Agl Energy Limited · ASX:AGL
Agl Energy — Investor Day (May 2008)
185 slides from Agl Energy's investor day presentation, May 13, 2008
Slide 1: ASX statement
AGL Energy Limited Tel: +61 2 9921 2999 ABN 74 115 061 375 Fax: +61 2 9921 2552 AGL Centre, 72 Christie Street Locked Bag 1837 St Leonards, 2065 St Leonards, 2065 www.agl.com.au asx statement For personal use only 13 May 2008 The following presentations will be made at AGL’s Equity Investor Day bein
Slide 2: Equity Investor Day Presentation Pack
AGL Energy Limited For personal use only Equity Investor Day Presentation Pack Sydney, May 2008
Slide 3: Disclaimer
2 Disclaimer For personal use only The information in these presentations: › Is not an offer or recommendation to purchase or subscribe for securities in AGL Energy Limited or to retain any securities currently held › Does not take into account the potential and current individual investment objecti
Slide 4: Group Strategy
AGL Energy Limited For personal use only Group Strategy Michael Fraser Managing Director & CEO Equity Investor Day Sydney, May 2008
Slide 5: Agenda
2 Agenda For personal use only › Industry Trends › AGL Energy Today › The Integrated Strategy › Strategy Implementation » Equity Investor Day » Sydney, May 2008
Slide 6: Industry trends
3 Industry trends For personal use only Retail and wholesale energy markets experiencing industry redefining trends. › Paradigm shift with carbon pricing & renewables: » Strategic positioning will dictate outcomes for industry players › Increased international focus on upstream gas reserves: » Emerg
Slide 7: AGL Energy Today
4 For personal use only AGL Energy Today » Equity Investor Day » Sydney, May 2008
Slide 8: AGL Energy today
5 AGL Energy today For personal use only Market leading positions deliver substantial strategic value. › Australia's largest natural gas & electricity customer base › Australia’s largest dual-fuel customer base › Australia’s largest privately owned & operated renewable generation portfolio › Austral
Slide 9: Current portfolio
6 Current portfolio For personal use only » Equity Investor Day » Sydney, May 2008
Slide 10: The Integrated Strategy & Implementation
7 For personal use only The Integrated Strategy & Implementation » Equity Investor Day » Sydney, May 2008
Slide 11: The integrated strategy
8 The integrated strategy For personal use only Balancing risk between upstream supply and retail markets, providing access to multiple profit pools. UPSTREAM SUPPLY Gas Renewable Thermal Production Generation Generation Generation Capturing value & growth Capturing value & growth Upstream Gas TRANS
Slide 12: Strategy implementation
9 Strategy implementation For personal use only Key strategic initiatives. › Retail: » Industry leading retail cost model » Investing in the brand and competitive capability › Upstream: » Growth in renewables » Growth in generation » Gas portfolio management and investment › Organisational capabilit
Slide 13: Industry leading retail cost model
10 Industry leading retail cost model For personal use only Generating retail efficiency and cost Cumulative EBIT Benefits per annum savings. Comprehensive 4 year program – Phoenix - completely rebuilding retail business capability based on model of operational excellence. ACHIEVEMENTS: › Successful
Slide 14: Investing in the brand and competitive capability
11 Investing in the brand and competitive capability For personal use only Establishing world class competitive capabilities and brand value. Phoenix also delivers the ability to operationalise material improvements in marketing & customer service. ACHIEVEMENTS: › Increased investment in direct sale
Slide 15: Growth in renewables
12 Growth in renewables For personal use only Expanded Mandatory Renewable Energy Target (MRET). AGL’s existing & identified renewable generation projects place it in › New federal Government Policy a market leading position to benefit under expanded MRET target. – by 2020 an additional 35,500 GWh p
Slide 16: Growth in renewables
13 Growth in renewables For personal use only Fastest growing renewable portfolio. Continued focus on developing portfolio of renewable projects Installed Wind Power in the World to deliver sustainable benefits in a carbon constrained 20,000 - Annual and Cumulative - 100,000 environment. 18,000 16,0
Slide 17: Growth in generation
14 Growth in generation For personal use only Continuing growth in portfolio of generation assets. Development and acquisition of generation assets to deliver increased control over wholesale electricity costs, reduce risk and access additional profit pools. ACHIEVEMENTS: › Acquired 1,280MW Torrens
Slide 18: Gas portfolio management & investment
15 Gas portfolio management & investment For personal use only Disciplined execution of upstream equity gas and wholesale supply contracts. AGL wholesale contracted gas supply Existing contract gas portfolio has material depth and flexibility across multiple markets, will remain market competitive S
Slide 19: Gas portfolio management & investment
16 Gas portfolio management & investment For personal use only Eastern Australia demand including substantial LNG exports. Eastern Australia 2P gas reserves and contingent resources exceed 30,000 PJ of which only ~26% are contracted: › Further increases are likely, particularly CSM reserves › Supply
Slide 20: Gas portfolio management & investment
17 Gas portfolio management & investment For personal use only Gas demand materially moderated under Federal Government’s proposed ETS and expanded MRET policies. Indicative gas demand growth scenarios1 › Expanded MRET drives uptake of renewable generation at the expense of higher gas volume base lo
Slide 21: Gas portfolio management & investment
18 Gas portfolio management & investment Pricing mechanisms ensure ongoing margin maintenance. For personal use only › Considerable portfolio flexibility: ACQ ‘up & down’, MDQ, ToP & flexible delivery points › Rolling buy long / sell short portfolio strategy › Market price reviews & contract flexibi
Slide 22: Re-shape asset base, restructure balance sheet
