Dr Peter Davis: Rise of a gentailer

Aurora Energy CEO, Dr Peter Davis talks to Energy Source & Distribution about developing smart customers through communication, innovation and safety.

The inception of Tasmania’s first generation-retailer, or ‘gentailer’, last year proved costly. Aurora Energy recorded a $20 million financial loss for the 2009/2010 year, the first in its 12 years of operation. The commissioning of a new gas-fired power station meant the distributor had to learn how to navigate the Tasmanian electricity market for the first time in the face of increased generation and retail competition. Six storms lashed the state throughout the year, strong enough to cause disruption but below the level for a major event day, adding to the loss. Despite these challenges, Aurora Energy CEO, Dr Peter Davis has high expectations for the year to come. With 10 per cent of the state’s generation, a new award-winning safety device in every Tasmanian household and NBN Co’s fibre-to-the-home roll-outs well on the way, Aurora Energy’s goal is to lead the nation in communication, efficiency and safety.

Aurora Energy was first formed in 1998 when the vertically integrated Hydro Electric Commission was split into three companies. Last year’s commissioning of Tasmania’s first major competitive power station, the gas-fired baseload 203 MW combined cycle and 180 MW open cycle backup Tamar Valley power station, is part of a wider trend for distributors to hedge their risk and return to vertical-integration, Dr Davis explains.

“I think what you’ve seen nationally is a move to manage retail and generation risk through the merger of generators and retailers. We’ve basically become a gentailer… but we are long in retail and short in generation. So we obviously use a lot of hedges from Hydro Tasmania to cover the balance of the load,” Dr Davis told Energy Source & Distribution.

“The Tamar Valley power station (was) constructed on time and $25 million under budget. It’s now fulfilling an important role in the Tasmanian market in terms of providing drought support and backing our retail load.”

Having led the vertically integrated distributor retailer since 2004, Dr Davis has watched Aurora’s network businesses, generating capacity and telecommunication capabilities expand significantly. For Dr Davis, the 2009/2010 loss is a temporary setback as it moves towards its end goal.

“There’s been quite a lot of press over the year about the Tasmanian market and how it has all performed. Some of what we found was that we did make some losses, while we were short in the market and spot prices went very high, but we have now established our hedge position with Hydro Tasmania and we’re confident that Tamar Valley will make an important contribution going forward,” Dr Davis said.

Aurora Energy’s 200,000 poles cover Tasmania’s entire low-voltage network, enough line to connect Hobart to London. Its retail arm sells gas and electrcitiy in Tasmania and electricity interstate. Tasmania has the lowest carbon intensity of any state due to its hydro and wind, but growth opportunities for hydro are limited mainly due to environment constraints. According to Dr Davis, Aurora is an unusual company due to the integrated nature of the group.

“We still have a retail business and a distribution business in the one company and I think that some distributors have gone a bit far away from their customers. Now, as we talk about involving the customers in smart grids and demand-side management and so on, Aurora is in quite a unique position in that we’ve got good access to customers with our retail business, we’ve got clever engineers in our network business and we’ve got clever engineers in our telecommunication business working with NBN CO. So you sort of put those things together and a bit of a desire for innovation and then you’ve got a very strong opportunity to do new things,” he said.

Aurora Energy’s board has been supportive of driving the company’s innovation through business startups and using its engineers knowledge to take advantage of business opportunities. Aurora Energy earned recent award recognition with Cable PI, known as WireAlert outside Tasmania, an early warning-monitoring device for households.

“It alerts you to problems of equipment assets on the network before they fail, so you’re getting early warning. It’s detecting lethal fault conditions, electrical fire hazards, dangerous safety issues, low voltage, a whole range of things. And it does it continuously. So we believe that it’s a significant breakthrough for asset management and safety and therefore we’ve rolled it out to all Tasmanian customers,” Dr Davis said.

“Things like the WireAlert device came from that (technology innovation). We invested in the research and that took off. And in the case of telecommunications, we’ve done a couple of trials in trying to improve our own network and communications, but realising we could actually put customers onto the network as well.”

The company rolled out Australia’s first fibre-to the-home network and is testing broadband over powerlines as well as optical fibre interactions. These experiments resulted in Aurora’s appointment as the state government’s strategic partner to commercialise the state-owned backbone fibre. The TasGovNet line was connected via Basslink to the mainland, paving the way for Aurora Energy to act as an agent for NBN Co to roll-out fibre-to-the-premises for all Tasmanian households.

