Review of  Operations 24 Key Challenges Retail Energy Financial Performance Main Achievements in 2011 Objectives for 2012 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. 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. 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. 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. 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. 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. 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. 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. 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  We will continue our plans to increase the number of electricity  customers in New South Wales, while maintaining our customer  bases in other States.