19 Re-shape asset base, restructure balance sheet For personal use only Maximising balance sheet efficiency. › Current asset base includes some assets that are sub-optimal from a capital deployment and/or structural perspective › Disposal and/or restructure will deliver superior financial and/or ope
Slide 23: Re-shape asset base, restructure balance sheet
20 Re-shape asset base, restructure balance sheet For personal use only Disciplined approach to NSW privatisation. › Exact structuring and timing yet to be formalised: » Offering no comment/thoughts on potential sale structures until formally finalised by NSW Govt › Recent macro economic and market
Slide 24: Building a high performance culture
21 Building a high performance culture For personal use only Performance culture that empowers, recognises and rewards. To remain competitive we need high calibre individuals and a high performance culture where people are accountable, empowered, recognised and rewarded. ACHIEVEMENTS: › Defined a cl
Slide 25: Operational Targets
22 For personal use only Operational Targets » Equity Investor Day » Sydney, May 2008
Slide 26: Operational targets
23 Operational targets For personal use only The integrated strategy balances risk between upstream supply and retail markets whilst providing access to multiple profit pools. UPSTREAM SUPPLY Upstream Gas Gas Renewable Thermal › Direct ownership Production Generation Generation Generation Capturing
Slide 27: The New Energy Economy
AGL Energy Limited For personal use only The New Energy Economy Renewable Energy & Emissions Trading Jeff Dimery Group General Manager Merchant Energy Equity Investor Day Sydney, May 2008
Slide 28: Agenda
2 Agenda For personal use only Climate Change Policy: › Global Landscape › Australian Landscape The Emergence of the New Energy Economy: › The Expansion of MRET › Emissions Trading Impacts on AGL: › AGL’s Generation Portfolio › Loy Yang Power » Equity Investor Day » Sydney, May 2008
Slide 29: Climate Change Policy
3 For personal use only Climate Change Policy » Equity Investor Day » Sydney, May 2008
Slide 30: After Kyoto: the global landscape
4 After Kyoto: the global landscape For personal use only United Nations Framework Convention on Climate Change: › Next phase after Kyoto › Most commentators expect a broad global agreement to be announced in Copenhagen in 2009 for beyond 2012 Europe & UK: › Emissions Trading Scheme now in Phase 2 ›
Slide 31: The Australian landscape
5 The Australian landscape For personal use only Expansion of the Mandatory Renewable Energy Target (MRET): › Target to increase from 9,500GWh in 2010 to 45,000GWh in 2020 › One of the most significant policy measures ever flagged for the energy sector Emissions Trading Scheme implementation in 2010
Slide 32: The Emergence of a New Energy Economy
6 For personal use only The Emergence of a New Energy Economy Renewable Energy Target » Equity Investor Day » Sydney, May 2008
Slide 33: The expanded renewable energy target
7 The expanded renewable energy target For personal use only Expansion of MRET significantly alters the outlook for the energy market moving forward: › Additional 35,500GWh or 11,600MW of renewable energy capacity requires investment in excess of $27b » Equity Investor Day » Sydney, May 2008
Slide 34: AGL's opportunity under the expanded MRET
8 AGL’s opportunity under the expanded MRET For personal use only Expansion of the MRET scheme results in significant opportunity for development of renewable generation to self supply AGL’s requirement for renewable energy certificates. Current & expanded MRET › AGL’s existing renewable assets prov
Slide 35: Indicative new build generation mix
9 Growth in renewables For personal use only Indicative new build generation mix Investment in renewable generation under expanded MRET displaces gas fired generation and moderates gas demand as a transitional fuel. Current MRET Current MRET + ETS Expanded MRET + ETS 2020 New Build Generation Mix 20
Slide 36: Gas market impacts
10 Gas market impacts Gas demand is materially moderated under the proposed expansion For personal use only of the Mandatory Renewable Energy Target. A significant increase in gas demand was Indicative gas demand scenarios anticipated with the introduction of an ETS: › CCGT expected to displace OCGT
Slide 37: Emissions Trading
11 For personal use only The Emergence of a New Energy Economy Emissions Trading » Equity Investor Day » Sydney, May 2008
Slide 38: Emissions trading: an example
12 Emissions trading: an example For personal use only Assumptions: › One gas producer Both covered by a cap and trade › One electricity generator › Economy wide emissions equal 150 tonnes (tCO2-e) ETS Introduced: › Cap of 125 tCO2-e › 120 permits are allocated and 5 permits are auctioned (1 permit
Slide 39: Emissions trading: an example
13 Emissions trading: an example For personal use only Trade Commences: › Gas producer buys 5 permits at auction and 5 permits from the coal generator Emissions Permits Held Emissions Cap Gas 50 tCO2-e Allocated = 40 tCO2-e Producer Bought at auction = 5 tCO2-e Bought from coal generator =5 tCO2-e T
Slide 40: Emissions trading: an example
14 Emissions trading: an example For personal use only Low emissions investment commences: › Gas producer maintains production but at higher cost › Coal fired generator cuts production › New renewable generator is constructed to meet energy demand Emissions Permits Held Emissions Cap Gas 50 tCO2-e A
Slide 41: The new energy economy with an ETS
15 The new energy economy with an ETS For personal use only › Key issue for each generator is the Impact on generators emission intensity of plant, carbon price and emission intensity of the market › Where individual plant emission intensity is lower than market average, pool revenues increase beyon
Slide 42: Impact on AGL
16 For personal use only The New Energy Economy Impact on AGL » Equity Investor Day » Sydney, May 2008
Slide 43: Australia's No1 private investor in renewable and low emission generation
Australia’s No1 private investor in renewable and low 17 emission generation AGL’s industry leading hydro, renewable & gas For personal use only fired generation portfolio delivers a competitive advantage over direct competitors. Type Capacity Approximate Emission Intensity (tCO2-e/MWh) Southern Hyd
