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  1. Thomson Reuters StreetEvents Event Transcript
  2. E D I T E D V E R S I O N
  3.  
  4. Interim 2016 AGL Energy Ltd Earnings Call
  5. 02/10/2016 10:30 AM GMT
  6.  
  7. ================================================================================
  8. Corporate Participants
  9. ================================================================================
  10.  
  11. * Andrew Vesey
  12. AGL Energy Limited - CEO and MD
  13. * Stephen Mikkelsen
  14. AGL Energy Limited - Executive General Manager Energy Markets
  15. * Doug Jackson
  16. AGL - Executive General Manager Group Operations
  17. * Brett Redman
  18. AGL Energy Limited - CFO
  19.  
  20. ================================================================================
  21. Conference Call Participiants
  22. ================================================================================
  23.  
  24. * Robert Coe
  25. Morgan Stanley - Analyst
  26. * John Hirjee
  27. Deutsche Bank - Analyst
  28. * David Leitch
  29. UBS - Analyst
  30. * Peter Wilson
  31. Credit Suisse - Analyst
  32. * Michael Dargue
  33. Citi Investment - Analyst
  34. * Ian Myles
  35. Macquarie Group - Analyst
  36. * Baden Moore
  37. CLSA - Analyst
  38. * David Fraser
  39. Shaw and Partners - Analyst
  40. * Simon Chan
  41. Merrill Lynch - Analyst
  42.  
  43. ================================================================================
  44. Presentation
  45. --------------------------------------------------------------------------------
  46. Andrew Vesey, AGL Energy Limited - CEO and MD [1]
  47. --------------------------------------------------------------------------------
  48.  
  49. Good morning and welcome to AGL's 2016 interim results call. I'm Andrew Vesey, AGL's CEO and Managing Director. I've been in the role a year and in addition to presenting the results for the recent half I'd like to touch on the strategic journey that we've commenced and our progress to date. With me this morning is Brett Redman, CFO who will run through the Group financials. I also have other members of the executive team here with me including Doug Jackson from Group Operations and Stephen Mikkelsen, from Energy Markets.
  50. After Brett provides an update on AGL's Group financials I will bring you up to date on our operations and then we will open the call for questions. Moving to slide 3, the highlight slide, our results show underlying profit after tax is up 24% to AUD375 million. This figure shows that AGL is still benefiting from a return to more normal weather as compared to the previous mild winter.
  51. Higher wholesale electricity prices have added around AUD16 million and electricity generation volumes across the portfolio added around AUD36 million. There has also been a significant improvement in the profitability of our retail book which has been achieved through continued discipline around pricing, cost management and our strategy to attract and retain high value customers. Collectively these actions have realized a 26% increase in EBIT per customer as well as a lift in customer satisfaction.
  52. Moving to slide 4, the restructure and implementation of lean processes are resulting in a more efficient and agile organization. The importance of communicating effectively across the organisation has been integral to ensure our employees are engaged with the new strategy and I'm pleased to see that the anticipatory mindset is resonating throughout the business.
  53. The volatility in energy markets that we are seeing globally reinforces the need to do scenario planning and we are making good progress in this discipline. As well as planning for the future we are driving productivity and value throughout the business. We can start to see the impact of rising wholesale electricity prices and our continued work to execute on operational efficiencies is proving successful.
  54. The targets which were announced last May are on track, we will hit the AUD170 million in OpEx savings in financial year 2017 and more than half the AUD1 billion asset sales have been achieved through the sale of Macarthur Wind Farm announced last year. In financial year 2016 we will launch the next wave of initiatives to unlock growth, deploying large scale renewables, targeting investments in new capability and digitizing the customer interface, all of which will help us create value for our shareholders and customers alike.
  55. Moving to slide 5, I would like to spend a minute talking about our digital strategy and the investments we are making to enhance our customers' energy experience. The importance of developing digital technology to help our customers manage their energy consumption is one of our priorities and today we are launching an extension of the AGL mobile application with Solar Command. The additional functionality of this mobile app provides customers with information on their roof top solar systems including the energy being produced and consumed as well on the performance of their system and the application is designed to make our customers lives easier with features such as one click bill payment.
  56. The existing mobile app has been embraced by customers who have downloaded it with over 70% of these customers re-visiting the app each month. It demonstrates that customers value the product. This growth has been driven through continual improvement listening to our customers' feedback as well as launching an Android version of the app in October. These initiatives will not only help our business growth in a carbon constrained world, they will provide innovative, interactive tools to help our customers manage their energy use and AMR, Australia's customer satisfaction survey, has shown that AGL had a 2% increase in customer satisfaction to score 7.25 out of 10 which is ahead of all other tier one retailers.
  57. Moving to slide 6 we are pleased to announce an investment of $20 million in the American company, Sunverge, an emerging leader in the demand response management for premises based energy storage area. AGL has secured the exclusive Australian rights to this application which will allow AGL to be an early mover in this space.
  58. Moving to slide 7, I am pleased to announce the launch of the Powering Australian Renewables Fund which will help facilitate AUD2 billion to AUD3 billion of investment in large scale renewables. Our attendance at the United Nations Climate Conference in Paris last December reaffirmed the importance of the generation industry moving to a de-carbonised future. The initial AGL is announcing today will provide investment for the development of around 1000 megawatts of renewable energy projects in the national energy market. This equates to about 20% of the new build required to meet the renewable energy target and is commensurate with our market share in the NEM.
  59. The fund will be seeded with AGL's large scale solar projects at Nyngan and Broken Hill and we are confident that the expertise in developing large scale renewable projects and our existing pipeline of potential renewable energy options will position us to execute on this initially. Apart from our solar projects AGL will contribute a AUD200 million cornerstone equity stake and we will invite a small number of investors to partner with us on this initiative which will support Australia's two degree climate change target.
  60. Now I will hand over the call to AGL CFO Brett Redman to provide an update on AGL's Group financials for AGL's half year ended on 31 December 2015. Brett.
  61.  
  62. --------------------------------------------------------------------------------
  63. Brett Redman, AGL Energy Limited - CFO [2]
  64. --------------------------------------------------------------------------------
  65.  
  66. Thanks, Andrew and let me add my good morning to today's call. Slide 9 summarises the key metrics across the business. I won't spend much time on these but you can see that most are favourable to the prior year on the back of a strong first half result.
  67. Turning to slide 10, consistent with past years we've calculated underlying profit by removing from statutory profit the effect of significant items and changes in financial instruments. The change in financial instruments represents fair value movements and energy hedges which are used to manage risk but are not considered effective hedges under accounting standard AASB139. The significant items mostly relate to the natural gas review which we detailed in last week's announcement. Removing this volatility from underlying profit we believe provides a better measure of AGL's performance.
  68. Turning to slide 11 provides a summary of the result by business unit. I'll turn to the next slide to talk in more detail about the result. Slide 12 shows the key drivers of NPAT during the half. There were three big thematics, disciplined price management which has driven higher consumer EBIT, a strong wholesale electricity market which allowed AGL to generate more volume at higher than expected prices including an extra two months of Macquarie which continues to deliver ahead of expectations and a strong wholesale gas market on the back of LNG coming online which is driving higher prices together with opportunities to sell large volumes into the Queensland gas market.
