin
6%
Other8% PSO, NIRO, K.
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Gas Tariff Components
Network Costs41%
Wholesale Gas Cost
50%
Operating Cost and Margin
9%
Tariff for Domestic & Small I&Cs
Customer Category Network Component
Domestic & Small I&Cs 40%Large I&Cs 25%
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How Are Price Components Determined?
• Wholesale Market Prices
• Network Price Controls
• Other Regulated Charges (electricity only)
• Retail Competition
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Price Control and Tariff Timetable
• Network Price Controls– NIE (T&D): 1st October 2012 – 30th September 2017– BGE (UK): 1st October 2012 – 30th September 2017– MEL: None– PNGL: 1st January 2012 – 31st December 2013– Firmus: 1st January 2009 – 31st December 2013
• Network Tariff Resets – NIE (T&D) 1st October 2012– Postalised Gas Transmission: 1st October 2012– Firmus and PNGL Gas Distribution 1st January 2012
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How do We Regulate Monopolies?
• Regulated company submits proposals for capital
expenditure, cost of capital, and operating costs
• Regulator reviews and proposes “allowances”
• Regulator also sets out expected “outputs” and
“outcomes”
• Incentives to “outperform”
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How do Network Price Controls work?
• Regulator can refer the matter to the Competition
Commission if its proposals are rejected.
• Capex depreciated typically over expected asset life
• Annual revenue entitlement = Depreciation + WACC
(on un-depreciated assets) + Opex
• Tariffs flow from this revenue entitlement
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NIE (T&D) Price Control Impact
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PNGL Price Control Impact
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This graph shows the allowed revenues for PNGL in the period 2007 to 2011; the revenues requested by PNGL for the period 2012 to 2013 (and beyond); and the Utility Regulator’s decision for allowed revenues in 2012 and 2013 (and beyond).
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PNGL Asset Base: 2006 to 2011
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End 2006 End 20110
50
100
150
200
250
300
350
400
450
500
194.1227.0
77.2
67.615.8
13.865.1
57.1
85.2
How the TRV has grown, 2006 to 2011
Profile Adjustment
Outperformance
Deferred capex
Underrecoveries
Net investment
£m,
2010
pri
ces
Commentary
Net investment (from OAV) has depreciated. But PNGL has also continued to build out its network, hence the net increase.
Underrecoveries has reduced over the five years.
Deferred capex has reduced over the five years.
Outperformance has reduced over the five years.
The Profile Adjustment has grown for zero to £85.2m. Why? All of the other components yield a revenue entitlement to PNGL, by way of depreciation and return. Some of these revenues are deferred, and these revenues are added to the TRV via the Profile Adjustment.
0102030405060708090
47.0
18.7
3.8
15.7
Make-up of Profile Ad-justment
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Price Outlook for 2012 and beyond for
Business Consumers
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Wholesale Gas Costs Future Curves
Summ
er 2
010
Win
ter 2
010
Summ
er 2
011
Win
ter 2
011
Summ
er 2
012
Win
ter 2
012
Summ
er 2
013
Win
ter 2
013
Summ
er 2
014
Win
ter 2
014
Summ
er 2
015
Win
ter 2
015
20
30
40
50
60
70
80
As at Feb 12As at Feb 11As at Feb 10
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Price Drivers
– Commodity forward curves
– Individual contracts: timing, duration, demand profile
– Network price control determinations
– Demand growth
– Other regulatory and policy decisions
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