Slide 44: Impact on AGL's portfolio
18 Impact on AGL’s portfolio For personal use only The future value of AGL’s generation portfolio will increase in a carbon constrained energy economy. AGL portfolio › AGL’s renewable and low emission generation portfolio has a lower emission intensity than the NEM average › This portfolio will real
Slide 45: Case for compensation – coal generation
19 Case for compensation – coal generation For personal use only A smooth transition to the new energy economy is essential to ensure Australia’s Ongoing reliability of supply: economic prosperity. › Continued availability of capacity - existing generation cannot be Coal generation impacts replaced
Slide 46: Emissions trading scheme – financial impacts
20 Emissions trading scheme – financial impacts For personal use only The Federal Government’s planned ETS will potentially deliver upside to the current and planned AGL portfolio. Indicative AGL financial outcomes under ETS › The diagram at left highlights the potential impacts to the current, 3,80
Slide 47: Key Strategic Priorities
21 For personal use only Key Strategic Priorities » Equity Investor Day » Sydney, May 2008
Slide 48: Key strategic priorities
22 Key strategic priorities For personal use only › Work with Government to ensure detailed policy outcomes are consistent with a smooth transition to the new energy economy › Develop a competitive portfolio of supply for AGL in the new energy economy › Leverage AGL’s expertise and leading position
Slide 49: Wind Farms – Technical and Project Fundamentals
AGL Energy Limited For personal use only Wind Farms – Technical and Project Fundamentals Mike Moraza Group General Manager Gas & Power Development Equity Investor Day Sydney, May 2008
Slide 50: Agenda
2 Agenda For personal use only › Why Invest in Wind Farms? › Key Success Factors for Wind Farm Development › Australia’s Wind Resource › Wind Turbine Technology – Maximising Yield › Strategic Direction » Equity Investor Day » Sydney, May 2008
Slide 51: Why Invest in Wind Farms?
3 For personal use only Why Invest in Wind Farms? » Equity Investor Day » Sydney, May 2008
Slide 52: Wind power showing strong global growth
4 Wind power showing strong global growth For personal use only Installed Wind Power in the World - Annual and Cumulative - › Cumulative global capacity 20,000 100,000 18,000 90,000 reached 94,000 MW by the end of 16,000 14,000 80,000 70,000 2007 Cumulative MW 12,000 60,000 MW per year 10,000 50,000
Slide 53: Wind compared to other renewables
5 Wind compared to other renewables For personal use only Fastest growing global renewable energy source* 1990 125 4 36 1 2004 227 82 56 4 0% 50% 60% 70% 80% 90% 100% * Generation in TWh › Low cost renewable energy source Biomass & waste Wind › Mature technology Geothermal Solar › Meets scale needs
Slide 54: Wind is competitive on the cost curve
6 Wind is competitive on the cost curve For personal use only Renewable energy cost curve summary › Wind will dominate as the most economic large scale renewable technology for the next 10 years › Other viable renewable energy sources will emerge in the next decade › Wind has low technology risk wit
Slide 55: Key Development Success Factors
7 For personal use only Key Development Success Factors » Equity Investor Day » Sydney, May 2008
Slide 56: Key development success factors
8 Key development success factors For personal use only A number of critical issues can mean success or failure of a wind farm development: › Wind resource › Land access (support by landowners) › Capital cost (10 times more important than O&M costs): » Typical split of capital costs for 70MW wind fa
Slide 57: High level cost breakdown
9 High level cost breakdown For personal use only EPC cost breakdown Wind turbine equipment cost breakdown » Equity Investor Day » Sydney, May 2008
Slide 58: AGL's approach to wind farm development
10 AGL’s approach to wind farm development For personal use only › Target high wind yield $140,000 $4,000 locations where $120,000 $3,800 communities are supportive Opex excluding TCA charges AGL’s Target $3,600 ($'000 per MW installed) $100,000 Projects › Target scale projects to Specific capital c
Slide 59: Australia's Wind Resource
11 For personal use only Australia’s Wind Resource » Equity Investor Day » Sydney, May 2008
Slide 60: Australia has a world class wind resource
12 Australia has a world class wind resource For personal use only Average wind speeds (metres per second) › Wind resource is best in Tasmania and areas in Western Australia, South Australia and Victoria › NSW, Queensland and the Northern Territory have limited large scale wind potential › The best
Slide 61: South Australia leads the market in wind
13 South Australia leads the market in wind For personal use only South Australian wind projects › South Australia has 900 MW of committed projects › Above 1,400 MW, increasing risk of dispatch constraint › AGL’s Hallett wind project complex could support about 500 MW of renewable energy generation
Slide 62: Victoria's wind project potential is strong
14 Victoria’s wind project potential is strong For personal use only Victorian wind resources › Victoria’s wind resource is best along the coast › Recent VenCorp study stated that about 4,000 MW of wind capacity can be connected to the Victorian electricity network › Victoria currently has about 200
Slide 63: NSW has some wind project potential
15 NSW has some wind project potential For personal use only New South Wales wind resources › NSW wind resource is generally moderate. Most projects lack scale › NSW network capacity can handle several thousand MW of wind farms › Currently less than 100MW installed in NSW Source: SEDA » Equity Inves
Slide 64: Wind Turbine Technology – Maximising Yield
16 For personal use only Wind Turbine Technology – Maximising Yield » Equity Investor Day » Sydney, May 2008
Slide 65: Wind turbine yield drives overall project economics
17 Wind turbine yield drives overall project economics For personal use only › Each site has a unique wind distribution around a mean › Turbine power curve defines power output as a function of wind speed › Yield is total output of the wind distribution across the power curve Actual turbine yield at
