Eastern States Price Determinations – Electricity Distributors

Access Arrangements & Price Determinations

Feb 22
Eastern States Price Determinations – Electricity Distributors

On 6 January, the Victorian electricity distribution network service providers submitted their revised regulatory proposals for the 2016-2020 regulatory period.  This follows the Australian Energy Regulator (AER) publishing its draft determinations for electricity distributors in late October 2015.  Key elements from the revised proposals from each service provider are compared to the draft determination information below.

The AER is anticipating publishing final determinations for electricity distribution service providers by the end of April 2016.

Jemena

In its revised proposal, Jemena is forecasting:

  • Cost of capital of 8.62% in the first regulatory year against the draft determination figure of 6.02%, to reflect its view of an increase in the risk free rate;
  • Capital expenditure costs of $863m, which recognise forecast network growth and the replacement of it oldest ‘failure-prone’ assets and those assets exposed to higher bushfire risk.  This compares to $773.55m in the draft decision;
  • Operating expenditure costs of $470.89m against the draft determination figure of $390.07m, reflecting increases in metering costs, complying with new obligations under the ‘Power of Choice’ programme and complying with new regulatory reporting requirements; and
  • these changes contribute to a (total) annual revenue requirement (ARR) of $1429.85m against $1082.34 in the draft determination.

United Energy

In its revised proposal, United Energy is proposing:

  • Cost of capital of 8.7% against a draft determination rate of 6.12%, reflecting adoption of a trailing average approach to calculating the return on debt, adjusting for bias in the SL CAPM model and utilising a gamma of 0.25;
  • Capital expenditure costs of $1053m, against a draft determination figure of $814.8m, reflecting an increase in gross customer connections, updating forecast capital project expenditure to reflect 2015 actual expenditure data and a re-forecast of replacement capital expenditure;
  • Operating expenditure forecast of $781.4m against a draft determination of $653.9m, this reflects United Energy not accepting the AER’s draft decision on the step changed in operating expenditure relating to Power of Choice programmes, RIN reporting, 2015 Electricity Line Clearance Regulations, Council trees, stakeholder engagement; neutral testing; network planning and analytics; and IT security costs and the inclusion of new step change costs for new pricing obligations and the National Energy Customer Framework (NECF), which are driven by new regulatory obligations; and
  • these changes contribute to a revised ARR of $2517.1m nominal against a draft decision value of $1832.3m.

SPAusNet

In its revised proposal, SPAusNet is proposing:

  • Cost of capital of 8.66% against a draft determination rate of 6.10%;  SPAusNet also proposes an immediate transition to a trailing average approach for the cost of debt;
  • Capital expenditure of $1749.3m against a draft determination value of $1471.1m, the revised proposal mostly relates to updated forecasts of customer connections, Power of Choice rule changes and labour forecasts;
  • Operating expenditure of $1269.6m against a draft determination of $1104.3m, whilst SPAusNet accepts (with minor exceptions) the AER’s base year opex, the methodology for determining the rate of change but not the real price change and maximum demand forecast inputs, the approach to forecasting demand management opex and GSL costs.  However APAUsNet does not accept the AER’s approach to forecasting self-insurance costs or the AER’s treatment of forecast advanced metering costs; and
  • these changes contribute to an ARR of $3812.4m against a draft determination value of $2887.5m.

Powercor

In its revised proposal, Powercor proposes:

  • Cost of capital of 8.61% against a draft determination rate of 6.02% (awaiting updates on actual equity and 2015 debt averaging periods);
  • Capital expenditure of $2165m against a draft determination value of $1979m to reflect updated customer connection forecasts and the company’s obligations arising from the Victorian Bushfires Royal Commission
  • Operating expenditure of $1252.3m against a draft determination of $1155.1m; and
  • these changes contribute to an ARR of $3302.8, against a draft determination value of $3098m.