Agl Energy Limited · ASX:AGL
Agl Energy — Investor Presentation (October 2004)
23 slides from Agl Energy's investor presentation, Oct 22, 2004
Slide 1: ES&M
ES&M Bob Grant, GM Finance ES&M
Slide 2: Wholesale Energy Risk Management
Wholesale Energy Risk Management 2
Slide 3: Key Messages
KEY MESSAGES AGL’s Risk Management System is: • appropriate for the business • industry best practice • integrated into the business – strong risk culture – strong governance structure 3
Slide 4: Introduction: Inherent business risk
INTRODUCTION Inherent business risk Regulatory and Risk Management Good & prudent legal requirements System corp governance 4
Slide 5: Wholesale Electricity Market
WHOLESALE ELECTRICITY MARKET NSW SA Vic GENERATION/ TRANSMISSION DISTRIBUTION RETAIL SERVICES WHOLESALE Market characterised by: • Retailers purchase “physical” from the NEM • Risk managed through financial derivatives and/or generation ownership • Regional pricing, limited physical inter-connection
Slide 6: Wholesale Gas Market
WHOLESALE GAS MARKET NSW SA Vic Market characterised by: • Primarily physical • Long term gas supply and haulage agreements • Lower relevance of spot prices • Commodity can be stored • Customer load flex has little impact on the system • Risk profile: physical supply/haulage failure --> impacts sale
Slide 7: Energy Risk Management System
ENERGY RISK MANAGEMENT SYSTEM AGL Board of Directors Risk Management Policy Risk Management Committee Risk Management Framework Middle Office Compliance Reporting 7
Slide 8: Independent Reviews
INDEPENDENT REVIEWS • Most recent review Q2 2004 • Findings: – on a par with leading energy companies – best practice standard of documentation – sound risk culture – conservative • All recommendations addressed 8
Slide 9: Energy Risk Management Policy
ENERGY RISK MANAGEMENT POLICY Organisational • Organisational purpose • Establishment of RMC • Delegations from Board • Segregation of Duties • Roles and Relationships Conceptual Risk Limits Methodologies Culture Compliance Risk Reporting Measurement 5 Risk Types • Credit • Legal / Contract • Market
Slide 10: Organisational Purpose
ORGANISATIONAL PURPOSE W’sale Energy hedges retail load Î Not spec. trading W’sale Energy supports Sales & Mktg Î Not Profit Centre Low number of transactions High transparency of activity All transactions easily understood by Middle Office Effective risk management structure and culture 10
Slide 11: Segregation of Duties
SEGREGATION OF DUTIES Risk Management Committee (RMC) RMC Core: 3 Corporate executives 4 ES&M executives 11
Slide 12: Segregation of Duties
SEGREGATION OF DUTIES Risk Management Committee (RMC) RMC Core: 3 corporate executives 4 ES&M executives RMC Chair Group General Manager ES&M GM Finance GM Wholesale Energy ES&M Risk Settlements Gas Electricity Business Business (Middle Office) (Back Office) (Front Office) 12
Slide 13: Authority Delegations
AUTHORITY DELEGATIONS AGL Board / Risk Management Committee Trading Risk Settlements • Commodities • ISDA Master Contracts • Physical Purchases • Instruments • Contract Confirmations • Derivatives • Counterparty Credit Limits • Trading Mandates • Transactions,Quantities & Maturities (Front Office) (
Slide 14: Authority Delegations
AUTHORITY DELEGATIONS AGL Board / Risk Management Committee Trading Risk Settlements • Commodities • ISDA Master Contracts • Physical Purchases • Instruments • Contract Confirmations • Derivatives • Counterparty Credit Limits • Trading Mandates • Transactions,Quantities & Maturities (Front Office) (
Slide 15: Authority Delegations
AUTHORITY DELEGATIONS AGL Board / Risk Management Committee Trading Risk Settlements • Commodities • ISDA Master Contracts • Physical Purchases • Instruments • Contract Confirmations • Derivatives • Counterparty Credit Limits • Trading Mandates • Transactions,Quantities & Maturities (Front Office) (
Slide 16: Risk Types Managed
RISK TYPES MANAGED Risk Type Managed Under the Set Risk Policy / Framework Limits • Market (Price & volume) (Electricity) • Credit (Electricity) • Legal / Contract • Operational Profit at Risk • Regulatory Board Reporting 16
Slide 17: Profit at Risk
PROFIT AT RISK ? PaR is a measure of the future EBIT (compared to a base case) that AGL could lose due to adverse electricity market movements and credit defaults. PaR = Electricity Market PaR + Electricity Credit PaR PaR limit set by AGL Board in support of corporate strategy of reserving agreed %
Slide 18: Electricity Market PaR
1. ELECTRICITY MARKET PaR … measures risk from over/under hedged positions +/- demand +/- price MW Typical daily demand profile & hedge portfolio 1 3 5 7 9 11 13 15 17 19 21 23 Time (hours) Swaps Collars Caps AGL Generation Demand Triggered Swaps Demand triggered Caps Ave Demand Day High Demand Day
Slide 19: Electricity Credit PaR
2. ELECTRICITY CREDIT PaR … measures risk from hedge counterparties exposure (MtM + Buffer) x credit worthiness EXPOSURE VS LIMIT Co unterparty A 45 Co unterparty B 28 Co unterparty C 20 Co unterparty D 6 Co unterparty E 3 Co unterparty F 2 Co unterparty G 1 Co unterparty H 0 Co unterparty I 0 Co un
Slide 20: Management of Market Risk - Gas
MANAGEMENT OF MARKET RISK - GAS • Majority of market risk managed within gas supply agreements: – Diversity of supply and haulage – Annual volumetric flexibility – Daily volumetric flexibility up to a maximum demand – Market price resets • Residual risk managed by: – Underground storage capacity – L
Slide 21: IFRS Around the Corner
IFRS AROUND THE CORNER • AGL must implement IAS39 standard by July 2005: – IAS39 requires derivatives to be represented on balance sheet even if they are used exclusively for hedging purposes – Has the potential to create P&L volatility • AGL is working with other industry participants to achieve an
Slide 22: In Conclusion
IN CONCLUSION We believe the Wholesale Energy Risk Mgmt system is: Appropriate for our business Industry best practice Integrated into the business via: - a strong risk culture - a strong governance structure 22
Slide 23: ES&M
ES&M Bob Grant, GM Finance ES&M