Slide 66: Global wind turbine suppliers strategic positioning
18 Global wind turbine suppliers strategic positioning For personal use only › Vestas, GE, Gamesa, Suzlon and Enercon have substantial market shares › Top ten suppliers of wind turbines supply more than 91% of the total market › Suzlon acquired RePower in 2007 and is becoming vertically integrated i
Slide 67: Wind speed and direction drives turbine selection and location
Wind speed and direction drives turbine selection and 19 location Location of Hallett 1 turbines & wind speeds For personal use only › Wind speed generally increases with height › Wake effects reduce yield and drives turbine spacing › Hallett Wind Farm stages 1 & 2 are classic wind farm sites with p
Slide 68: Wind project diversity improves reliability
20 Wind project diversity improves reliability For personal use only Geographical diversity is important to provide a level of ’firm’ generation. Hallett 1 output 6-12 April 2008 Wattle Point Hallett 1 Pool Pric e 100 $10,000 90 Regional pool price ($/MWh) 80 Wind generation (MW) $1,000 70 60 50 $10
Slide 69: Key Strategic Priorities
21 For personal use only Key Strategic Priorities » Equity Investor Day » Sydney, May 2008
Slide 70: Key strategic priorities
22 Key strategic priorities For personal use only › Secure deep pipeline of high potential wind projects across Australia › Implement scale projects in high quality wind resource areas › Pursue strategic alliances with developers and turbine suppliers to ensure advantaged supply arrangements › Build
Slide 71: Power Development
AGL Energy Limited For personal use only Power Development Mike Moraza Group General Manager Gas & Power Development Equity Investor Day Sydney, May 2008
Slide 72: Agenda
2 Agenda For personal use only › Key Strategic Issues for Developing Power Projects › AGL’s Response to Meeting Renewable Energy Targets › Project Update › Power Development Project Pipeline » Equity Investor Day » Sydney, May 2008
Slide 73: Key strategic issues
3 Key strategic issues For personal use only AGL’s key power generation focus areas: › Southern NEM (Victoria & South Australia): » New projects to meet renewable energy targets › Northern NEM (New South Wales & Queensland): » New gas-fired peaking and intermediate power generation projects Governme
Slide 74: AGL's Response to Meeting Renewable Energy Targets
4 For personal use only AGL’s Response to Meeting Renewable Energy Targets » Equity Investor Day » Sydney, May 2008
Slide 75: New renewable energy target
New renewable energy target: 5 Where Australia is today in meeting an expanded MRET. For personal use only 50000 Existing and Committed Projects Expanded MRET Target Existing MRET+VRET Target 45000 40000 35000 Renewable Energy (GWh) 30000 25000 Future Renewable 20000 Energy Supply Gap 15000 10000 50
Slide 76: AGL's renewable energy projects current and future
6 AGL’s renewable energy projects current and future For personal use only AGL REC Position AGL REC position Base Case Probable Projects Possible Projects AGL Requirem ent REC (GW h) 12,000 • Base Case: AGL existing or committed projects • Probable Projects: AGL holds development rights or project u
Slide 77: AGL Project Update
7 For personal use only AGL Project Update » Equity Investor Day » Sydney, May 2008
Slide 78: Electricity supply & demand outlook
8 Electricity supply & demand outlook For personal use only › Growth rates projected to be Northern NEM 2-4% in the North and 1-2% in the South › By 2020 the market will require ~5,500MW of new capacity in the North and ~3,000MW in the South Current AGL installed CAPEX Southern NEM estimates: › $2.5
Slide 79: Development project pipeline - Southern NEM
9 Development project pipeline - Southern NEM For personal use only Nominal Earliest Project Location Type capacity operational Project Definition Status (MW) date Bogong Victorian Alps Hydro 140 October 2009 Under Construction Committed Hallett 1 (Brown Hill) SA – Hallett Wind 95 May 2008 Commissio
Slide 80: Hallett wind farm complex
10 Hallett wind farm complex For personal use only Hallett Wind Farm Status: › 1st stage being commissioned › 2nd stage under construction › Stages 3-4 in pre-feasibility » Equity Investor Day » Sydney, May 2008
Slide 81: Development project pipeline - Northern NEM
11 Development project pipeline - Northern NEM For personal use only Nominal Earliest Project Location Type capacity operational Project Definition Status (MW) date Gas Site secured, pre- SEQ 1 SE Qld - Ipswich 350 2011 Probable Peaker feasibility Gas Leaf’s Gully NSW – Appin 350 2011 Permitting, pr
Slide 82: Key Strategic Priorities
12 For personal use only Key Strategic Priorities » Equity Investor Day » Sydney, May 2008
Slide 83: Key strategic priorities
13 Key strategic priorities For personal use only Renewable projects: › Developing deep pipeline of projects able to meet AGL needs with primary focus on wind Renewable technologies: › Review options to participate in other emerging technologies such as wave, geothermal hot dry rocks and solar Gas f
Slide 84: Gas Development
AGL Energy Limited For personal use only Gas Development Mike Moraza Group General Manager Gas & Power Development Equity Investor Day Sydney, May 2008
Slide 85: Agenda
2 Agenda For personal use only › Key investment themes › Infrastructure challenges being addressed by AGL › Update on current projects » Equity Investor Day » Sydney, May 2008
Slide 86: Key investment themes
3 For personal use only Key investment themes » Equity Investor Day » Sydney, May 2008
Slide 87: Key investment themes
4 Key investment themes For personal use only › Gas demand growth driven by power generation sector, with growth likely to be moderated by increased utilisation of renewable energy sources › Increasing focus on growing AGL share of gas reserves from exploration and appraisal programs on existing ass
Slide 88: Infrastructure challenges being addressed by AGL
5 For personal use only Infrastructure challenges being addressed by AGL » Equity Investor Day » Sydney, May 2008
Slide 89: Infrastructure challenges being addressed by AGL
