AER: Consulting on changes to the Roll Forward Model

Access Arrangements & Price Determinations

Sep 10
AER: Consulting on changes to the Roll Forward Model

On 31 August, the Australian Energy Regulator (AER), released an issues paper outlining proposed amendments to the Roll Forward Model (RFM).  These amendments enable:

  • rolling forward the capital base to take account of any capital expenditure sharing scheme as recommended in the AER’s updated Capital Expenditure Incentive Guideline;
  • implementation of a policy change with consequential impacts on the way remaining asset lives are calculated in the RFM.  The proposed amendments to the RFM implement the AER’s preferred approach to calculating remaining asset lives, known as weighted average remaining lives;
  • the proposed amendments to reflect the AER’s Rate of Return Guideline, which allows for an annual update of the return on debt; and
  • a review of the treatment of inflation in the capital base roll forward calculation.

Interested parties have until 13 October 2016 to make submissions on the issues paper.

Background

As part of access arrangements and regulatory determinations, the AER makes a building block determination for each distribution network service provider that sets out its annual revenue requirement for each regulatory year. This determination is made using the Post Tax Revenue Model (PTRM).  The regulatory asset base (RAB) is a key determinant of revenue under the building block approach and a key input into the PTRM.  The RAB is rolled forward from one regulatory year to the next on a forecast indicative basis to take into account additions for actual capex net of customer contributions, reductions for the disposal value of assets, reductions for depreciation and indexation for actual inflation.