The Australian Energy Regulator

QLD Electricity distribution

determination 2015–2020Consumer/stakeholder forum –

No 4

8 August 2014

TopicsWelcome & introductionsRecap of last meeting – (March)Reset timelineCCP response to consumer issues

raised/AER key issuesNext steps & how the AER makes its

assessment

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Recap of last meetingDate: 19 March 2014Main issues of interest were:

◦Unbundling type 5 & 6 metering services◦Public lighting◦Application of incentive schemes◦Issues raised to CCP included:

Complexity of the system & how to target submissions

Tariffs and modernise schemes Public lighting

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Reset timeline

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30 April 2014F&A published

31 Oct 2014Businesses submit

regulatory proposals

9 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

revised regulatory proposals close

31 October 2015 AER publishes final

determination

Consumer Challenge Panel

Consumer issues raised to date and AER/CCP comments

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The AER’s role in energyWholesale gas &

electricity markets

Transmissionnetworks & pipelines

DistributionNetworks 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 Qld 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 – Qld Govt (and QCA)

• CSO / UTP– Qld Govt

• Adoption of NECF – Qld Govt

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)Set the total revenue a business can earn over 5

years – knock out monopoly profitsControl mechanism – revenue can be controlled

through capping prices of individual services or by capping the total revenue

Classification of services – what services will we regulate

Must look to the National Electricity Rules (NER) and building block components

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How we assess proposals (3)Key aspects of NER:

◦Regulatory asset base◦Rate of return◦Capex objectives◦Opex objectives◦Depreciation◦Schemes◦Numerous ‘constituent decisions’

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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)

MeteringAnnual reportingChanges to the NER

◦Pricing, demand management, role of DNSPs in metering

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Qld reset - AER contacts

QLDelectricity2015@aer.gov.au

Moston Neck - 07 3835 4669Robyn Lowien - 07 3835 4659

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