6 Infrastructure challenges being addressed by AGL For personal use only Rights acquired to develop Central Queensland Gas Pipeline in JV with Arrow Energy QSN Link deal with Epic Energy creates pipeline link between Qld, SA and NSW markets in Jan 2009 AGL’s Berwyndale to Wallumbilla pipeline will l
Slide 90: Update of Current Projects
7 For personal use only Update of Current Projects » Equity Investor Day » Sydney, May 2008
Slide 91: Sydney Basin CSM projects
8 Sydney Basin CSM projects For personal use only Camden Gas Project: › Currently producing about 15 TJ/d (or about 5.4 PJ pa) › Production expected to double within 2 years following Spring Farm and Menangle Park extensions › Well design moving to dual lateral SIS wells » Equity Investor Day » Sydn
Slide 92: Sydney Basin CSM projects cont'd
9 Sydney Basin CSM projects cont’d For personal use only Hunter Gas Project: › Core hole exploration drilling program underway › Further interpretation of seismic data being carried out › Planning and engineering underway for four production pilot locations › Continued community consultation with Bu
Slide 93: Bowen Basin CSM project
10 Bowen Basin CSM project For personal use only Moranbah Gas project Arrow/AGL 50/50 JV: › Producing 46 TJ/d with the best performing well at around 2.6 TJ/d › Heavy rainfalls recently suspended drilling and workover operations North Queensland Energy project Arrow/AGL 50/50 JV: › Business recently
Slide 94: Key Strategic Priorities
11 For personal use only Key Strategic Priorities » Equity Investor Day » Sydney, May 2008
Slide 95: Key strategic priorities
12 Key strategic priorities For personal use only Focussed gas reserves growth through appraisal and exploration: › Hunter project area (AGL 50% interest) › Bowen Basin area (AGL 50% interest) Growth targets: › Production and exploration assets in Eastern Australia › Seek leveraged entry positions f
Slide 96: Managing an Integrated Gas and Electricity Portfolio
AGL Energy Limited For personal use only Managing an Integrated Gas and Electricity Portfolio Anthony Fowler General Manager, Energy Portfolio Management Equity Investor Day Sydney, May 2008
Slide 97: Agenda
2 Agenda For personal use only › Role of Energy Portfolio Management (EPM) › AGL Gas Portfolio › Recent Electricity Price Outcomes › Energy Portfolio Management Value Creation » Equity Investor Day » Sydney, May 2008
Slide 98: EPM Roles and Responsibilities
3 For personal use only EPM Roles and Responsibilities » Equity Investor Day » Sydney, May 2008
Slide 99: EPM roles & responsibilities
4 EPM roles & responsibilities For personal use only The Energy Portfolio Management (EPM) Group is responsible for managing the procurement and hedging of AGL’s wholesale electricity and gas requirements (total annual cost of ~$2.6b). » Equity Investor Day » Sydney, May 2008
Slide 100: AGL Gas Portfolio
5 For personal use only AGL Gas Portfolio » Equity Investor Day » Sydney, May 2008
Slide 101: AGL wholesale gas contract portfolio
6 AGL wholesale gas contract portfolio For personal use only › Rolling buy long / sell short portfolio strategy AGL wholesale contracted gas supply › AGL’s gas supply needs are substantially covered until 2017 through contracts and equity gas from 6 major supply basins: » Considerable portfolio flex
Slide 102: Future opportunities to maintain supply flexibility
7 Future opportunities to maintain supply flexibility For personal use only › AGL maintains flexibility to invest upstream or enter into further contracts with existing suppliers based on value › AGL’s view is that there is sufficient gas supply to meet its long terms needs but investment is require
Slide 103: Future opportunities to maintain supply flexibility
8 Future opportunities to maintain supply flexibility For personal use only Australian gas production › 2P gas reserves in Australia have risen substantially in recent years › Majority of uncontracted reserves are owned by pure upstream players who are unlikely to progress downstream and require cha
Slide 104: Gas pricing observations
9 Gas pricing observations For personal use only Core Collaborative with LNG Core Collaborative base › Subdued gas price Credit Suisse LNG outlook in medium term due to supply overhang EnergyQuest QLD › Emergence of LNG export projects will result in higher price expectations over time › Some produc
Slide 105: Recent Electricity Price Outcomes
10 For personal use only Recent Electricity Price Outcomes » Equity Investor Day » Sydney, May 2008
Slide 106: Recent electricity pool and contract price outcomes
11 Recent electricity pool and contract price outcomes For personal use only Queensland pool prices › Traditionally the NEM has been a low underlying* / high volatility spot market › The combination of the drought and generator contract positions resulted in 2007 being a high underlying / high volat
Slide 107: Creating Value Through Optimising an Integrated Energy Portfolio
12 For personal use only Creating Value Through Optimising an Integrated Energy Portfolio » Equity Investor Day » Sydney, May 2008
Slide 108: Creating value through optimising load diversity
Creating value through optimising intra- and inter- 13 regional electricity load diversity For personal use only Illustration of intra-regional load diversity (winter) › Hedge products typically attract a premium over pool outcomes › An intra-regional diversity benefit exists by having a large C&I a
Slide 109: Creating value through optimising optionality of the generation portfolio
Creating value through optimising optionality of the 14 generation portfolio For personal use only › A flexible generation portfolio can Illustration of the role of generation in a balanced provide significant portfolio optionality portfolio (winter) › Intermediate plant: » A flexible gas portfolio
Slide 110: Creating value through active management of the hedge portfolio
Creating value through active management of the 15 hedge portfolio For personal use only › Through active participation in the derivative, physical gas / electricity and retail markets across all states, AGL has access to a significant “information” advantage over the market › Hedging strategy is go
Slide 111: Creating value through managing an integrated gas and electricity portfolio
