Jemena Gas Networks (NSW) Ltd

Transcription

1 Jemena Gas Networks (NSW) Ltd JGN Customer Council Agenda Paper: Growing our gas network Public 26 February 2014

2 OVERVIEW OVERVIEW Most customers in NSW have access to a range of options for powering their domestic appliances, including electricity, gas and solar. In this competitive environment we need to be active to grow our network to increase gas supply to existing customers, connect new customers and expand the network to new areas. Unlike the electricity network in NSW (or the gas networks in Victoria) our gas network has always been privately owned. 1 This means the network has grown incrementally where it has been commercial or economic to do. With largely fixed costs of supplying gas to our existing residential and commercial customers, there are benefits to us and our customers in economically growing our network. In the same way that the fixed costs of a rental property can be shared among tenants, increasing gas supply to existing customers, connecting new customers and expanding the network to new areas lowers the average costs to existing customers. Lower average gas prices for customers makes gas more competitive and encourages further customers to use gas. We are committed to proactively growing our network to ensure we place downward pressure on gas prices. This paper provides the Customer Council with information on why growing the gas network in NSW benefits us and our customers, and outlines our plans to promote network growth over the period. Objective (INFORM) To: inform the Customer Council why growing the gas network in NSW benefits us and our customers prompt discussion on how we make our decisions on growing the gas network in NSW inform the Customer Council on our plans to promote network growth over the period 1 AGL owned and operated the gas network until Public 26 February 2014 Jemena Gas Networks (NSW) Ltd ii

3 WHY WE GROW OUR GAS NETWORK IN NSW 1 1. WHY WE GROW OUR GAS NETWORK IN NSW 1.1 OUR COSTS ARE LARGELY FIXED Providing a safe, reliable and competitive gas service to NSW residential and business customers requires a significant network of assets, many of which are long lived assets. The cost of funding these assets ( cost of capital ) is the single biggest driver of our costs, and it is not a cost we can avoid. 1.2 SHARING FIXED COSTS LOWERS THE PRICES FOR EXISTING CUSTOMERS Sharing these fixed costs by increasing gas supply to existing customers, connecting new customers and expanding the network to new areas lowers the prices to existing customers. This is because our gas network prices reflect: The forecast cost of providing gas services to our customers, including our costs of funding and maintaining our assets; as well as The forecast demand for our gas services, including the number of gas customers and the amount of gas each customers uses. In the same way that the fixed costs of a rental property (rent, waste water charges etc.) can be shared among tenants, increases in the number of gas customers leads to reductions in prices for existing customers. Lower average gas prices further incentivises customers to connect to gas. 1.3 GAS IS A COMPETITIVE FUEL IN NSW Most customers in NSW have access to a range of options for powering their domestic appliances, including electricity, gas and solar. Compared to colder states such as Victoria, gas usage is typically lower in NSW. If we were not proactive in this competitive environment, we could expect ongoing decreases in usage, which could put upward pressure on gas prices. Increasing gas prices would reduce the desirability of gas as a fuel choice, further reducing gas usage and take-up. We are committed to actively growing our network to place downward pressure on gas prices. Public 26 February 2014 Jemena Gas Networks (NSW) Ltd 1

4 HOW WE MAKE OUR DECISIONS ON GROWING THE GAS NETWORK IN NSW 2 2. HOW WE MAKE OUR DECISIONS ON GROWING THE GAS NETWORK IN NSW 2.1 WE GROW THE NETWORK ECONOMICALLY In many cases growing the network involves additional costs, including the costs of running mains down new streets or the marketing incentives to assist customers to connect to gas. For good reason, we only grow the network where it is economic to do so - where the additional revenues from new customers exceed the costs of growing the network to supply these customers. In contrast to other energy or water businesses, we are privately owned. It makes commercial sense for us to grow the network economically. At times, we may ask a customer to make a contribution towards the cost of the gas connection. In the same way that telecommunications or pay-tv operators may ask new customers to contribute to some of the connection costs. It also makes sense for our existing customers that they don t subsidise the connection costs of new customers. We don t think it s in the long term interest of customers for newly connected customers to put upward pressure on gas prices for existing customers. The AER supported by the National Gas Rules 2 ensure we only grow the network economically. 2.2 WE GROW THE NETWORK IN A NUMBER OF WAYS We grow the network by connect approximately 30,000 new customers to natural gas each year, including 11,000 homes in new estates. We grow the network in a number of ways: Extending the network to new towns and infilling existing areas of the network - we look to identify areas where changing use and dwelling density present opportunities for economic expansion Working with builders and developers - we work with builders and developers to facilitate timely and economic gas connections and influence appliance choices in new dwellings Marketing to customers to influence demand for gas appliances - we establish partnerships with interested parties, promote natural gas as a fuel of choice, and provide information to customers. In making decisions about how we grow the network we consider the additional gas that will be used by a new area, product or as a result of marketing campaign and the costs of making this happen. 2 The AER operating under the National Gas Rules. Public 26 February 2014 Jemena Gas Networks (NSW) Ltd 2

5 OUR PLANS TO PROMOTE NETWORK GROWTH 3 3. OUR PLANS TO PROMOTE NETWORK GROWTH We are considering how we will grow the network over the period (Table 3 1): Table 3 1: Growing our network: Our current plans Our plans Extending the network Our main growth areas are in the North-West and South-West of Sydney where growth is being driven by both high and medium density developments as well as new land release housing estate developments. Areas in the North-West include Kellyville, Rouse Hill, Riverstone, Schofields and Marsden Park. We are seeing a significant growth in new high density residential redevelopments located throughout the Sydney City area, Rhodes, Harold Park, Pyrmont, Green Square and Mascot. Our infill projects for are focused on regional areas, including Dubbo, Parkes, Forbes, Lithgow and Orange. Working with builders and developers We work with builders and developers to help them make informed decisions about getting gas appliances into new and renovated homes. Marketing to customers Continue to promote natural gas as a fuel of choice, particularly for gas water heaters and gas central heating in NSW. Establish alliance partnerships with organisations who have aligned interest in growing natural gas appliance sales and installations to make connection to the gas network easier and more affordable. Public 26 February 2014 Jemena Gas Networks (NSW) Ltd 3

6 NEXT STEPS 4 4. NEXT STEPS We will continue to develop our plans for growing the network over the period. Customer Council Meeting May 2014 We will: present our forecasts of the number of new gas connections and additional usage Public 26 February 2014 Jemena Gas Networks (NSW) Ltd 4