AGL Energy Limited · ASX:AGL
AGL Energy — Investor Presentation (2001)
40 slides from AGL Energy's investor presentation, 2001
Slide 1: AGL Energy Trading & Risk Management Briefing
AGL Energy Trading & Risk Management Briefing
Slide 2: Today's Agenda
Today’s Agenda •Energy Market Fundamentals •AGL’s Risk Management Architecture •Key Risk Management Issues •Risk Management Strategies •Risk Management Performance
Slide 3: Typical annual energies v 100W globes
Typical annual energies v 100W globes • Household ≈ 5 MWh = 6 x 24 hrs x 365 days • Small business ≈ 100 MWh = 114 x 24 hrs x 365 days • Large Industrial ≈ 100 GWh = 120,000 x 24 hrs x 365 days • AGL ≈ 22,000 GWh = 25,000,000 x 24 hrs x 365 days • If AGL yearly electricity used in 1 hour = 220 billi
Slide 4: Electricity Markets & AGL Share
Electricity Markets & AGL Share 43,000 GWh 69,400 GWh 5,800 GWh (8.4%) Incl. ActewAGL 13,000 GWh 46,900 GWh 11,000 GWh (85%) 5,300 GWh (11.3%)
Slide 5: Historical Regional Demands
Historical Regional Demands 14000 12000 10000 8000 Max MWs Avg 6000 Min 4000 2000 0 NSW Vic SA
Slide 6: Historical Regional Demands v Supply
Historical Regional Demands v Supply 18000 16000 14000 12000 Supply MWs 10000 Max 8000 Avg 6000 Min 4000 2000 0 NSW Vic SA
Slide 7: Regional Interconnectors
Regional Interconnectors QLD 700 ~1000 SNI 250 500 NSW Murray link 200 850 3000 ~1900 500 1500 SA VIC SNOWY 250 1100 300 600 TAS
Slide 8: Generation Stack - daily demand
Generation Stack - daily demand 2,500 Extreme peak 2,000 Peak 1,500 Avg day MWs Intermediate 1,000 500 Base 0
Slide 9: Generator Capital/Marginal Costs
Generator Capital/Marginal Costs Capital Marginal Type Operation Cost Cost Brown Coal Base High Low Black Coal Base/Intermediate Medium/High Medium Gas Intermediate/Peak Medium/Low Medium/High Distillate Peaking Low High Hydro Base/Int/Peak High Low (limited energy)
Slide 10: Simplified Electricity Market Operation
Simplified Electricity Market Operation Receive Pool Price Generators Pool Pay Pool Price Hedges/Contracts for Difference Retailers Customers
Slide 11: Simplified Electricity Market Operation
Simplified Electricity Market Operation $35 Pool Price $35 Generators Pool Hedge $30 Retail Price $40 $35 $35 - $30 = $5 Retailers Customers Retailer Receipts $40 $40 Net Cost $35-5 $30 MARGIN $10
Slide 12: Natural Gas Supplies
Natural Gas Supplies 200 Letter of Agreement 160 120 PJ 80 40 0 F2000 F2004 F2008 F2012 F2016 LoA
Slide 13: Natural Gas Supplies
Natural Gas Supplies 200 NSW/ACT Future Supply Requirements 160 120 PJ 80 40 0 F2000 F2004 F2008 F2012 F2016 LoA NSW/ACT Demand
Slide 14: Natural Gas Supplies
Natural Gas Supplies 200 NSW/ACT Future Supply Requirements 160 120 PJ 80 AGL 2000/01 40 Actual Demand 0 F2000 F2004 F2008 F2012 F2016 NSW/ACT Demand LoA
Slide 15: Future Gas Supplies
Future Gas Supplies PNG Timor Sea 16 Mount Isa Amadeus Rockhampton Bowen/ Gladstone Surat Cooper 40 BRISBANE Whyalla 110 Newcastle 80 SYDNEY ADELAIDE Wollongong CANBERRA MELBOURNE Pt Campbell Longford Otway 220 Kipper Bass Gippsland
Slide 16: Electricity Risk Management Structure
Electricity Risk Management Structure AGLBoard Risk Management Committee General Manager Manager Finance & Wholesale Electricity Administration Manager Manager Manager Energy Trading Risk & Forecasting Settlements Front Office Middle Office Back Office Manager Manager Manager Manager Manager Strateg
Slide 17: Employees
Distribution of Electricity Industry Experience 10 8 Employees 6 4 2 0 20+ years 10-20 years 5-10 years 3-5 years <3 years
Slide 18: Risk Management Philosophy
Risk Management Philosophy Manage Risk management Price generally involves a combination of all three strategies Avoid
Slide 19: Risk Management Architecture
Risk Management Architecture • Policy approved by the AGL Board • Framework approved by the Risk Management Committee • Procedures - adopting AFMA “Scorecard Of Operational Risk” Approach (externally audited)
Slide 20: Risk Policy
Risk Policy Specific types of risk addressed •Specific >Market Risk >Credit Risk >Operational Risk >Regulatory Risk >Contract & Legal Risk
Slide 21: Risk Framework