Creating value through managing an integrated gas 16 and electricity portfolio For personal use only › Managing the “spark spread” provides AGL optionality to: » Swap electricity / gas capacity » Benefit from low spot prices but minimise risk of extreme spikes › Generation at TIPS and Oakey can be s
Slide 112: Key Strategic Priorities
17 For personal use only Key Strategic Priorities » Equity Investor Day » Sydney, May 2008
Slide 113: Key strategic priorities
18 Key strategic priorities For personal use only › Combined optimisation of the integrated gas and electricity portfolio to manage load shape and capture diversity benefits › Continue to proactively work with state regulators to manage regulated price outcomes › Maintain AGL’s competitive long term
Slide 114: Merchant Energy Risk Management
AGL Energy Limited For personal use only Merchant Energy Risk Management Gary Gavin Head of Wholesale Energy Risk Management Equity Investor Day Sydney, May 2008
Slide 115: Agenda
2 Agenda For personal use only › Risk Policy › Governance Structures › Risk Management Principles and Processes › Review Practices » Equity Investor Day » Sydney, May 2008
Slide 116: Wholesale Energy Risk Management Policy
3 For personal use only Wholesale Energy Risk Management Policy » Equity Investor Day » Sydney, May 2008
Slide 117: Wholesale energy Risk Management Policy
4 Wholesale energy Risk Management Policy For personal use only Current Risk Policy approved by the Board in May 2007: › Update to 2005 Risk Policy › Reviewed by Ernst & Young › Aligns with best practice promulgated by Committee of Chief Risk Officers (CCRO) Main features include: › Governance struc
Slide 118: Wholesale energy Risk Management Policy
5 Wholesale energy Risk Management Policy For personal use only The Risk policy is comprehensive, well disseminated and provides a coherent framework for risk management. » Equity Investor Day » Sydney, May 2008
Slide 119: Governance Structures
6 For personal use only Governance Structures » Equity Investor Day » Sydney, May 2008
Slide 120: Authority delegations
7 Authority delegations For personal use only › Clear lines of authority delegations from the Board › Rigorous processes for approvals › Well defined policy responsibilities and documentation » Equity Investor Day » Sydney, May 2008
Slide 121: Organisational structure for reporting
8 Organisational structure for reporting For personal use only › Continual monitoring and reporting › Explicit mechanisms for reporting of breaches to Board » Equity Investor Day » Sydney, May 2008
Slide 122: Risk Management Committee
9 Risk Management Committee For personal use only Risk Management Committee has a high level of seniority and detailed processes of operation. Group of senior executives including: › Chief Financial Officer › Company Secretary › Group GM Merchant Energy › Group GM Gas and Power Development Meets mon
Slide 123: Segregation of duties
10 Segregation of duties For personal use only Business units structured to achieve best practice in segregation of duties. » Equity Investor Day » Sydney, May 2008
Slide 124: Risk Management Principles and Processes
11 For personal use only Risk Management Principles and Processes » Equity Investor Day » Sydney, May 2008
Slide 125: Credit risk management principles
12 Credit risk management principles For personal use only › Wholesale Energy Risk Management group has counterparty credit risk management function › Credit limits (value and maturity) assigned to counterparties according to their credit strength and Board defined credit tiers › Contracting with a
Slide 126: Market risk management principles
13 Market risk management principles For personal use only Managing gas market risk: › Gas markets primarily physical with substantially lower volatility compared to electricity › Managed within gas supply agreements: » Volumetric flexibility » Price resets › Risk also managed by underground storage
Slide 127: Risk limits
14 Risk limits For personal use only Limits are set to define the level of required hedging, or conversely the level of allowed exposure: › Volumetric risk limits: » Minimum percentage of forecast sales to be hedged › Economic risk limits: » The Earnings at Risk associated with the portfolio is such
Slide 128: Economic risk limit and measure
15 Economic risk limit and measure For personal use only › The economic risk limit is set by the AGL Board › The economic risk measure is Earnings at Risk › Earnings at Risk is modelled a number of ways to analyse the distribution of possible earnings outcomes: » Scenario modelling: Scenarios of poo
Slide 129: Review Practices
16 For personal use only Review Practices » Equity Investor Day » Sydney, May 2008
Slide 130: Review practices
17 Review practices For personal use only › Wholesale Energy Risk Management operational practice: » Audited annually as part of external audit » Subject to review by internal audit › Hedge book of derivatives is subject to external audit as part of requirements under accounting standard AASB139 » E
Slide 131: Key Strategic Priorities
18 For personal use only Key Strategic Priorities » Equity Investor Day » Sydney, May 2008
Slide 132: Key strategic priorities
19 Key strategic priorities For personal use only › Continue to support a strong governance structure › Work to maintain best practice in risk management policy and process › Continually review and enhance methodologies and systems for monitoring risk › Maintain and refresh, across all wholesale ene
Slide 133: Phoenix Change Program
AGL Energy Limited For personal use only Phoenix Change Program Owen Coppage CIO and Phoenix Program Director Equity Investor Day Sydney, May 2008
Slide 134: Agenda
2 Agenda For personal use only Project Phoenix: › What is it and what changed › Progress against schedule Retail Solution: › What is being implemented Outcomes: › Efficiency » Equity Investor Day » Sydney, May 2008
Slide 135: Project Phoenix
3 For personal use only Project Phoenix A complex program of work impacting people, processes, and systems Two releases and migrated approx 1.6million customer accounts on time and to budget » Equity Investor Day » Sydney, May 2008
Slide 136: What is Phoenix?
