Better Regulation Expenditure Forecast Assessment Guideline 12 February 2013.
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Transcript of Better Regulation Expenditure Forecast Assessment Guideline 12 February 2013.
Agenda13:15 Introductions
13:30 Discussion of overall program and AER’s objectives
14:00 Recap of issues paper and opportunity for stakeholder feedback
14:45 Break
15:00 Proposed forward work program
16:00 Future meeting logistics
16:15 Any other business
2
Work program and AER Objectives• Guidelines
– general techniques and information requirements• Annual reporting
– monitoring of NSP efficiency– transparency of NSP performance vs expenditure– early identification of issues for network
determinations• Network determinations
– refine and use techniques to set allowances4
Work program
Framework and Approach
RINs/RIOs
Benchmarking reports Regulatory determinations
Expenditure assessment guideline
Expenditure assessment approach
RINs/RIOs
5
Working group meetings• Frank and ‘off the record’ discussion – detailed
minutes will not be taken, just key outcomes• Material considered by working group will be
published• Not here to make decisions but consensus may
be possible• Pending availability and importance of topic,
may be chaired by AER board member otherwise senior AER staff
• In addition to, and informed by, written submissions once received
6
AER Experience• Current practice
– Revealed cost methodology (incentive tools of economic regulation, taking historic costs as the base)
– Bottom-up engineering review• Limited use of benchmarking
– Limitations– Response to incentives?– Technical appraisal and information asymmetry– Data integrity
7
AER’s objectives• Improve our approach to expenditure
assessments under revised NER• Move from detailed, bottom up approach to
overall reasonableness assessments• Greater focus on benchmarking• Open and transparent approach to regulation• Recognition of data limitations and forecasting
error• Implementation costs have to be ‘worth it’8
This is the first step in a process
• Benchmarking is a big step• Continual refinement as better data become
available• Gradual shift from current techniques• Flexibility provided in framework and approach• Guidelines subject to future revisions
9
Recap of issues paperPurpose• Objective – new benchmarking techniques• Principles for how to select techniques• Consultation approach (to be discussed next)• Request feedback
11
• Assessing efficiency as well as future circumstances (forecasting)
• Identification of assessment techniques– Those that have worked well– Others that are new or we wish to improve
• Potential for “first pass” model and more targeted assessments
• Relationship with incentive arrangements
General considerations
12
Two detailed work streams
• Economic benchmarking – employs economic theory on the behaviour of
firms to estimate relative efficiency and how this changes over time (TFP, DEA & SFA)
• Category analysis– approach to the assessment of expenditure
categories
13
Economic benchmarking
• Holistic approach• Focus on data requirements
– Outputs: what are they?– Inputs: how should they be measured?– Environmental factors: what else should be taken
into account?
14
Category analysis• Categories matching factors that influence or explain
costs – “driver” based approach• Focus on benchmarking and trend analysis
– eg cost per connection, per km of line• Largely a continuation of existing reporting categories
– New national definitions will require some change– Questions about level of detail required
• Recognition of differences between NSPs– Are these quantifiable and supported by evidence?– How/ when should they be accounted for?
15
Implementation issues• Transition from existing reporting templates• Annual reporting concurrently with
determinations• Different reporting years (calendar and
financial years)• Different cost allocation methods• stakeholder engagement (guideline)• NSP forecasting methodologies
16
Forward work program• Timing of workshops
– How to deal with dependencies– Treatment of gas, distribution and transmission
• Workshop plan for economic benchmarking– Are the three phases appropriate? Are the
individual workshop topics appropriate?• Forward work program for category analysis
– Are the four phases appropriate? Are the individual workshop topics appropriate?
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Category analysis meetingsdate topic
26 Feb Category selection
7 Mar Repex, augmentation
19 Mar Connections and customer driven
26 Mar opex
11 Apr overheads
23 Apr Use of actual data, base step trend, productivity change
7 May Cost allocation, accounting issues
16 May Repex, augex and demand forecasting
28 May RIN/RIO issues, first pass assessment, links with other guidelines,reconciliation of assessment methods
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Economic benchmarking meetings
date topic
12 Mar Network outputs Dx
14 Mar Network Outputs Tx
19 Mar Network inputs
30 Apr Output measurement & environmental factors Dx
2 May Output measurement & environmental factors Tx
7 May Network input measurement
23 May Prescription in the guidelines
28 May RIN/RIO issues, first pass assessment, links with other guidelines,reconciliation of assessment methods
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