Risk Framework Framework contains specific detail on •Framework >Management Activities (eg. Approved counterparties) >Authorities, Limits & Approvals >Specific reporting requirements - (such as VaR) >Responsibilities & Accountabilities of officers
Slide 22: Risk Management Currency & External Review
Risk Management Currency & External Review • AGL’s Risk Policy & Framework recently updated • Developed in consultation with PriceWaterhouseCoopers and Ernst & Young • Audit of operations/documentation is periodically carried out by Deloitte Touche Tohmatsu
Slide 23: Key Types of Risk
Key Types of Risk Market Risk >Market >Credit Risk >Operational Risk >Regulatory Risk >Contract & Legal Risk
Slide 24: Key Types of Risk: Market Risk
Key Types of Risk Market Risk •Market –Flex –Volume –Price
Slide 25: Risk Measurement - Value at Risk Scenarios
Risk Measurment - Value at Risk Scenarios Pool Price Variation -a % -b % Base +c % +d % +e % Stress Abnormal Stress Sales Variation +f % Abnormal Normal Abnormal BASE Base Abnormal Normal Normal Abnormal CASE Abnormal Normal Abnormal -g % Stress Abnormal Stress -h %
Slide 26: Risk Scenarios
Risk Scenarios • Scenarios cover quantity and duration – Portfolios – Regions – Aggregate
Slide 27: Flex - % Flex > Avg Summer peak
Flex - % Flex > Avg Summer peak 160% 140% 120% 56% 35% 29% 100% 80% 60% 40% 20% 0% SA VIC NSW
Slide 28: Flex - Unitised Load Durations
Flex - Unitised Load Durations 2 1.8 2.5 1.6 2 1.4 1.5 1.2 NSW1 NSW1 VIC1 1 1 VIC1 SA1 SA1 0.8 0.5 0.6 0.4 0 0.2 0
Slide 29: Volume - Seasonal Load Shapes
Volume - Seasonal Load Shapes 2,500 2,000 1,500 MWs 1,000 500 0 hours Weekend Winter Summer
Slide 30: Price - Volatility
LO/ZL/8 LO/EZ/9 LO/L/9 LO/P/S LO/ory LO/G/E LO/6/Z LO/S/L Price Offer Date OO/PZ/LL O0/ZZ/01 OO/EZ/E N [=] o N zt oO = 2 _ o © pes a=] c oO oO ne] pas : fe} LL = 1°] o > o = 1°) O0/L/6 O0/r/8 TTTTTTTTITTTTTTTTTTITTTTTITTTTTTTTTTITTTTTTTTTTTTTTTTTTTTITIIT1 OO/L/L
Slide 31: Structured Derivative Products
Structured Derivative Products • Swaps • Caps • Options • Swaptions • Captions • Put & Call Options • Collars • Weather derivatives
Slide 32: Two Way Hedge/Swap/CFDs
Two Way Hedge/Swap/CFDs Hedge/Swap/CFDs $/MWh Seller may pay an option fee Seller Rebates Buyer $SP Strike Price Buyer Rebates Seller Time
Slide 33: One Way Hedge/Cap
One Way Hedge/Cap • Acts like a SWAP Contract, but only when pool prices are – ABOVE the Strike Price (Call option), • The buyer pays a fee to be effectively insulated from pool prices greater than the agreed Strike Price. Difference Payments offset Pool Pool payments only
Slide 34: Portfolio Structure
Portfolio Structure Workday Load Profile 2500 Extreme Exposure 2000 Exposure to low pool Over Contracted 1500 MW 1000 500 0 Hours Swap Collar Variable Quantity Cap Extreme Demand Cap Call Pool Exposure Demand
Slide 35: Generation Stack - daily demand
Generation Stack - daily demand 2,500 Extreme peak 2,000 Peak 1,500 Avg day MWs Intermediate 1,000 500 Base 0
Slide 36: Electricity Trading Strategy
Electricity Trading Strategy • Base Load – Contracting / Strategic Alliance • Intermediate Load – Contracting – Tolling – Physical • Peaking Plant – Contracting – Tolling – Physical
Slide 37: Peak Dilemma (case for Vertical Integration)
Peak Dilemma (case for Vertical Integration) Load Duration Curve 200MW's is required for less than 3 days a year 3000 Hypothetical comparison of options 2500 •Swap @ $115/MWh = $91M p/a Regional Demand - MW's •Swap @ $165/MWh = $33M per quarter 2000 •Cap @ $50/MWh premium = $39M p/a 1500 •Pool Expos
Slide 38: Peak Dilemma (case for Vertical Integration)
Peak Dilemma (case for Vertical Integration) Load Duration Curve 200MW's is required for less than 3 days a year 3000 2500 •Assuming Pool Exposure Cost on highest 3 days = $20M max Regional Demand - MW's 2000 1500 1000 Driving Strategic Direction •Peak Power Generation 500 •Demand Side Management Pr
Slide 39: Gas Trading Strategies
Gas Trading Strategies • Key Issues – Portfolio Approach – Market Price Reviews – Volume Flexibility – Load Factor Flexibility – Delivery Point Flexibility
Slide 40: AGL Energy Trading & Risk Management Briefing
AGL Energy Trading & Risk Management Briefing