4 What is Phoenix? For personal use only » Equity Investor Day » Sydney, May 2008
Slide 137: Phoenix Schedule
5 Phoenix Schedule For personal use only » Equity Investor Day » Sydney, May 2008
Slide 138: World Class Implementation
6 World Class Implementation For personal use only The Phoenix solution is one of the most complex SAP solution implemented worldwide: › 4 jurisdictions and 2 fuels › Basic and interval meters › All SAP modules for Utility Industry › Challenging schedule and dependency program It is also one of the
Slide 139: Phoenix key success factors
7 Phoenix key success factors For personal use only Business-led program: › Focus on the delivery of business and customer outcomes › Strong business buy-in and engagement from the beginning › Operational planning for rapid post go-live business recovery Right delivery model: › Engagement of strong
Slide 140: Retail Solution
8 For personal use only Retail Solution Fully integrated with minimal customisation by using standard SAP functionality » Equity Investor Day » Sydney, May 2008
Slide 141: The Phoenix solution
9 The Phoenix solution For personal use only The Phoenix solution is a fully integrated and complete mass-market retail solution: › Manage customer and prospect data, sales campaigns and all front-office activities: CRM › Manage customer consumption, billing and payment history and all back-office a
Slide 142: The effort to build in days
10 The effort to build in days For personal use only With limited customisation to minimise current and future cost. Type as a % of total development effort Type Development Description Reports SAP provides a standard set of reports for the utilities industry, with some reports adapted or built to s
Slide 143: The dependencies
11 The dependencies For personal use only » Equity Investor Day » Sydney, May 2008
Slide 144: Outcomes
12 For personal use only Outcomes Although there is still more work to do there are tangible benefits being delivered now » Equity Investor Day » Sydney, May 2008
Slide 145: Phoenix outcomes – efficiency
13 Phoenix outcomes – efficiency For personal use only Process example: customer transfer. » Equity Investor Day » Sydney, May 2008
Slide 146: Phoenix outcomes - customers
14 Phoenix outcomes - customers For personal use only Improved sales and marketing capabilities: › Single Customer View – customer attributes in CRM combined with consumption, billing and payment history in CCS › Automation of sales campaign creation, execution and reporting Enhanced customer experi
Slide 147: Phoenix outcomes - integration
15 Phoenix outcomes - integration For personal use only A single, nationally-integrated Retail business by the end of 2008: › Single way of doing business across all jurisdictions and fuels Proven capability to integrate new or acquired business operations: › 13 months to integrate the Queensland re
Slide 148: Key Strategic Priorities
16 For personal use only Key Strategic Priorities There is still more work to do » Equity Investor Day » Sydney, May 2008
Slide 149: Key strategic priorities
17 Key strategic priorities For personal use only Complete Phoenix change program: › Release 2b scheduled for second quarter FY09 › Extract the benefits for FY10 Long term solution for C&I customers: › Define requirements for managing C&I and Major Customers Complete transition to IT outsource servi
Slide 150: Life after Phoenix
AGL Energy Limited For personal use only Life after Phoenix Phil James Group General Manager Retail Equity Investor Day Sydney, May 2008
Slide 151: Agenda
2 Agenda For personal use only Project Phoenix: › Project schedule and progress › Deliverables for Retail Energy Benefits realisation: › Operational and marketing benefits › Platform scalability and future growth › Execution timeline Market effectiveness: › Creating the basis for differentiation › L
Slide 152: Project Phoenix
3 For personal use only Project Phoenix A four-year program to deliver world-class service and marketing capability at industry-leading cost to serve This presentation focuses on the operational and marketing benefits of the program » Equity Investor Day » Sydney, May 2008
Slide 153: Planning Phoenix
4 Planning Phoenix For personal use only Project Phoenix parallels the implementation of enhanced systems with actions to lift operating performance » Equity Investor Day » Sydney, May 2008
Slide 154: Delivering the program
5 Delivering the program For personal use only » Equity Investor Day » Sydney, May 2008
Slide 155: Capturing the benefits
6 Capturing the benefits For personal use only › AGL is already deriving substantial operating benefits from the Phoenix program › Operational improvements and site consolidation will achieve more than $22m of cumulative, net cost benefit by end FY08 › With more than half of AGL’s customers now in t
Slide 156: Australia's Preferred Energy Retailer
7 For personal use only Australia’s Preferred Energy Retailer AGL leverages its investment in Phoenix capability to effectively meet the needs of shareholders, customers, employees, and the communities it serves » Equity Investor Day » Sydney, May 2008
Slide 157: Customer value segmentation
8 Customer value segmentation For personal use only Creating a value-driven customer fact base. Source: KPMG 2007 » Equity Investor Day » Sydney, May 2008
Slide 158: Leveraging customer insights
9 Leveraging customer insights For personal use only Cost-allocated customer segmentation demonstrates the value of targeting. » Equity Investor Day » Sydney, May 2008
Slide 159: Leveraging customer insights
10 Leveraging customer insights For personal use only Using data to create customer insight… and Phoenix to leverage it. Focus on cross-sell Increasing potential • Extend dual-fuel products • Develop home services Active retention strategy Focus on retention High • Leverage the relationship • Pro-ac
Slide 160: Increasing market effectiveness
11 Increasing market effectiveness For personal use only Delivering differentiated end-to-end customer experiences. AGL is driving to become more customer centric so that it can: › Understand the profitability of customer segments and define clear ownership of results, enabling investments to be ali
Slide 161: Phoenix supports customer centricity
12 Phoenix supports customer centricity For personal use only SAP integrates the layers that drive customer value. SAP enhances AGL’s marketing capability in two discrete ways: 1. It brings all customer information into a single source that is able to be easily analysed and readily compared with mar
Slide 162: Organising around customer value
