Webinar - December Revenue Proposal Update

21
Webinar AER Draft Determination December 2014

Transcript of Webinar - December Revenue Proposal Update

Webinar

AER Draft Determination

December 2014

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

6 | TransGrid December Webinar December 2014

Price trend

Source: AER Fact Sheets

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

9 | TransGrid December Webinar December 2014

Security/compliance expenditure

10 | TransGrid December Webinar December 2014

Operating expenditure

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

Q & A

TransGrid December Engagement Workshop December 2014 21 /