While many states have rolled out smart meters and are awaiting the national broadband network or other communication methods to manage data, Tasmania has taken a different approach.

“I think there’s a lot of hype around (the) smart grid, but what we intend to do is to really demonstrate here, using the NBN, what can be achieved in bringing customers into the picture and I think you’re going to see a lot more demand-side management as an alternative for augmenting network infrastructure, both relieving network constraints and deferring significant investment in the network,” Dr Davis said.

Aurora Energy is currently in the design phase for a smart grid trial to implement smart meters and communications into a NBN-connected town. This will give them the opportunity to test a number of technologies and they expect to be rolling their first ‘smart town’ out in the next 12 months.

“There’s been a lot of smart meters rolled out, but without communications and a plan with what you’re going to do with it, you’re not taking advantage of your capabilities. We’ve got a new general manager network, Andre Botha, who recently joined the business and his focus is very much on smart grids and engaging the customers in the solution. We actually talk more about ‘smart customers’,” Mr Davis said.

Aurora Energy is making use of Mr Botha’s input to put the customer at the centre of decision-making and minimise price rises as public concern increases. More than half way through its current pricing determination, Aurora Energy will remain focused on its customers for the 2012-2017 period submission, which will be lodged with the Australian Energy Regulator in May. In December 2010 Aurora restructured its distribution arm to emphasise technical capabilities and improve operations to reduce operating and capital expenditure.

“I think customers feel really tired of electricity prices going up and they are concerned in Tasmania they’ve gone up and up and they don’t understand why. The main reason they’ve gone up has been investment in the infrastructure. The last pricing determination allowed Aurora to spend $588 million on improving the performance of the network and then of course you’ve also had the Tamar Valley power station constructed, which is $360 million, and that’s provided security and drought relief. And customers have said, ‘Wait a minute, our power bills have gone up!’. So there’s been a number of misconceptions around that but certainly our objective is to minimise further price rises to customers,” Dr Davis said.

“I think the regulators will look closely at the size of both capital and operating bids and I think they will be looking for evidence that utilites are taking advantage of the so-called smart grid environment to basically minimise unnecessary investment and really work the assets harder,” he said.

“So that’s certainly the line we’ll be taking. Clearly the regulatory process is very important in terms of setting the business up for the future. But I think we are well placed because we’ve got new expertise in the company and also we’ve got involvement with the NBN.”

With a doctorate in renewable energy from the University of Queensland, involvement in the construction of the first wind farms in Tasmania and as chair of the Energy Supply Association’s greenhouse policy committee, maintaining a community-focused approach to business is a priority for the Tasmanian-born CEO.

“Our purpose is to see the Tasmanian community prosper from our efforts. It’s a smaller community here and we’re a large player in the community, so that’s certainly a big driver for our staff and to me, that you really can make a difference. By producing improved reliability and a better quality of service, plus providing career development opportunities for people by getting involved in new technology, its very exciting,” Dr Davis said.


Safety innovation

The first 12 months of Aurora Energy’s Cable PI, also known as WireAlert, exceeded expectations by identifying a raft of faults and changing conditions on the Tasmanian network. Looking interstate, the Australian Energy Regulator recently approved a trial in Victoria and indicated that the device can be part of the regulated asset base.

“Aurora chose to invest (in Cable PI) because we thought it was important for safety and we asked the regulator afterward if they thought it was a prudent investment. The Victorian decision means that the AER have indicated this is a sensible way of looking out for safety, in particular broken neutrals on the network. This means that if other distributors follow our lead, they may be elgible for a regulated and guaranteed return on the investment that they make on these devices,” Dr Davis said.

Dr Davis said that Aurora Energy has demonstrated through 250,000 customers that the device works and the AER now agrees it is a cost-effective and sensible way of measuring safety and therefore the distributors should be entitled to get a return through the tariffs for this investment.

“So we would rather distributors follow our lead, because if there were to be a fatality anywhere in the country as a result of a broken neutral, I’m not quite sure what you would say to the coroner given that the device is now available and could potentially avoid that circumstance,” he said.

“What’s frustrating is that we’re not seeing this technology used widely in the rest of Australia. What we have is about nine distributors out of 13 are now conducting trials. We obviously would like to see WireAlert rolled out fully to distributors networks because this technology keeps customers safe. And it also enables the asset managers to get more information on how their networks actually working, so it’s certainly a great development.”