  69. Underlying this performance has been a focus on operating costs which has meant margin improvement is flowing to the bottom line. Overall underlying profit increased AUD73 million or 24% from prior periods.
  70. Slide 13 shows in more detail the energy markets result, again the stand out is wholesale electricity. A large portion of the improvement has been the extra two months of Macquarie or a combination of strong wholesale prices and higher plant availability allowed for a better than expected result.
  71. On slide 14 the consumer market key metrics show the benefit of operational discipline via both price and cost management, a focus on customer value means that while customer numbers are steady EBIT per customer is rising.
  72. Slide 15 outlines the OpEx transformation targets consistent with the methodology laid out at last year's May investor day. Deliberately we are now publishing an FY16 target to allow investors to measure our progress. You will see delivery is deliberately front end loaded. We have about 85% of the AUD170 million reductions required identified. Early on these include a lot of quick wins including renegotiation supply agreements and the benefits of restructuring. Looking ahead the focus is moving to deep process improvement. Throughout the focus is on sustainable savings that do not impair the business' ability to deliver.
  73. Slide 16 then gives more granular detail around where the savings are coming from. You will note in the first half we have achieved AUD40 million of savings net of covering higher generation costs which have delivered extra revenue. Turning to slide 17, sustaining CapEx this year includes a number of major outages. Work is ongoing to reduce both major outage costs and regular spending without impacting reliability. The large drop in growth CapEx reflects the completion of several major projects including the solar projects in Nyngan and Broken Hill which were completed on time and on budget.
  74. While we do not provide a growth CapEx outlook beyond the current year there are no major new projects approved and no new investment will be made in the development of natural gas. Finally our asset sale program is on track towards AUD1 billion. Macarthur has been sold and last week we confirmed we are selling Moranbah, Spring Gully and gas fields linked to Silver Springs, albeit in a difficult market. The exit at Moranbah is likely to require a cash payment which relates to the onerous contract provision. The drop in the value of gas assets makes the cash target more challenging but we still believe we will achieve it.
  75. Slide 18 then outlines our progress towards a reduction of AUD200 million of working capital. Once again we have provided detail to allow investors to measure our progress. While the nature of working capital means it can move around seasonally we are on track to deliver improvements in coal inventory, gas inventory and green inventory. A lot of good foundational work is happening around consumer debtors however the already low base means this one is proving the most challenging. We are expecting to see the improvement but it is requiring deep process re-engineering.
  76. Then finally turning to slide 19, excluding last year's carbon timing benefits, underlying operating cash flow is up AUD105 million driven by higher earnings. The strong cash flow shows the quality of earnings achieved.
  77. Turning to slide 20, the proceeds from Macarthur Wind Farm sale were partially used to repay AUD316 million (sic - see slide 20 "AUD315 million") of Loy Yang senior debt allowing for the collapse of the old Loy Yang project finance structure which will create efficiencies going forward. Strong operating cash flows and no refinancing required for 18 months mean AGL has a strong funding position. On that note I will hand back to Andrew for the operational review.
  78.  
  79. --------------------------------------------------------------------------------
  80. Andrew Vesey, AGL Energy Limited - CEO and MD [3]
  81. --------------------------------------------------------------------------------
  82.  
  83. Thank you, Brett. Moving on to slide 22, safety remains one of AGL's core values and it is consistently reinforced by all AGL employees and leaders, so I am pleased we are seeing safety improvements with a 31% reduction in the total injury frequency rate from June 2015. Some of our strategic focus areas in safety are visible safety leadership, safety risk management, proactive safety programs and having a safety based culture that reinforces positive safety behaviours. Also topical at the moment is AGL's enterprise bargaining agreement or EBA at Loy Yang which has recently been reported in the press. The EBA process commenced in July and remains ongoing. AGL seeks changes that reflects the changing landscape of the energy sector.
  84. Moving to slide 23 the wholesale electricity market has seen a step up in pool prices for the last six months which has strengthened our position as the lowest short run marginal cost generator in New South Wales and Victoria. This has been underpinned by lower capacity availability in the NEM due to early closure of the Northern and Pelican Power Station as seen in the financial year 2017 forward curve.
  85. Moving to slide 24, Queensland gas sales have continued to contribute to earnings which have been largely attributed to the start-up of the first LNG train in 2015 and allowed us to secure opportunities for portfolio optimisation. As highlighted in our announcement last week we are confident that we have sufficient gas for our residential and commercial customers and we believe there are additional potential sales opportunities which will provide further upside to our gas portfolio.
  86. The contract signed with Iona Gas Storage Facility last year allows AGL to meet peak demand requirements of consumer markets in the next decade and provides improved gas availability for AGL's generating assets. AGL will continue to source long term gas supply, likely from the southern markets, to secure gas for our customers after 2020.
  87. Moving to slide 25, while weather impacts differed in each State the impact was more favourable overall compared to the prior period. It is pleasing to note that the reduction in residential demand per customer we have seen over the last few years is flattening and this is evident in the chart. Total consumer electricity demand increased 1.3% partly due to weather and our strategy to attract high value customers. This growth in residential demand offsets the loss of high consuming multi-site small business customers which produce low margins, so the impact to EBIT was minimal.
  88. Total gas demand fell for the six months by 2.3%, however a prior adjustment to correct an over statement of gas volumes reduced this fall to 0.8%.
  89. Moving to 26, in the consumer sales and operations area of our business we are now managing around 80% of total sales and retention programs in-house which is a deliberate strategy to target high value customers more effectively, keep costs down and improve the quality of our customer service experience. Customer churn remains steady at 15.4% while the rest of the market currently churns at around 20.6%.
  90. Moving to slide 27, as you can see our Group operations business has performed favourably across the entire portfolio with all generating assets performing on or above budget. AGL Macquarie continues to outperform its business case. For example, Bayswater milling losses are significantly better than before AGL owned the assets to improve maintenance practices and adjustments to better match quality of coal.
  91. Now I move on to slide 28, where I'd like to reinforce some of the elements that we announced last Thursday which related to our exit from some aspects of the natural gas business. AGL decided not to proceed with its Gloucester gas project and made a strategic decision to exit gas exploration and production operations. The decision recognises an impairment charge of approximately AUD640 million after tax. As a result of the decision AGL will relinquish its petroleum exploration licence number 285 to the New South Wales Government and it will establish a AUD2 million independent trust fund to identify investment options that benefit the Gloucester community through sustainable economic development.
  92. I won't spend much more time on this as we held a conference call on the announcement last week however I encourage you to listen to the recording which is on our website should you be interested in hearing more of the details.
  93. Moving to slide 29, in addition to the Sunverge and Solar Command initiatives announced today our existing new energy streams are advancing. Residential and solar sales in the first half of the financial year have increased on last year and we have launched the active stream digital media installation service in South Australia, Queensland and New South Wales.
  94. We are now focusing on building installation capacity to accelerate the ramp up of this offering. Importantly AGL is continuing to invest in emerging distributor technologies as we strive to provide our customers with viable energy solutions for a carbon constrained future.
