Webinar Slides: Revenue Recognition for the Technology Industry
Webinar - December Revenue Proposal Update
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Transcript of Webinar - December Revenue Proposal Update
Welcome
TransGrid December Engagement Workshop December 2014 2 /
In the interest of time, we’ll ask you for questions as we move
through the slides. Please just type them into the poll window that
will pop up.
At the end Andrew and Stephen will answer those that we can and
we can discuss.
3 | TransGrid December Webinar December 2014
Outline
Background
Our approach
Draft determination on Capital expenditure
Draft determination on Operating expenditure
Rate of return
Pricing methodology
Your questions answered and discussion
4 | TransGrid December Webinar December 2014
Revenue determination process
31 Jan 2014
Placeholder
revenue
proposal for
2014-15
2 Jun 2014
Full revenue
proposal for
2014-19
2014 2015
31 Mar 2014
Placeholder
revenue
determination
for 2014-15
27 Nov 2015
Draft revenue
determination
for 2014-19
30 Apr 2015
Final revenue
determination
for 2014-19
31 Jan 2014
Framework &
approach
paper to
guide content
of the
proposal
Australian
Energy
Regulator
TransGrid
13 Jan 2015
Revised
revenue
proposal for
2014-18
5 | TransGrid December Webinar December 2014
Revenue determination approach
Regulatory Asset
Base ($m)
Annual Allowed
Revenue ($m)
Proposed capital
investment
Capital invested
historically
Tax & depreciation
Operating expense
Return on proposed
capital investment
Return on capital
invested historically
7 | TransGrid December Webinar December 2014
Capital expenditure
Replacement 925
Augmentation 72
Security/Compliance 129
Other 261
TransGrid proposed
$1,387 m
Replacement 648
Augmentation 72
Security/Compliance 46
Other 156
AER substituted
$922 m
8 | TransGrid December Webinar December 2014
> Trend analysis
> Engineering/technical assessment
> Governance and risk management review
Replacement expenditure
Risk levels addressed by expenditure in 2009-2014
Risk levels proposed to be addressed in 2014-2019
Draft decision sufficient to only address risks greater than this level
Approach to review
11 | TransGrid December Engagement Workshop December 2014
Draft decision
Base
Step
Trend
• Accepted 2012/13 opex as efficient base year
• Consistent with business responding to incentives to minimise opex
• AER guideline obligations
• System operations
• Crown lands radio site rental
• Consumer engagement
• Demand management innovation
• Easement maintenance catch up
• Derived from TFP output, growth and productivity trends
• External labour forecasts
12 | TransGrid December Engagement Workshop December 2014
TransGrid’s operating expenditure
Post 2013
While TransGrid understands the impact of it’s decisions on
consumer bills, it believes safety and reliability are major priorities.
Primary areas of
concern
Cost to TransGrid
over regulatory period
Average cost per
annum for a typical
end user
Major maintenance
projects
$27 million ~$1.32
Vegetation
management
$12 million ~59c
Demand management
innovation
$10 million ~49c
The AER has found “no evidence that TransGrid’s base Opex is materially
inefficient”
13 | TransGrid December Webinar December 2014
Rate of return
WACC 8.83% WACC 7.24%
Cost of Debt 7.72%
Based on 10 year historic trailing average
with no transition
Cost of debt 6.67%
Based on ‘on the day’ with transition to trailing average over 10 years
Cost of Equity 10.5%
Based on a review of all relevant information and assessing a reasonable
point estimate
Cost of Equity 8.1%
Based on SL CAPM using the foundation
model approach
TransGrid AER
14 | TransGrid December Webinar December 2014
Pricing methodology update
Customers and other stakeholders told us they wanted:
> more cost reflective pricing
> a reduction in the postage stamp proportion of transmission use of
system costs.
15 | TransGrid December Webinar December 2014
Pricing methodology update
TransGrid proposed: > changing calculation method of excess demand charge
> switching to a 20 day peak period cost allocation for locational TUoS
services
> introducing MVA pricing
> being able to amend aspects of approved Methodology during the
regulatory period
> basing prices on maximum demand and applying a side constraint of
CPI+3 per cent for non-locational TUoS and common transmission
services
> being able to negotiate a fixed price with customers
16 | TransGrid December Webinar December 2014
Pricing methodology update
AER determined: > changing calculation method of excess demand charge - Approved
> switching to a 20 day peak period cost allocation for locational TUoS
services – Further consultation needed
> introducing MVA pricing - Further consultation needed
> being able to amend aspects of approved Methodology during the
regulatory period – Not accepted
> basing prices on maximum demand and applying a side constraint of
CPI+3 per cent for non-locational TUoS and common transmission
services - Not accepted
> being able to negotiate a fixed price with customers - Not accepted
17 | TransGrid December Webinar December 2014
Pricing methodology update
TransGrid’s revised Methodology: > changing calculation method of excess demand charge - Acknowledged
> switching to a 20 day peak period cost allocation for locational TUoS
services – Withdrawn
> introducing MVA pricing - Withdrawn
> being able to amend aspects of approved Methodology during the
regulatory period – Withdrawn
> basing prices on maximum demand and applying a side constraint of
CPI+3 per cent for non-locational TUoS and common transmission
services - Withdrawn
> being able to negotiate a fixed price with customers – Withdrawn
> Implementing cost reflective network pricing – New
> Interregional TUos
18 | TransGrid December Webinar December 2014
Demand versus energy postage stamp charge
Percentage change in charges for each connection point applying demand
charges in 2014/15
19 | TransGrid December Webinar December 2014
Modified cost reflective network pricing
Revenue ($k p.a.) based on asset class allocation
20 | TransGrid December Webinar December 2014
Percentage change in charges for each connection point applying MCRNP in
FY14/15 - (including 2% Rule )
Modified cost reflective network pricing