south australia draft decision conference 13 may 2015 adelaide mountain... · • share price...
TRANSCRIPT
Bruce Mountain
South Australia Draft Decision Conference
13 May 2015
Adelaide
Outline
• What the equity analysts say
• Overview of revenues, capex, opex
• RAB and WACC comparisons
• Opex comment
2
What 10 equity analysts covering SKI say
3
Morgan Stanley
4
SKI Price Target: 26 February 2015: $1.71/share SKI Price Target: 1 May 2015: $2/share
CBA Global Markets Research
• Share price target $2.25 (compared to 30 April price $1.95),
• “WACC of 5.45% … reflective of current bond rates”
• “ …given the high leverage within this business, any risk free rate led reduction of WACC will also lead to a fall in interest costs.”
• “Two‑thirds of the fall in WACC will largely be offset by lower interest costs, the lower gamma was expected (and a known future risk)”
• “Opex and capex were OK for a draft decision.”
• “Given SAPN was one of the best scoring assets in the recent bench marking study, the company’s ability to argue both opex and capex allowances should be significantly easier when compared to the NSW assets.”
5
If the Risk Free Rate was the same in the coming regulatory period as the current, network prices in SA would be about the same
6
!$#!!!!
!$1,000!!
!$2,000!!
!$3,000!!
!$4,000!!
!$5,000!!
!$6,000!!
!$7,000!!
!$8,000!!
!$9,000!!
!$10,000!!
SAPN% Ergon% Energex% AusGrid%% Endeavour% Essen4al%
Allowed
%revenu
es%($
%millions%2014)%
Current!regulatory!period!(including!lights!and!meters)!!
Coming!period!if!same!Risk!Free!Rate!as!last!period!(excl.!meters!&!lights)!
Coming!regulatory!period!AER!DraM!(SA,!QLD),!Final!(NSW)!decisions!(excl.!meters!and!lights)!
Source: Post Tax Revenue Models, CME analysis
Allowed opex in future is higher than in current period
7
!$#!!!!
!$200!!
!$400!!
!$600!!
!$800!!
!$1,000!!
!$1,200!!
!$1,400!!
!$1,600!!
2001#5! 2006#10! 2011#15! 2016#20!
$million'(2014)'
SAPN'2'opex'Proposed! Allowed!! Actual!
Source: regulatory decisions, CME analysis
Capex in coming period about the same as last period and more than twice average from 2000 to 2010
8
!$#!!!!
!$500!!
!$1,000!!
!$1,500!!
!$2,000!!
!$2,500!!
!$3,000!!
2001#5! 2006#10! 2011#15! 2016#20!
$million'(2014)'
SAPN'2'Capex'Proposed! Allowed!! Actual!
Source: regulatory decisions, CME analysis
SAPN and Energex rising RAB, Ergon about constant
9
!$#!!!!
!$2,000!!
!$4,000!!
!$6,000!!
!$8,000!!
!$10,000!!
!$12,000!!
!$14,000!!
2001!2002!2003!2004!2005!2006!2007!2008!2009!2010!2011!2012!2013!2014!2015!2016!2017!2018!2019!2020!
$millions((2014)((SAPN! ERGON! ENERGEX!
Source: regulatory decisions, CME analysis
RAB is heading in the wrong direction
10
Source: regulatory decisions, CME analysis
$0#
$1#
$2#
$3#
$4#
$5#
$6#
$7#
1991#1992#1993#1994#1995#1996#1997#1998#1999#2000#2001#2002#2003#2004#2005#2006#2007#2008#2009#2010#2011#2012#2013#2014#2015#2016#2017#2018#2019#2020#
$'000#pe
r#con
nec4on
##
Regulated#Asset#Value#per#connec4on#($'000#per#connec4on)#(2014#Australia#dollars,#2014#PPP#GDP#exchange#rates)#
New$Zealand$(average$of$all$29)$
Great$Britain$(average$of$all$14)$
Australia$(average$of$all$12)$
SAPN$
Ontario$(average$of$all$82)$
AER NSW 2015 decision on cost of debt is the highest premium to RFR we have ever seen (anywhere). QLD and SA Draft more moderate
but still above other regulators
11
Source: regulatory decisions, CME analysis
0"
50"
100"
150"
200"
250"
300"
350"
400"
IPART"NSW"1999"TO"2004"
IPART"NSW"2004"TO"2009"
QCA"QLD"200062005"
QCA"QLD"200662010"
Ontario"Energy"Board"2015"(LT"
ESCOSA"SA"200662010"
New"Zealand"2015"
AER"SAPN"2016620"DraH"
AER"Q
LD"2016620"DraH"
AER"N
SW"200962014"
AER"N
SW"2014"TransiJon"""
AER"N
SW"2015619"Final"
Basis"points"
Debt"Margin"(nominal"debt"less"nominal"Risk"Free"Rates)""
1.5$
2.0$
2.5$
3.0$
3.5$
4.0$
4.5$
5.0$
Sep$00& Sep$02& Sep$04& Sep$06& Sep$08& Sep$10& Aug$12& Aug$14& Aug$16&
&(%)&
Nominal&Vanilla&WACC&less&the&Risk&Free&Rate&Electricity$distribu5on$$(AER)$ $Electricity$transmission$$(AER)$
Electricity$distribu5on$(state$regulators)$ Electricity$transmission$(ACCC)$
AER NSW Final Decision close to all-time high; AER SA Draft same as ESCOSA in 2005
AER, NSW 2015 Final
AER, QLD 2015 Draft
AER, SA 2015 Draft
New Zealand 2015
Source: regulatory decisions, CME analysis
ESCOSA, 2005
Comments on AER’s benchmarking
• AER’s consultant (Economic Insights) has done a fabulous job:
– Careful, thoughtful, expert and honest advice – Uses well accepted, standard, explanatory factors and widely used
models; – Replicable (and we have replicated it); – Robust; – Results are entirely plausible. – Comprehensively responded to (mostly) half-baked criticisms from
network service providers’ “advisors”
• The gap between the AER’s advice and its decision is not credible.
13
The AER’s opex decision sets an opex allowance that we estimate is 70-90% higher than its benchmark evidence
Source: EI Report, CME analysis
Ergon Energex SAPN
Average opex 2006 to 2013 (2014$million) 365$%%%%%%%%%%% 328$%%%%%%%%%%% 179$%%%%%%%%%%%
Efficiency gap to frontier (%) 52% 38% 16%Efficient average opex 2006 to 2013 (2014$millions) 175$%%%%%%%%%%% 203$%%%%%%%%%%% 150$%%%%%%%%%%%Scale for annual change in demand, customer numbers, line length (Per EI Report) 1.50% 1.50% 1.50%
Efficient average opex 2016-2020 (2014$millions) 196$%%%%%%%%%%% 228$%%%%%%%%%%% 168$%%%%%%%%%%%Average AER Allowance 2016-2020 (2014$millions), per year 375$ 383$ 241$
Excess of average allowed above efficient (2014$million), per year 178$ 155$ 73$
Excess as % of efficient 91% 68% 43%
The AER’s challenge
15
“The old saying of ‘sell into a draft and buy into a final’ will likely prove true once again” “Ultimately (like NSW), we believe the final decision will be more lenient and the final numbers will sit somewhere closer to our forecasts” (CBA, Global Markets Research), 30 April 2015