  95. Moving to the final slide before I open up the webcast to questions, we are pleased to report that financial year 2016 net profit after tax is expected to be in the upper half of the guidance range of AUD650 to AUD720 million. The AGL Loy Yang EBA negotiations are ongoing and continued progress is expected to be achieved in our OpEx targets with 85% of the cost reductions now identified. I would also like to reinforce the importance of launching the Powering Australian Renewables Fund today to support AGL's decarbonisation initiatives and to conclude we are pleased to declare the financial year 2016 interim dividend is AUD0.32 fully franked which is up AUD0.02 per share on the prior corresponding period.
  96. At this point I'd like to thank you for joining us today and I'd now like to open the call to your questions.
  97.  
  98.  
  99. ================================================================================
  100. Questions and Answers
  101. --------------------------------------------------------------------------------
  102. Operator [1]
  103. --------------------------------------------------------------------------------
  104.  
  105. Michael Dargue, Citi Investment.
  106.  
  107. --------------------------------------------------------------------------------
  108. Michael Dargue, Citi Investment - Analyst [2]
  109. --------------------------------------------------------------------------------
  110.  
  111. Hi there. You had a really strong first half result but haven't increased the guidance range, talk about fully maximising opportunities in the half. Can you give a bit more colour around what these one offs are and why they aren't expected to repeat and is this mainly around higher generation at MacGen and (inaudible)?
  112.  
  113. --------------------------------------------------------------------------------
  114. Andrew Vesey, AGL Energy Limited - CEO and MD [3]
  115. --------------------------------------------------------------------------------
  116.  
  117. Brett, why don't you take that?
  118.  
  119. --------------------------------------------------------------------------------
  120. Brett Redman, AGL Energy Limited - CFO [4]
  121. --------------------------------------------------------------------------------
  122.  
  123. Hi, Mike, it's Brett here. Look, a couple of things are going on. The first is -- when you look at the first half result we definitely had a better than expected generation outcome. The wholesale black prices were pretty strong during the period and off the back of -- we had some really good reliability outcomes at our plants, we were able to both sell volume into that market and sell volume in at higher prices.
  124. There were a number of other smaller one off events such as with FCAS and the like that happened during the period. So if you like we took advantage of a strong market in the first half. In the second half while black prices are generally rising we forecast more middle of the road, if you like for the balance of the year. You also see in the first half that one of the big step ups is some extra sales into Queensland wholesale gas. That's a step up compared to the first half of last year.
  125. In the second half of last year we started to show those higher Queensland gas sales and so the second half of last year versus the second half of next year is a more flat outcome in that space. You then start to take account of -- we've got some good OpEx savings so that's driving better improvement in profit in the second half but that's somewhat offset by the higher depreciation costs that we flagged previously. Things like the over burden change at Loy Yang and generally some whole of life tweaking that's going on with depreciation in the detail. You've also got some ramping up of OpEx costs in new energy, again entirely consistent with what we've talked about before.
  126. So the OpEx savings are there, they are somewhat offset by those depreciation and new energy costs and finally it often comes back a little bit to weather last year, particularly running into May and I think June last year, it was a particularly cold winter. I've been trying to track down whether it's actually a record cold but it was definitely one of the colder winters we've experienced for a long time. That drove higher volumes in the back end of last year and we're more of a winter volume story than a summer volume story.
  127. So again we project normal volumes for the second half of the year and you put all of that together and that's how you come back to being -- what's implied in the guidance outlook as a modest increase in the second half compared to a big increase in the first half.
  128.  
  129. --------------------------------------------------------------------------------
  130. Michael Dargue, Citi Investment - Analyst [5]
  131. --------------------------------------------------------------------------------
  132.  
  133. Okay, great. Thanks for that. The second question is on the new renewables venture you're entering. This seems like a change in approach compared to what you've previously talked about, about the RETS being hard to achieve. So a couple of questions around what changes this approach in terms of a five to 10 year offtake should be enough to support new development and then the second part is whether this new build will happen and how will this impact your wholesale (inaudible) markets?
  134.  
  135. --------------------------------------------------------------------------------
  136. Andrew Vesey, AGL Energy Limited - CEO and MD [6]
  137. --------------------------------------------------------------------------------
  138.  
  139. This is Andrew. Challenges remain in deploying large scale renewables and specifically because the NEM is over supplied by 7000 megawatts. So still key to one of the things that will make everything work is how we've been advocating for an early closure of the older, more inefficient plants. That said another fundamental issue, which is the requirements in the market in wanting to write term PPAs which are not happening. So for us we feel movement in large scale renewables is important and somehow we have to sort of break through all that.
  140. So what the fund is really designed to do is a few things. One is really to get together some like mind equity investors who understand the risks and have a desire for these type of assets. The second is it's not an investment in one particular asset, so there are some level of risk management based on the type of assets or the projects that will be developed under the fund. Third, by AGL being a developer and operating these assets we move some more risk from others who might want to make a financial investment but may not want to go through the development exercise and the last piece is our view of being creative on the offtake.
  141. So we're initially talking things in terms of the order of 5 to 10 years of fixed offtake agreements, recognising that the market will change significantly in the out years and we want to have investors who have an understanding of that and are willing to assess the tail end risk to this type of proposition. So we're trying to hit all of these things.
  142. Our view is that in order to do this and to get the kind of risk management we want it has to be large enough and that's why we're targeting a fund which has the potential of deploying approximately 1000 megawatts. Now our view is after this announcement we have a lot of leg work to do, we're looking to invite a few key investors to help join in, in equity. As you know we're putting in this AUD200 million equity stake.
  143. We're going to be pretty selective around that. We hope to have this up in great detail probably towards the end of the second quarter and then we will move forward from there. My sense in terms of we will be putting in or tipping in our flagship solar projects, Nyngan and Broken Hill, so they will be operating assets in this fund but if we're on schedule we're probably thinking a year before we're going to start to see development in the new projects giving everything that has to happen.
  144.  
  145. --------------------------------------------------------------------------------
  146. Michael Dargue, Citi Investment - Analyst [7]
  147. --------------------------------------------------------------------------------
  148.  
  149. Okay. With the AUD200 million of injection is that a cash injection or is that essentially putting in solar flagships, so kind of via that?
  150.  
  151. --------------------------------------------------------------------------------
  152. Andrew Vesey, AGL Energy Limited - CEO and MD [8]
  153. --------------------------------------------------------------------------------
  154.  
  155. Well, when we think about the fund -- and of course we're just at the preliminary stages of this -- we're talking about a fund which given the scale will probably look to be about AUD2 billion to AUD3 billion. The initial injection will be equity and if we think about this we can see projects -- it's pretty typical in this kind of vehicle to have projects hanging off of the fund and it will be project finance you could probably look at that at 30% equity, 70% debt. So what we're likely to do in the fund is to raise the initial equity stake in that. So initially it will be equity and our equity investment will be AUD200 million.
  156.  
  157. --------------------------------------------------------------------------------
  158. Brett Redman, AGL Energy Limited - CFO [9]
  159. --------------------------------------------------------------------------------
  160.  
