The Australian Energy Regulator

SA Electricity distribution determination 2015–2020

Consumer/stakeholder forum

3 September 2014

TopicsWelcome & introductionsSession 1:

◦Introduction to regulatory frameworkSession 2:

◦Recap of last meeting – (March)◦Reset timeline◦CCP presentations/discussions◦Consumer issues and next steps

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Introduction to regulationEnergy market regulationRole of AERIncentive based regimeHow we assess regulatory proposals‘Building blocks’

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Energy market regulation

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The AER’s role in energyWholesale gas &

electricity markets

Transmission

networks & pipelines

Distribution

Networks for gas/electricity

Retail

& other distribution

We monitor wholesale markets and enforce rules

• Prices in the NEM are set by the market subject to the NER

• AER monitors market outcomes and behaviour

We regulate revenues of transmission

businesses

• Charges set by AER

• Transmission loss factors method set by AEMO

• Regulatory investments tests – AER assesses compliance

We regulate revenues of distribution

businesses

• Distribution prices and structures – AER approves annually subject to determination and NER

• Reliability standards – set by SA Govt

• Incentive schemes – defined in NER and set by AER at reset

• Rate of return – NER and AER guideline – set at reset for 5 years

We will regulate non-price retail activities

• National Energy Customer Framework - AER

• Retail price approach – SA Govt

• Adoption of NECF – SA Govt

Incentive based regimeEx ante revenue determination based on

forecastsRevealed costs to pass savings to

consumersIncentives to draw out efficient behaviourWe don’t regulate the detailPricing comes after revenue has been set

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How we assess proposals (1)

We must make decisions that contribute to the achievement of the NEO (to the greatest degree).

NEO – promote efficient investment in, and efficient operation and use of, electricity services for the long term interests of consumers of electricity with respect to –◦ Price, quality, safety, reliability of supply of electricity; and◦ The reliability, safety and security of the national electricity system.

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How we assess proposals (2)Key aspects of NER:

◦Regulatory asset base – not re-valued◦Rate of return – benchmark efficient firm◦Capex objectives – efficient, meet demand,

obligations◦Opex objectives◦Depreciation ◦Tax allowance◦Incentive schemes

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How we assess proposals (3)

Control mechanism – revenue cap or price cap?Classification of services – what services will we

regulateOther distribution services (e.g. public lighting)Prices derived from the ‘building blocks’

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How we assess proposals (4)The building blocks:

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Return on capital (forecast RAB × cost of capital)

Regulatory depreciation (depreciation [net of indexation] applied RAB)

Corporate income tax (net of value of imputation credits)

Capital costs

Operating expenditure (opex)

Efficiency benefit sharing scheme (EBSS) (increment or decrement)

Total revenue

How we assess proposals (5)Incentive schemes:

◦Service target performance incentive scheme (STPIS)

◦Efficiency benefit sharing scheme (EBSS)◦Capital expenditure sharing schemes (CESS)◦Demand management incentive scheme (DMIS)

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Other relevant pointsPricing

◦Arrangements for setting prices for 5 year period set at determination

◦Prices are set annually (with year 1 prices set in determination)

MeteringChanges to the NER

◦Pricing, demand management, role of DNSPs in metering

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Recap of last CCP meetingDate: 2 June 2014Key issues discussed:

◦SAPN’s consumer engagement◦vegetation management, reliability, impact of

solar, undergrounding lines◦effectiveness of incentive schemes◦the need for education on the regulatory

framework◦CCP presentations on key features of SAPN,

drivers of cost and comparison with other businesses

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Reset timeline

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30 April 2014F&A published

31 Oct 2014Businesses submit

regulatory proposals

10 Dec 2014Public forum –

Question the business on proposals. Also

release Issues paper

31 Jan 2015Submissions on

regulatory proposals close

30 April 2015AER publishes

preliminary determination

Predetermination conference

TBC but likely May 2015

2 July 2015 Submissions on

preliminary determination close

31 October 2015 AER publishes final

determination

Future drivers of priceDownward pressure

◦Regulatory rules have been strengthened◦Cost of capital has fallen (10% => ?%)◦Consumption is much weaker

Upwards pressure◦Asset base additions – aged asset replacement

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Consumer Challenge Panel

Presentations

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SA consumer issuesDiscussion of SA consumer issues leading

into the 2015-20 reset

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SA reset - AER contacts

SAelectricity2015@aer.gov.au

Moston Neck - 07 3835 4669

Robyn Lowien - 07 3835 4659

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