The Australian Energy
Regulator
SA Electricity distribution
determination 2015–2020
Consumer/stakeholder forum
3 September 2014
Topics
 Welcome
& introductions
 Session 1:
◦ Introduction to regulatory framework
 Session
◦
◦
◦
◦
2:
Recap of last meeting – (March)
Reset timeline
CCP presentations/discussions
Consumer issues and next steps
2
Introduction to regulation



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
Energy market regulation
Role of AER
Incentive based regime
How we assess regulatory proposals
‘Building blocks’
3
Energy market regulation
4
The AER’s role in energy
Wholesale gas &
electricity
markets
We monitor wholesale
markets and enforce rules
•
•
Prices in the NEM are
set by the market
subject to the NER
Transmission
Distribution
networks &
pipelines
Networks for
gas/electricity
We regulate revenues
of transmission
businesses
We regulate revenues
of distribution
businesses
• Charges set by AER
•
• Transmission loss
factors method set
AER monitors market
by AEMO
outcomes and behaviour
• Regulatory
investments tests –
AER assesses
compliance
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
Retail
& other
distribution
We will regulate nonprice retail activities
•
National Energy
Customer Framework
- AER
•
Retail price approach
– SA Govt
•
Adoption of NECF –
SA Govt
Incentive based regime




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Ex ante revenue determination based on
forecasts
Revealed costs to pass savings to
consumers
Incentives to draw out efficient behaviour
We don’t regulate the detail
Pricing comes after revenue has been set
6
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
8
How we assess proposals (3)
Control mechanism – revenue cap or price cap?
 Classification of services – what services will we
regulate
 Other distribution services (e.g. public lighting)
 Prices derived from the ‘building blocks’

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How we assess proposals (4)

The building blocks:
Return on capital (forecast RAB × cost
of capital)
Capital costs
Regulatory depreciation (depreciation
[net of indexation] applied RAB)
Operating expenditure (opex)
Total revenue
Efficiency benefit sharing scheme
(EBSS) (increment or decrement)
Corporate income tax (net of value of
imputation credits)
10
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 points

Pricing
◦ Arrangements for setting prices for 5 year
period set at determination
◦ Prices are set annually (with year 1 prices set
in determination)
Metering
 Changes to the NER

◦ Pricing, demand management, role of DNSPs in
metering
12
Recap of last CCP meeting
 Date:
2 June 2014
 Key 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
13
Reset timeline
30 April 2014
F&A published
30 April 2015
AER publishes
preliminary
determination
31 Oct 2014
Businesses submit
regulatory proposals
10 Dec 2014
31 Jan 2015
Public forum – Question
the business on
proposals. Also release
Issues paper
Submissions on
regulatory proposals
close
2 July 2015
Submissions on
preliminary
determination close
Predetermination
conference
TBC but likely May
2015
14
31 October 2015
AER publishes final
determination
Future drivers of price

Downward pressure
◦ Regulatory rules have been strengthened
◦ Cost of capital has fallen (10% => ?%)
◦ Consumption is much weaker

Upwards pressure
◦ Asset base additions – aged asset replacement
15
Consumer Challenge Panel
Presentations
16
SA consumer issues

Discussion of SA consumer issues leading
into the 2015-20 reset
17
SA reset - AER contacts
[email protected]
Moston Neck - 07 3835 4669
Robyn Lowien - 07 3835 4659
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