  161. Maybe just add to that, Mike, I suspect when people are thinking about modelling all this, think about it as we're selling Nyngan and Broken Hill at something analogous to book value -- we haven't really done the numbers -- fairly early. So we'll get that as a cash payment. Then we'll be contributing our share of that AUD200 million equity pro rata as we would expect everybody is contributing as both Nyngan and Broken Hill were initially bought by the fund. Then as each site has been developed you progressively put your money in consistent with the program spend. So that AUD200 million isn't a spend on day one. There will be a chunk on day one to help fund our share of the Nyngan, Broken Hill purchase. Then the rest gets smeared as the projects are then built.
  162.  
  163. --------------------------------------------------------------------------------
  164. Operator [10]
  165. --------------------------------------------------------------------------------
  166.  
  167. David Leitch, UBS.
  168.  
  169. --------------------------------------------------------------------------------
  170. David Leitch, UBS - Analyst [11]
  171. --------------------------------------------------------------------------------
  172.  
  173. Hi. Congratulations on a good result. I have two quick questions. One was just a little bit on the fund just continuing immediately, is the PPA -- AGL am I to understand it will write PPAs for 5 to 10 years over whatever assets the fund has? Is that the way to think about it?
  174.  
  175. --------------------------------------------------------------------------------
  176. Brett Redman, AGL Energy Limited - CFO [12]
  177. --------------------------------------------------------------------------------
  178.  
  179. Yes, (inaudible) yes.
  180.  
  181. --------------------------------------------------------------------------------
  182. David Leitch, UBS - Analyst [13]
  183. --------------------------------------------------------------------------------
  184.  
  185. Secondly, just on the results themselves, the REC price in the six months averaged about AUD63 on the spot market versus AUD32 in the previous BCP and of course it's risen further since then. AGL has control over a million RECs as near as I can work out in the half. I'm just trying to understand why that didn't show up in the results a bit more.
  186.  
  187. --------------------------------------------------------------------------------
  188. Brett Redman, AGL Energy Limited - CFO [14]
  189. --------------------------------------------------------------------------------
  190.  
  191. I think David it's there somewhat. But in part 2 -- ultimately it's about what price that we're selling to our end customers. So we've got a fair -- as you recognise we've got a fair amount of green certificates on the balance sheet. That will unwind as we're selling if you like then as part of the product to customers. It's the customer end price that ultimately needs to rise for us to get the maximum value out of that REC bank over the next few years.
  192.  
  193. --------------------------------------------------------------------------------
  194. David Leitch, UBS - Analyst [15]
  195. --------------------------------------------------------------------------------
  196.  
  197. So you can't just sell them in the spot market -- I still don't quite understand when you're paying some price -- the prices improve that you don't actually get a benefit out of that.
  198.  
  199. --------------------------------------------------------------------------------
  200. Brett Redman, AGL Energy Limited - CFO [16]
  201. --------------------------------------------------------------------------------
  202.  
  203. Well we do but I suppose what we don't do is sell our entire inventory to the spot market today and then buy it back over the next three years to meet our obligations to customers. So I think it's there and it will be there in the eco part of energy markets result partly this year but in there over the next few years as we're selling to customers. Customers' green element in their pricing will be rising consistent with what's going on in the green market. So rather than seeing it as a one-off big jump as a mark to market you'll see it smeared over a number of years as we effectively use those certificates to meet our obligations in selling to retail customers. Those retail customer prices, the green element will be rising consistent with the market.
  204.  
  205. --------------------------------------------------------------------------------
  206. David Leitch, UBS - Analyst [17]
  207. --------------------------------------------------------------------------------
  208.  
  209. That's all from me. Thank you.
  210.  
  211. --------------------------------------------------------------------------------
  212. Operator [18]
  213. --------------------------------------------------------------------------------
  214.  
  215. Ian Myles, Macquarie Group.
  216.  
  217. --------------------------------------------------------------------------------
  218. Ian Myles, Macquarie Group - Analyst [19]
  219. --------------------------------------------------------------------------------
  220.  
  221. Hi congratulations on your results guys. Two questions -- firstly Alcoa and Portland; much commentary in the resource sector about the viability. Last time when Point Henry closed Alcoa used a hardship clause to potentially look at reopening the contract. Can you give us a bit of colour on what that hardship clause might mean in the current environment?
  222.  
  223. --------------------------------------------------------------------------------
  224. Andrew Vesey, AGL Energy Limited - CEO and MD [20]
  225. --------------------------------------------------------------------------------
  226.  
  227. Ian, Andrew, obviously this is an area that we watch very closely and of course have a lot of concerns. What I'm going to do is ask Stephen Mikkelsen to address this.
  228.  
  229. --------------------------------------------------------------------------------
  230. Stephen Mikkelsen, AGL Energy Limited - Executive General Manager Energy Markets [21]
  231. --------------------------------------------------------------------------------
  232.  
  233. Ian unfortunately I'm not going to be able to give you a lot of detail because those clauses are commercial and confident. We have signed confidentiality agreements in the contract. I think it is quite public though that there is a hardship clause. But we won't and we can't disclose what the workings of that hardship clause are.
  234.  
  235. --------------------------------------------------------------------------------
  236. Ian Myles, Macquarie Group - Analyst [22]
  237. --------------------------------------------------------------------------------
  238.  
  239. Okay. In terms of the -- you've got a policy of trying to arrange an orderly closure of brown coal or coal type generation. Can you maybe articulate where you are with the government and what you're actually lobbying for at this point in time?
  240.  
  241. --------------------------------------------------------------------------------
  242. Andrew Vesey, AGL Energy Limited - CEO and MD [23]
  243. --------------------------------------------------------------------------------
  244.  
  245. Ian -- Andrew -- clearly we need to get supply and demand back in balance to sort of open the space for new investment so that we don't wind up causing a situation where we have so much capacity to market, the wholesale market gets crushed and a lot of other bad things will happen along the way. What we've always been talking about is progressive closure of the older, dirtier plants. Now we've been on record in saying that we expect that to happen. There are models for it all around the world. We think government intervention either regulatory or otherwise is a pretty simple way of doing it and clear. There are models for that.
  246. We're also paying attention -- we recognise that others have come in with views on this such as this Professor Yatso. It's a much more market based mechanism. We think discussion about this and anything that can get this done -- I think now we're talking about what's possible.
  247. So we are supportive of anything that will help get this balance because even though today we're announcing a fund that we're hopeful is going to deliver 1000 megawatts of renewable at 20% of the RET, those have to be good projects. They are going to depend on pricing in the market.
  248. So it remains an issue. We've been pretty clear that we think that there are regulatory approaches to getting closure but at this point we are supportive of anybody who can engage in this discussion and bring models to see this outcome happen.
  249.  
  250. --------------------------------------------------------------------------------
  251. Ian Myles, Macquarie Group - Analyst [24]
  252. --------------------------------------------------------------------------------
  253.  
  254. Okay, just one final question on the fund itself. You've got a portfolio of development projects in renewable energies across the different states. Are you going to be selling that into the fund as well or are you actually the developer and then sell the completed product into the fund?
  255.  
  256. --------------------------------------------------------------------------------
  257. Andrew Vesey, AGL Energy Limited - CEO and MD [25]
  258. --------------------------------------------------------------------------------
  259.  
  260. Yes, I think that's part of how this fund develops. Clearly we have two wind sites that we've been looking to develop for a long time. That's Silverton and Coopers Gap. Given the fact that we are -- the question is there's still plenty of work to be done. Somebody will have to do that.
