## Retail Energy 

AGL retails natural gas, electricity and energy-related products and services to 3.3 million customer accounts across New South Wales, Victoria, South Australia and Queensland. Retail Energy sources its energy from AGL’s Merchant Energy business. 

## Financial Performance 

Retail Energy’s Operating EBIT of $373.0 million was up 17% on last year due mainly to improved margins from our mass market customer base. The increased margins were a result of improved regulatory and contract pricing outcomes, and an increase in customer numbers. 

Business operating costs increased by only approximately 3% reflecting the continuing improvements in operating efficiency that have followed since completing work on the SAP billing system in late 2009. Our operating cost to gross margin ratio is now down to 46.5%, compared with 49.5% last year. 

## Main Achievements in 2011 

In the second half of the year, AGL initiated its strategy to drive organic growth in the electricity customer base in New South Wales. This is a three year plan to grow the customer base to between 800,000 and 900,000. Early results have been very encouraging with approximately 96,000 new electricity customer acquisitions in New South Wales in the second half of the year. The number of dual fuel customers – who are customers for both gas and electricity supply – also increased. Dual fuel customer accounts now total 1.47 million, an increase of more than 100,000 on last year. 

In May, AGL launched an online service that is similar to internet banking, putting more control into customers’ hands when it comes to managing their energy accounts. AGL Energy Online allows residential and small business customers to quickly and easily set up and manage an energy account, including access to online bill payment, account history, and organising electricity and gas disconnections and reconnections when moving between premises. Importantly, this service has allowed us to move toward paperless billing, something many of our customers have requested. 

Customer service levels continued to improve during the year. This was the first year we have measured how we have performed against the targets in the new Customer Charter we introduced last year. We have met or exceeded the service level targets we set for nearly all customer promises. 

AGL’s sponsorship of the AGL Action Rescue Helicopter has continued for the second year, enabling the service to undertake more than 1,000 flights, an average of about 2.7 a day, including 

providing valuable support in south-east Queensland during the 2011 floods. AGL customers in Queensland can donate to the service by having contributions added to their AGL electricity bills, which will help this valuable community resource continue to undertake vital medical assist and search and rescue missions. 

## Key Challenges 

Australia’s retail energy markets are amongst the most competitive in the world. High rates of customer churn are a feature of the gas and electricity markets in eastern and southern Australia, although AGL’s customer churn rates remain well below the industry average. While we have successfully increased our electricity customer base in New South Wales, we have also experienced small losses – totalling approximately 35,000 customer accounts – in Victorian, South Australian and Queensland electricity markets. Late in the year we increased our level of customer acquisition and retention activity in Victoria, South Australia, and Queensland, to counter further competitor efforts to acquire AGL customers. 

During the year, we also saw a decrease of almost 5% in the volume of electricity consumed by our customers. This was partly due to generally mild average temperatures through much of the year. However, the fall in consumption also reflects customer responses to higher electricity charges, with an increasing number of customers focusing on energy efficiency measures to reduce costs. AGL has developed programs to work with our customers, particularly those under financial pressure, to assist improve levels of energy efficiency. This helps our customers, and it also helps drive customer loyalty and minimises the amount of bad debts. 

Higher energy bills for our customers have also resulted in higher volumes of calls to our customer service centres, with many customers seeking assurances about the accuracy of their bills or seeking additional time in which to make payment. Unfortunately, higher call volumes have increased average call response times resulting in some customers experiencing poor levels of service. We have now increased employee numbers at our customer service centres. We have also undertaken work to streamline a number of aspects of our customer handling processes so that we can provide a faster and more efficient response to our customers. 

## Objectives for 2012 

Continuing to improve customer service levels is a priority. Continued promotion of AGL Energy Online will enable more customers to use self-service for routine matters such as viewing account history, and arranging disconnections and reconnections when moving between premises. This will free up resources at our customer service centres. 

We have also commenced a program of ‘After call’ surveys to measure our performance when dealing with customer queries and to investigate areas where improvements can be made. These surveys allow us to hear directly from our customers how satisfied they are with our service directly after their interaction with us. 

A continued focus on providing our customers with energy efficiency advice and solutions will become an increasingly important element of our customer service. This will include expert advice on, and installation of, solar panels. We anticipate that, within a few years, technological developments in solar technology and lower production costs will make solar energy an attractive option for many Australians. We have recently acquired a business which has expertise in solar panel installations, so we will be working toward making solar energy a more accessible alternative for our customers. 

We will continue our plans to increase the number of electricity customers in New South Wales, while maintaining our customer bases in other States. 

