South AustralianSouth Australian Energy Market Briefing Energy Market Briefing

A distributor’s view of the future of natural gas and regulatory changes

required17 June 2002

2

Our World

Australia’s largest distributor of natural gas:

17,900 km of distribution networks 1,100 km of transmission pipelines 900,000 consumers

Operate in SA, Vic, Qld, NSW and NT

Head office in Adelaide (14 employees)

Top 150 ASX listed company

5th largest in South Australia

3

Growth opportunities for Envestra

Acquisitions/ merger

Regional (greenfield) projects

Organic

4

Transmission

Acquisition/merger opportunities

50+ entities

Generation(production)

Distribution

Gas

NSW Vic SA Qld WA NT

Retailing

Electricity

Envestra’s operations

5

Regional projects considered (SA only)

Adelaide Hills

Loxton

Renmark

Waikerie

McLaren Vale

Port Augusta

Greenfield projects not supportedby new regulatory regime

Significant under recovery in earlyyears

Only prudent expenditure allowedby Regulators

Projects will not materialize without Projects will not materialize without Government support or a change in the rulesGovernment support or a change in the rules

6

Greenfield projects - the dilemma

-$1.00

-$0.50

$0.00

$0.50

$1.00

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

years

Ne

t re

ve

nu

e p

er

$ s

pe

nt

Under recoveryUnder recovery

ProfitablProfitablee

7

Organic growth (SA only)

6,000 new connections in SA per year:

New subdivisions (95% penetration) Connections to existing mains

Only distributors market natural gas – not retailers

SA Regulator supports the view

Essential marketing effort is maintained

Natural gas is a fuel of choice

8

The benefits of natural gas

Annual greenhouse gas emissions of water heaters

4.8

1.2

1.9

1.6

0.3

0.5

1.3

0 1 2 3 4 5

Electric

Solar - electric (warm climate)

Solar - electric (cool climate)

Two star gas

Five star gas

Solar - gas (warm climate)

Solar - gas (cool climate)

Tonnes of greenhouse gas per year

*

*

+

+ Annual greenhouse gas emissions based on 200 litres daily water use+ cool climate receives 60% solar contribution, e.g. Melbourne* warm climate receives 75% solar contribution, e.g. BrisbaneSource: Global Warming: Cool It! A Home Guide to Reducing Energy Costs and Greenhouse Gases, Australian Greenhouse Office, 2000.

9

Importance of SEA Gas Proposal

Security of supply – alternative source

Inter-basin and inter-pipeline competition greater use of gas

10

Future prospects for natural gas

Natural gas is a fuel of choiceNatural gas forecast to supply 24% of primary energy by2010, but most growth in power generation.

Industry concerns recognized through:

National Energy Policy – long overdue

Productivity Commission review of National Access Regime

Review of National Access Code

Depreciation rates addressed in Federal Budget

11

Four messages for Regulators (and Governments)

Implement incentives for Greenfield Projects

Consider the cost/ benefit of regulation –distribution component (domestic consumers):

Cost = $9 per consumer each reset Benefits = $4 p.a. per consumer

Recognise the commercial impact of decisions:

Business performance Ability to raise debt in capital markets Shareholder expectations (share price)

Ensure efficiency sharing mechanism provides anincentive to asset owners