  261. Now if AGL were to do that work and then tip it into the fund, and then they would expect at least to get a reimbursement for those costs. The fund may do it itself. I also want to be clear, all developers can bring projects to this fund to be considered. Based on the stage of development it would have to be compensated in some way. But those are details that we're not at yet. We are interested to bringing these potential development sites to the fund. But all those details will be worked.
  262.  
  263. --------------------------------------------------------------------------------
  264. Ian Myles, Macquarie Group - Analyst [26]
  265. --------------------------------------------------------------------------------
  266.  
  267. Okay thanks.
  268.  
  269. --------------------------------------------------------------------------------
  270. Operator [27]
  271. --------------------------------------------------------------------------------
  272.  
  273. John Hirjee, Deutsche Bank.
  274.  
  275. --------------------------------------------------------------------------------
  276. John Hirjee, Deutsche Bank - Analyst [28]
  277. --------------------------------------------------------------------------------
  278.  
  279. Thank you. Good morning everyone. My question relates to the fact that you've maintained good progress on OpEx and CapEx targets. You've indicated your asset sale program is on track. But you've been silent in terms of when you achieved that. Last time you spoke about potential capital management. I'm just wanting to know if there's been any change or is that still the intention once those targets are achieved?
  280.  
  281. --------------------------------------------------------------------------------
  282. Andrew Vesey, AGL Energy Limited - CEO and MD [29]
  283. --------------------------------------------------------------------------------
  284.  
  285. John just to be clear -- silent on which? What have we been silent on?
  286.  
  287. --------------------------------------------------------------------------------
  288. John Hirjee, Deutsche Bank - Analyst [30]
  289. --------------------------------------------------------------------------------
  290.  
  291. On capital management, post those targets being achieved.
  292.  
  293. --------------------------------------------------------------------------------
  294. Andrew Vesey, AGL Energy Limited - CEO and MD [31]
  295. --------------------------------------------------------------------------------
  296.  
  297. Let me answer it this way, then I'll see if Brett has anything to do with it. Where we are -- we've gone through a very significant strategic pivot over the last year. We've done a lot. The last thing being done is taking the strategic decision to enter the E&P side of gas.
  298. We are making very good progress on building up a -- not just a one-off delivery of OpEx reductions but building the skills into the organisation through really driving on on lean processes. We are doing the scenario planning work that we've talked about. We're just at the point of getting our reference scenario. So my view of this is we are dealing with some very basic blocking and tackling. We've taken a change -- a pivot in terms of our overall strategy.
  299. What we're viewing now is a couple of opportunities for growth. Those are a) in this digitised front end with our customer in the large scale renewables as we started to drive through with this fund that we're developing. Lastly thinking about the other type of large scale investments that can be made on the grid whether these are new gas terminal projects -- high speed -- or new batteries to support the growing number of renewables.
  300. That said what we're doing now since we have just made this pivot, is we're really going to be focusing very hard in looking at the investments going forward. Because our first desire is for growth. Right now before we take a knee jerk reaction to what we've done in terms of cost savings and changing the strategy and saying, well we've just opened up some room -- we want to know where we can deploy that at high value for our shareholders to the benefit of our customers.
  301. So I think that's where we are right now. We really have tried to assemble and drive a very clear view of how we're going to take this next wave of growth on in these three areas. Then we'll be able to step back and say okay what are our requirements going forward?
  302.  
  303. --------------------------------------------------------------------------------
  304. Brett Redman, AGL Energy Limited - CFO [32]
  305. --------------------------------------------------------------------------------
  306.  
  307. Yes and I think John, the only thing I'd add to that is it's similar to where we've talked about it in the past. We're very keen to show delivery before we talk about how we divvy up the spoils of delivery.
  308. We're about six months into a two year program. I think at the end of the first six months we're feeling pretty good about how we're tracking. But there's a lot ahead of us which we're confident we'll deliver. There's no question we're committed to delivering. But we do want to make sure that we've got those runs on the board before we leap to the next phase.
  309. But as Andrew said too, we are a growth stock. We believe we're a growth stock so we're continuing to look for growth opportunities even as we balance making sure that we're showing delivery before we could ultimately take to the Board that kind of broader capital management discussion that I know shareholders are keen to hear more about.
  310.  
  311. --------------------------------------------------------------------------------
  312. John Hirjee, Deutsche Bank - Analyst [33]
  313. --------------------------------------------------------------------------------
  314.  
  315. Okay, thank you very much.
  316.  
  317. --------------------------------------------------------------------------------
  318. Operator [34]
  319. --------------------------------------------------------------------------------
  320.  
  321. Peter Wilson, Credit Suisse.
  322.  
  323. --------------------------------------------------------------------------------
  324. Peter Wilson, Credit Suisse - Analyst [35]
  325. --------------------------------------------------------------------------------
  326.  
  327. Thank you. Good morning guys.
  328.  
  329. --------------------------------------------------------------------------------
  330. Andrew Vesey, AGL Energy Limited - CEO and MD [36]
  331. --------------------------------------------------------------------------------
  332.  
  333. Good morning.
  334.  
  335. --------------------------------------------------------------------------------
  336. Peter Wilson, Credit Suisse - Analyst [37]
  337. --------------------------------------------------------------------------------
  338.  
  339. Just on the first half, second half split, you spoke about that earlier a bit. Can I just confirm that -- what you're talking about when you say that the first half opportunities will not be there in the second half. Are you mostly talking whether effect on volumes or whether effect on generation? Am I right to assume that it's that and that there's no other -- am I right to assume that we should get a price uplift in the second half which should offset some of that volume normalisation?
  340.  
  341. --------------------------------------------------------------------------------
  342. Brett Redman, AGL Energy Limited - CFO [38]
  343. --------------------------------------------------------------------------------
  344.  
  345. Yes Peter, look I think the forward curve ultimately is always the best guide as to what the market thinks is going to happen. It's certainly the screen we stare at in making our predictions. So the forward curve indicating the black prices continue to rise. So the comments around maximising opportunities, there are often the odd thing that happens that are one-off in nature. So for example there were a couple of FCAS events that we were on the right side of in the first half.
  346. There are other things too when we think about behaviour or likely things that other generators might be doing. What we think you'll see for example is the hydro starting to come back stronger in this calendar year compared to the past calendar year. That will shave some of the upside off around volatility.
  347. Things like Basslink being out created some extra opportunity as a generator on the mainland. Basslink will come back -- I think it's planned to come back in about February. That will provide some balance back in.
  348. So I guess it's saying a typical forecast is a middle of the road forecast. Compared to middle of the road the first six months a few things popped up that did better. Then we forecast back to middle of the road. In the next six months things -- you can still have some positive events. You can still have some negative events as the actual trading world plays out through the balance of the year.
  349.  
  350. --------------------------------------------------------------------------------
  351. Peter Wilson, Credit Suisse - Analyst [39]
  352. --------------------------------------------------------------------------------
  353.  
  354. Okay thank you. Maybe a question directed to Stephen -- on the gas market -- the (inaudible) in the gas market has persisted a lot longer than most people would have expected due to an LNG delay. Going forward there's probably going to be some sort of delay to the LNG ramp up. Can you just maybe comment on what the persistent low spot price is, what effect they're having on your earnings versus values that you put in versus your expectations under your guidance? Also what effects they're having on your margin expectations in FY17 in the wholesale gas book?