13 Organising around customer value For personal use only Operational Excellence is a prerequisite to Customer Centricity. » Equity Investor Day » Sydney, May 2008
Slide 163: Key Strategic Priorities
14 For personal use only Key Strategic Priorities There is still substantial work required to capture the full benefit of the investment AGL has made in Phoenix In the next period, AGL will complete the project phase as it begins the effort to differentiate » Equity Investor Day » Sydney, May 2008
Slide 164: Key strategic priorities
15 Key strategic priorities For personal use only Complete the Phoenix program: › Execute to the project schedule › Deliver the target benefits › Prepare for growth Begin the differentiation effort: › Complete value segmentation › Target high-value customers › Demonstrate the capability Perform in t
Slide 165: Financial Management
AGL Energy Limited For personal use only Financial Management Stephen Mikkelsen Chief Financial Officer Equity Investor Day Sydney, May 2008
Slide 166: Agenda
2 Agenda For personal use only Accounting: › Development fees › Derivatives Debt capacity for growth investments: › Balance sheet clean up › Preparing the balance sheet for growth Improvements to year end disclosures: › Cost to serve › Further merchant analysis » Equity Investor Day » Sydney, May 20
Slide 167: Accounting
3 For personal use only Accounting » Equity Investor Day » Sydney, May 2008
Slide 168: Development fees
4 Development fees For personal use only Development fee contributions are aligned to the fundamental drivers of value: › AGL identifies, plans and permits wind site and negotiates EPC › AGL provides full off-take for RECS and Energy, and operates the wind farm, typically for 25 years › This structu
Slide 169: "Live" example of development fees
5 “Live” example of development fees For personal use only Given AGL’s pipeline of opportunities, development fees are a sustainable part of the business for the foreseeable future. » Equity Investor Day » Sydney, May 2008
Slide 170: Derivatives
6 Derivatives For personal use only › AASB139 is highly prescriptive as to what financial instruments qualify as effective hedging › It is deficient in fully recognising the physical side of a hedging transaction › Consequently a large number of structured transactions are classified as trading, eve
Slide 171: AGL sells a Cap against Somerton
7 AGL sells a Cap against Somerton For personal use only Assume: › 100MW › 3 Years Revenue $33 million or $11 million per annum › @ $12.50/MW/h Rationale for the transaction: › Reduce volatility of revenue streams › Enable higher revenue streams than otherwise predicted Economic hedge › Capitalise o
Slide 172: The accounting outcome
8 The accounting outcome For personal use only Earnings from fair value movements do not impact underlying cashflow, and therefore value. End of End of End of Total Year 1 Year 2 Year 3 Revenue $11 million $11 million $11 million $33 million Liability at transaction rate $22 million $11 million $0 m
Slide 173: Debt Capacity for New Investments
9 For personal use only Debt Capacity for New Investments » Equity Investor Day » Sydney, May 2008
Slide 174: Balance sheet clean up
10 Balance sheet clean up For personal use only › AGL is committed to restoring its BBB stable rating › S&P currently requires 5 X FFO interest coverage1 › Actions undertaken to date to restore the stable outlook: 1. Fully underwritten March DRP 2. Sale of Gas Valpo 3. Commenced sale of pipeline ass
Slide 175: Options for funding future growth
11 Options for funding future growth For personal use only $2,500m AGL could fund $2 billion of growth without the need for new equity and maintain its BBB credit rating $2,000m $1,500m $1,000m $500m $0m Surplus from balance Potential asset Debt capacity in new Growth without sheet clean up sales in
Slide 176: Year End Disclosures
12 For personal use only Year End Disclosures » Equity Investor Day » Sydney, May 2008
Slide 177: Evolving financial disclosure
13 Evolving financial disclosure For personal use only Delivering greater clarity around our retail cost to serve. 12 months to June 07 June 06 Change % Total operating costs ($m) 236.3 230.6 2.5% Total other margin (costs recovered) ($m) (39.9) (34.6) (15.4%) Net operating expenditure ($m) 196.4 19
Slide 178: Evolving financial disclosure
14 Evolving financial disclosure For personal use only Delivering greater clarity around our retail cost to serve. 6 months to Dec 2007 Pro forma Change Dec 2006 % Net Operating Expenditure (Excl. QLD Customer Amortisation) $m 106.1 96.6 Net Operating Costs per Mass Market Account $33.37 $35.30 Down
Slide 179: Evolving financial disclosure
15 Evolving financial disclosure For personal use only Delivering greater clarity around our merchant operations. Merchant – EBIT Analysis (from 1H08 result presentation) 6 months to $m Dec 2007 Pro forma Dec 2006 Change % Revenue from Retail Business Electricity 953.4 547.5 74.1 Gas 222.0 194.4 14.
Slide 180: Key Strategic Priorities
16 For personal use only Key Strategic Priorities » Equity Investor Day » Sydney, May 2008
Slide 181: Key strategic priorities
17 Key strategic priorities For personal use only › Restore AGL’s balance sheet to BBB stable › Continue to review capital management options in order to fund growth priorities that better fit AGL’s integrated strategy › Continuously improve the quality of disclosure in order to highlight both the r
Slide 182: Concluding comments
AGL Energy Limited For personal use only Concluding comments Michael Fraser Managing Director & CEO Equity Investor Day Sydney, May 2008
Slide 183: Concluding comments
2 Concluding comments For personal use only › Our integrated asset base is pivotal in the Australian energy sector › Our success with Phoenix provides world class capability › We are at least two years ahead of our competitors › We have the leading and fastest growing privately owned renewables port
Slide 184: Concluding comments
3 Concluding comments For personal use only › Our gas portfolio is structured to remain competitive under all price scenarios, enabling us to sustain retail margins › Actions underway to restore balance sheet strength and flexibility › Disciplined approach to acquisitions and development projects ›
Slide 185: Further Information & contacts
1 For personal use only Further Information & contacts A range of information on AGL Energy Limited including ASX & Media Releases, Presentations, Financial Results as well as historical ‘The Australian Gas Light Company’ Scheme Booklets, Annual Reports, Sustainability Reports, Presentations and Fin