  355.  
  356. --------------------------------------------------------------------------------
  357. Stephen Mikkelsen, AGL Energy Limited - Executive General Manager Energy Markets [40]
  358. --------------------------------------------------------------------------------
  359.  
  360. Yes so it is fair to say it's been a very good six months result for the gas portfolio not only in terms of actual sales that we achieved in that month but also sales that we've achieved in the outer years. I guess I particularly refer to the GLNG announcement that we made. Those margins that we are making have been quite consistent with our initial predictions. I see the gas book continuing to perform well. I guess invariably as the -- particularly in the short term -- those gas prices have been rising.
  361. From an overall energy markets point of view it is how we translate those price rises into the retail market and into the external customer market because ultimately those costs are increasing. But my overall comment is gas portfolio is looking good, looking solid. I see that continuing for that forecast period.
  362.  
  363. --------------------------------------------------------------------------------
  364. Peter Wilson, Credit Suisse - Analyst [41]
  365. --------------------------------------------------------------------------------
  366.  
  367. Okay. For the second half had you factored in any earnings from spot gas sales into the second half into your guidance?
  368.  
  369. --------------------------------------------------------------------------------
  370. Stephen Mikkelsen, AGL Energy Limited - Executive General Manager Energy Markets [42]
  371. --------------------------------------------------------------------------------
  372.  
  373. No we haven't. No.
  374.  
  375. --------------------------------------------------------------------------------
  376. Peter Wilson, Credit Suisse - Analyst [43]
  377. --------------------------------------------------------------------------------
  378.  
  379. Okay, alright thank you.
  380.  
  381. --------------------------------------------------------------------------------
  382. Operator [44]
  383. --------------------------------------------------------------------------------
  384.  
  385. Rob Coe, Morgan Stanley.
  386.  
  387. --------------------------------------------------------------------------------
  388. Robert Coe, Morgan Stanley - Analyst [45]
  389. --------------------------------------------------------------------------------
  390.  
  391. Good morning guys. I've got three questions. Firstly with the recent Moody's ratings initiation they identified a potential credit risk to Peabody, so wondering if -- I know maybe there's some commercial and confidence -- but what can you tell us about that?
  392.  
  393. --------------------------------------------------------------------------------
  394. Brett Redman, AGL Energy Limited - CFO [46]
  395. --------------------------------------------------------------------------------
  396.  
  397. Look, I think it is commercial and confidence but it's not something that I would say keeps me awake at night in the sense of impact on our business.
  398.  
  399. --------------------------------------------------------------------------------
  400. Robert Coe, Morgan Stanley - Analyst [47]
  401. --------------------------------------------------------------------------------
  402.  
  403. That's great. That's what we want to hear. Secondly in relation to the Powering Australian Renewables Fund proposal; presumably part of the reason that AGL would only be taking a minority equity stake in that is that there's potential for capital efficiency.
  404. Can you give us some colour on what kind of investors you'd be looking to invite in? Are they your kind of traditional, unlisted infra fund managers or are they more private equity or sovereign? Just to get a sense of risk appetite.
  405.  
  406. --------------------------------------------------------------------------------
  407. Brett Redman, AGL Energy Limited - CFO [48]
  408. --------------------------------------------------------------------------------
  409.  
  410. I'll pick that one up. I think at the equity level I'd think of it as more your sort of big infra funds, probably domestically Australian but not wanting to exclude any of the overseas funds either. I look at for example the landscape of many of these funds. Certainly espouse or talk about an appetite for wanting to invest in renewables.
  411. I know that many of them are thinking about almost pure merchant investments and a little bit scared off or finding that a little difficult in modelling. So the idea when we've -- and we've done a little bit of soft sounding already -- the idea of sitting side by side with an experienced player like AGL is also putting skin in the game, is really resonating just from the initial soft soundings that we've started to have.
  412. So that would be the equity level. Then at the debt level I think it would be the usual mix of senior debt. So I'm hoping to see for example the big Australian banks be in there. Then there might be some form of mezzanine there where you might get a broader mix of players that are happy to trade off a bit more risk for a bit more return.
  413.  
  414. --------------------------------------------------------------------------------
  415. Robert Coe, Morgan Stanley - Analyst [49]
  416. --------------------------------------------------------------------------------
  417.  
  418. Thank you. Yes I'm sure you'll get plenty of big Australian bank support. Just one last question on the -- on Powering Aus Renewables. The kind of offtake contracts that you'll be writing into the assets for that fund, will they be more -- I guess for want of a better word -- conventional take and pay as opposed to take or pay and therefore not capitalised in your balance sheet for rating agency purposes?
  419.  
  420. --------------------------------------------------------------------------------
  421. Brett Redman, AGL Energy Limited - CFO [50]
  422. --------------------------------------------------------------------------------
  423.  
  424. The answer to the second question first -- we are steering towards not having rating agencies pull these on balance sheets. So the intent is that they'll represent the kind of hedges and that we probably -- not probably -- we are willing and are offering to other participants if they wanted to start up their own sites.
  425. So they are intended to be reasonably commercial. The equity that AGL commits if you like is articulated through the AUD200 million contribution, not through putting the extra balance sheet in via either a very long offtake or via differential pricing in the PPA. That should be a relatively market reflective, no problem with it being off balance sheet hedge contract.
  426.  
  427. --------------------------------------------------------------------------------
  428. Robert Coe, Morgan Stanley - Analyst [51]
  429. --------------------------------------------------------------------------------
  430.  
  431. Excellent. Okay, good to hear. Finally just on the Sunverge investment, a couple of quick questions. So that $20 million presumably cash investment, is that assisting the exit of some of the existing investors like Southern Cross or is it just kind of supporting them in their current cash (inaudible) phase?
  432.  
  433. --------------------------------------------------------------------------------
  434. Andrew Vesey, AGL Energy Limited - CEO and MD [52]
  435. --------------------------------------------------------------------------------
  436.  
  437. No it's -- $20 million was in their next funding round. So this was new capital into Sunverge. It wasn't taking anybody existing in out.
  438.  
  439. --------------------------------------------------------------------------------
  440. Robert Coe, Morgan Stanley - Analyst [53]
  441. --------------------------------------------------------------------------------
  442.  
  443. Okay that's great. Then just a question about the product ultimately. I guess AGL has been selling a small number of household batteries. As part of that arrangement with your customers is AGL retaining grid dispatch rates from those batteries such that in the longer run if you -- assuming everything goes well and you sell a million of these things -- you then have the ability to run a virtual power plant which the Sunverge technology enables?
  444.  
  445. --------------------------------------------------------------------------------
  446. Andrew Vesey, AGL Energy Limited - CEO and MD [54]
  447. --------------------------------------------------------------------------------
  448.  
  449. Well we're at such an embryonic state. I wish I could actually think my way through that million batteries. But I think where we are here is that -- a couple of trends that we know for sure -- that battery technology is probably the one technology that we're looking at which is going to have significant changes in its pricing.
  450. So we see that potentially the batteries and in Australia will become a bigger and bigger part of the investment of consumers. Whether that is directly in those batteries or whether that battery potentially enters a home on four wheels. The ability to control those batteries and bring them back to the grid, our view is this concept of the virtual power plant which we're very keen on.
  451. So the idea of making sure that we can actually enhance the return to a consumer who makes an investment in a rooftop solar or battery system is absolutely part of what we're thinking about here. Also the fact that how we traditionally, in our market and retail role, been looking at large scale generating plants we think we should be looking at the small ones as well. Not necessarily being the one who sells, owns and maintains but the one who orchestrates all those resources to the value of the grid and to our shareholders.
  452.  
  453. --------------------------------------------------------------------------------
  454. Robert Coe, Morgan Stanley - Analyst [55]
  455. --------------------------------------------------------------------------------
  456.  
  457. Great. Thank you very much Andrew; appreciate it.
  458.  
  459. --------------------------------------------------------------------------------
  460. Operator [56]
  461. --------------------------------------------------------------------------------
  462.  
  463. Baden Moore, CLSA.
  464.  
  465. --------------------------------------------------------------------------------
  466. Baden Moore, CLSA - Analyst [57]
  467. --------------------------------------------------------------------------------
  468.  
  469. Good morning guys. I had a question on the renewables fund. So it's flagging 1000 megawatts of new renewables for your investment I think of AUD200 million. Is that effectively taking you through to your required renewable investments to meet your 2020 targets or should we expect you to be making more investments over and above that AUD200 million?
  470.  
  471. --------------------------------------------------------------------------------
  472. Andrew Vesey, AGL Energy Limited - CEO and MD [58]
  473. --------------------------------------------------------------------------------
  474.  
  475. Yes, this is Andrew. Look, I think the fact of the matter, we're not making investment in renewables because of a target, we're making investments in renewables because we believe that the future -- our reference future scenarios, and one where carbon is going to be a hard thing to put into the atmosphere.
  476. So this is an issue of trying to find a way of making that transition. As we announced in our greenhouse gas policy, we have identified a date for the closure of all our conventional coal plants but we continue to believe that there are investment opportunities in renewables.
  477. For us, what this vehicle is is a way to get that started, a way to understand how large-scale renewables will enter into the market in a competitive way and how we can then deal with the other policy questions that will make this happen, and there's fundamentally three policy issues that we've been advocating. One is progressive early closure of older, inefficient coal plants, moving away from energy-only markets so we can make investments in those things which have to support intermittent resources, and price-reflective tariffs so that when we talk about distributed generation the right investments can be made.
  478. That said, this is a first step for us, and we will continue to invest and look for renewable projects, either in the front or outside, that make good business sense. So we're not limiting ourselves to that, but it was very challenging for us to be able to come out of the box, make a statement and really do something important. So this isn't about targets, this is about the future of our business and trying to find a way to make sure that we are anticipating what's coming and not winding up reactive.
  479.  
  480. --------------------------------------------------------------------------------
  481. Baden Moore, CLSA - Analyst [59]
  482. --------------------------------------------------------------------------------
  483.  
  484. Okay, understood. And I take your point on the strong PCP for your guidance and the middle-of-the-road approach to forecasting. I was wondering if you could make any comments on how you've seen the second half already progressing and whether there's -- whether you see it's in line with the middle of the road or whether you think we're already a little bit ahead.
  485.  
  486. --------------------------------------------------------------------------------
  487. Brett Redman, AGL Energy Limited - CFO [60]
  488. --------------------------------------------------------------------------------
  489.  
  490. I think having seen some results for January, they're consistent with what we've put into guidance. January is always a little bit of a funny month in that half of it everyone's on holidays, but we're comfortable, as we should be, in putting out guidance update today that that January result is well within the bounds of what we're steering towards.
  491.  
  492. --------------------------------------------------------------------------------
  493. Baden Moore, CLSA - Analyst [61]
  494. --------------------------------------------------------------------------------
  495.  
  496. Thanks, guys.
  497.  
  498. --------------------------------------------------------------------------------
  499. Operator [62]
  500. --------------------------------------------------------------------------------
  501.  
  502. David Fraser, Shaw and Partners.
  503.  
  504. --------------------------------------------------------------------------------
  505. David Fraser, Shaw and Partners - Analyst [63]
  506. --------------------------------------------------------------------------------
  507.  
  508. Morning, all. A couple of questions for Brett if I may and then one for Stephen. Brett, just a couple of technical ones. Your franking levels, has that constrained the size of your dividend in the first half? You only paid about AUD99 [million] or something cash, tax in the first half.
  509.  
  510. --------------------------------------------------------------------------------
  511. Brett Redman, AGL Energy Limited - CFO [64]
  512. --------------------------------------------------------------------------------
  513.  
  514. Yes, I think I wouldn't get too focused on one cent here, one cent there in terms of thinking about the franking. In a broad sense the franking for this year is largely in balance. So there's not a particular surplus, there's not a particular deficit, so we're more or less within the zone of what a fully-franked dividend in the franking balance will allow.
  515.  
  516. --------------------------------------------------------------------------------
  517. David Fraser, Shaw and Partners - Analyst [65]
  518. --------------------------------------------------------------------------------
  519.  
  520. Great. And second one, you mentioned when you were talking about selling the solar farms and to the fund that you would sell them at book or near book. Does that include the government contributions or just your contributions?
  521.  
  522. --------------------------------------------------------------------------------
  523. Brett Redman, AGL Energy Limited - CFO [66]
  524. --------------------------------------------------------------------------------
  525.  
  526. Yes, I'd think of it as net of the government contribution number. I'd emphasise we haven't really sat down yet and it'll be a function of the PPA and a function of -- now that we've built the things what's a sensible number.
  527. A little bit like with the Macarthur wind farm sale, we're not out to make large development profits in what we're doing but we haven't properly crunched the numbers just to make sure what's a fair value for those wind farms now that they're built and what's a fair number to the PPA offtake. But loosely analogous to book value which is net of government contribution.
  528.  
  529. --------------------------------------------------------------------------------
  530. David Fraser, Shaw and Partners - Analyst [67]
  531. --------------------------------------------------------------------------------
  532.  
  533. Great, thanks mate. And Stephen, obviously wholesale generation prices, particularly in South Australia, were up materially on last year, but just drilling down and being anal and downloading all the AEMO data (inaudible) putting it up. Actual volume in New South Wales first half on first half was only up about 0.5% but the revenue number was up about 20% plus.
  534. And likewise in Victoria, volume was only up around about 1% and same thing, actual revenue, total revenue for the NEM in Victoria was up over 20%. Could you just talk through I guess the curves and why we've moved up in pricing so much given volumes haven't changed that much? Merit order in particular?
  535.  
  536. --------------------------------------------------------------------------------
  537. Stephen Mikkelsen, AGL Energy Limited - Executive General Manager Energy Markets [68]
  538. --------------------------------------------------------------------------------
  539.  
  540. Yes. David, this is particularly first half you're looking at, yes? Not looking at the forward curve, just first half?
  541.  
  542. --------------------------------------------------------------------------------
  543. David Fraser, Shaw and Partners - Analyst [69]
  544. --------------------------------------------------------------------------------
  545.  
  546. First half 2016 on the first half 2015.
  547.  
  548. --------------------------------------------------------------------------------
  549. Stephen Mikkelsen, AGL Energy Limited - Executive General Manager Energy Markets [70]
  550. --------------------------------------------------------------------------------
  551.  
  552. Yes, and just want to double-check as well, so you're talking total volumes in the market, not just AGL's volumes in the market? Because clearly AGL's volumes in the market in New South Wales are up significantly because we had another two months of --
  553.  
  554. --------------------------------------------------------------------------------
  555. David Fraser, Shaw and Partners - Analyst [71]
  556. --------------------------------------------------------------------------------
  557.  
  558. Oh, yes. No, I understand that.
  559.  
  560. --------------------------------------------------------------------------------
  561. Stephen Mikkelsen, AGL Energy Limited - Executive General Manager Energy Markets [72]
  562. --------------------------------------------------------------------------------
  563.  
  564. Yes, so this is total volumes in the market. So I guess in the first half, in particular in New South Wales, there were a number of plants were out of production, particularly a couple of the units in the black coal plants were out, out for production.
  565. So in that sense demand wasn't particularly high but we had -- supply was lower than in prior periods, and so that's where your supply is not necessarily higher, and the prices are just a function of the competitive market. I don't think I'd look at a particular trend there one way or the other, but you've got --
  566.  
  567. --------------------------------------------------------------------------------
  568. Brett Redman, AGL Energy Limited - CFO [73]
  569. --------------------------------------------------------------------------------
  570.  
  571. The other thing I'd add, I'd have to check the facts because it's just on the spot, I can't remember all the detail, but broadly what was happening in the generation market, don't forget, is with the rise of gas prices there was that big flip in the Queensland Interconnect. And so suddenly what was happening is Queensland prices are spiking up instead of exporting down into New South Wales, it's going from New South Wales up into Queensland, and that's all dragging generation up from Victoria as well, which is still the cheapest on the east coast.
  572. And then at the same time the Basslink went down, which has meant the Victorian generators will be covering some gaps in what was being provided through the Basslink as well. So there'll be that going on in the background but I suspect there's a much more sophisticated answer that we could go away and think about.
  573.  
  574. --------------------------------------------------------------------------------
  575. David Fraser, Shaw and Partners - Analyst [74]
  576. --------------------------------------------------------------------------------
  577.  
  578. Great. Thanks, guys.
  579.  
  580. --------------------------------------------------------------------------------
  581. Andrew Vesey, AGL Energy Limited - CEO and MD [75]
  582. --------------------------------------------------------------------------------
  583.  
  584. I think one more question.
  585.  
  586. --------------------------------------------------------------------------------
  587. Operator [76]
  588. --------------------------------------------------------------------------------
  589.  
  590. Simon Chan, Merrill Lynch.
  591.  
  592. --------------------------------------------------------------------------------
  593. Simon Chan, Merrill Lynch - Analyst [77]
  594. --------------------------------------------------------------------------------
  595.  
  596. Cool, thanks, sounds like lucky last. Guys, just a quick one. In your slide you flagged that major maintenance CapEx reduction with no outages at Loy Yang A. I'm just wondering, can you give us some insights into how often are there planned major outages going forward at Loy Yang A, Bayswater and Liddell and the approximate costs when these events do occur?
  597.  
  598. --------------------------------------------------------------------------------
  599. Andrew Vesey, AGL Energy Limited - CEO and MD [78]
  600. --------------------------------------------------------------------------------
  601.  
  602. Sure, Simon. This is Andrew. Doug Jackson has been sitting here just waiting for a question, so Doug, you can have the last answer.
  603.  
  604. --------------------------------------------------------------------------------
  605. Doug Jackson, AGL - Executive General Manager Group Operations [79]
  606. --------------------------------------------------------------------------------
  607.  
  608. All right, thank you. Thanks, Simon. Look, I won't comment too much on a per-unit outage cost but it's consistent with our plans in our long-range five-year capital plan, so that's all consistent. In FY17 there's no Loy Yang major outage planned so we see a dip down in price or in cost for that year.
  609. But on a normal average basis we expect to do a major overhaul about every six years on the Loy Yang units with intermediate and minor outages in the intervening years. So one or two of every six years you won't have a major outage in the year, so 2017 happens to be one of those years.
  610.  
  611. --------------------------------------------------------------------------------
  612. Simon Chan, Merrill Lynch - Analyst [80]
  613. --------------------------------------------------------------------------------
  614.  
  615. Right, and can I assume one's going to cost what AUD30 million, AUD40 million? Let's just -- are we talking tens of millions or high tens of millions; what are we talking about?
  616.  
  617. --------------------------------------------------------------------------------
  618. Doug Jackson, AGL - Executive General Manager Group Operations [81]
  619. --------------------------------------------------------------------------------
  620.  
  621. It can vary significantly depending on the type of work you're doing but they are in the order of tens of millions, each of them.
  622.  
  623. --------------------------------------------------------------------------------
  624. Simon Chan, Merrill Lynch - Analyst [82]
  625. --------------------------------------------------------------------------------
  626.  
  627. Yes. Can you just touch on Mac Gen, is that a similar program you've got?
  628.  
  629. --------------------------------------------------------------------------------
  630. Doug Jackson, AGL - Executive General Manager Group Operations [83]
  631. --------------------------------------------------------------------------------
  632.  
  633. Yes, again, different coal technologies drive different outage frequencies. So Macquarie, Bayswater looks at an annual outage, a major outage about every four years, so a slightly different rhythm there so you'll see more consistency of the capital profile there and they're entering into their refits or life extension work here in the next five-year period, so you see a rise in costs which are in our five-year plan there.
  634.  
  635. --------------------------------------------------------------------------------
  636. Simon Chan, Merrill Lynch - Analyst [84]
  637. --------------------------------------------------------------------------------
  638.  
  639. Okay, cool. Thanks, Doug.
  640.  
  641. --------------------------------------------------------------------------------
  642. Andrew Vesey, AGL Energy Limited - CEO and MD [85]
  643. --------------------------------------------------------------------------------
  644.  
  645. Thank you. What I'd like to do now is first of all thank all of you for joining us today, and just in reflection want to say a few things. One is that regardless of what happens in the market, our ability to take advantage of that is based on execution.
  646. And I have to say that the execution of the AGL organisation has been very strong. It will continue to be strong no matter what comes at us; we're building in the disciplines. So that's the unwritten story here, it's about execution, it's something that we really have our eye on.
  647. I think the other two things I just want to highlight, I'm very excited about this Sunverge investment, not so much on the investment itself but the capabilities that it will allow us to deploy as we really engage the customer and make the customer and customer choices part of the overall energy future. Very exciting.
  648. And lastly, we had a lot of questions around it and we're equally excited and can't wait to get moving on it, is this -- the Powering Australia Renewal Fund. I will also say that if anybody has a better name than the PARF I am willing to hear it but I may not change it at this point.
  649. So we are so happy to talk about it and look forward to a lot of activity and we'll look forward to getting back together with all of you. So thank you so much.
  650.  
  651.  
  652.  
  653.  
  654.  
  655.  
  656.  
  657. --------------------------------------------------------------------------------
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