Final distribution determination - attachments - word version

Final Distribution Determination

Aurora Energy Pty Ltd

2012-13 to 2016-17



Attachments




April 2012





© Commonwealth of Australia 2012

This work is copyright. Apart from any use permitted by the Copyright Act
1968, no part may be reproduced without permission of the Australian
Competition and Consumer Commission. Requests and inquiries concerning
reproduction and rights should be addressed to the Director Publishing,
Australian Competition and Consumer Commission, GPO Box 3131, Canberra ACT
2601.








Contents


Contents I


1 Uncontested issues 1


2 Control mechanism for standard control services 2

2.1 Determination 2
2.2 Assessment approach 3
2.3 Reasons for determination 3
2.4 Revisions 24

3 Unit rates 25

3.1 Determination 25
3.2 Assessment approach 25
3.3 Reasons for determination 26
3.4 Revisions 31

4 Real cost escalation 32

4.1 Determination 32
4.2 Assessment approach 32
4.3 Reasons 33
4.4 Revisions 41

5 Demand forecasts 42

5.1 Determination 42
5.2 Assessment approach 43
5.3 Reasons for determination 43
5.4 Revisions 48

6 Capital expenditure 49

6.1 AER determination 49
6.2 AER approach 50
6.3 Reasons for determination 57
6.4 Revisions 78

7 Operating expenditure 79

7.1 Determination 79
7.2 Assessment approach 80
7.3 Reasons for determination 86
7.4 Revisions 100

8 Regulatory asset base 101

8.1 Determination 101
8.2 Assessment approach 102
8.3 Reasons 102
8.4 Revisions 106

9 Depreciation 107

9.1 Determination 107
9.2 Assessment approach 107
9.3 Reasons 107
9.4 Revisions 111

10 Cost of capital 112

10.1 Determination 112
10.2 Assessment approach 114
10.3 Reasons 125
10.4 Revisions 164

11 Corporate income tax 165

11.1 Determination 165
11.2 Assessment approach 167
11.3 Reasons 167
11.4 Revisions 168

12 Service target performance incentive scheme 169

12.1 Determination 169
12.2 Assessment approach 172
12.3 Reasons 172
12.4 Revisions 178

13 Efficiency benefit sharing scheme 179

13.1 Determination 179
13.2 Assessment approach 180
13.3 Reasons for determination 181
13.4 Revisions 182

14 Pass through events 183

14.1 Determination 183
14.2 Assessment approach 184
14.3 Reasons for determination 184
14.4 Revisions 185

15 Control mechanism for alternative control services 186

15.1 Determination 186
15.2 Assessment approach 187
15.3 Reasons 188
15.4 Revisions 192

16 Metering services 193

16.1 Determination 193
16.2 Assessment approach 194
16.3 Reasons 194
16.4 Revisions 206

17 Public Lighting services 207

17.1 Determination 207
17.2 Assessment approach 207
17.3 Reasons 208
17.4 Revisions 212

18 Fee based services 213

18.1 Determination 213
18.2 Assessment approach 214
18.3 Reasons 214
18.4 Revisions 219

19 Quoted Services 220

19.1 Determination 220
19.2 Assessment approach 221
19.3 Reasons 221
19.4 Revisions 221




1. Uncontested issues

In its revised regulatory proposal, Aurora generally accepted the AER's
draft determination on some issues, and does not substantively discuss
those issues any further.[1] Aurora also accepted the AER's draft
determination on some other issues, but provides some discussion in its
revised regulatory proposal. Table 1.1 shows the substantive issues where
the AER and Aurora are in agreement. For these issues, the AER has
maintained its position from its draft determination, and they are not
discussed further in this final determination.


1. Substantive issues not discussed in the AER's final determination


|Issue |Draft determination |Revised proposal |
| |reference |reference |
|Classification of services|Attachment 1, pp. |Chapter 1, p. 10. |
| |48-50. | |
|Demand management |Attachment 13, pp. |Chapter 1, p. 10. |
|incentive scheme |281-282. | |
|Negotiating framework |Attachment 16, pp. |Chapter 23, pp. |
| |303-306. |161-165. |
|Assigning customers to |Appendix C |Chapter 18, p.131 |
|tariff classes | | |




Aurora also accepted several other elements of the AER's draft
determination. However, these elements relate to broader issues contested
by Aurora in its revised regulatory proposal. Therefore, the AER has
considered these elements in the context of its discussion of the
substantive issues in the attachments that follow.





2. Control mechanism for standard control services

The control mechanism imposes controls over the prices of direct control
services, and/or the revenue to be derived from direct control services.[2]
The AER will make constituent decisions on:

. the control mechanism (including the X factors) for standard control
services[3]

. how the DNSP is to demonstrate compliance with the relevant control
mechanism[4]

. how the DNSP is to report to the AER on its recovery of transmission use
of system (TUOS) charges[5] for each regulatory year, and adjustments to
be made in pricing proposals in subsequent years to account for TUOS over
or under recoveries.[6]


1. Determination

The revenue cap control mechanism comprises the allowed revenue adjustments
to annually update Aurora's maximum allowed revenue. The allowed revenue
adjustments are:

. the electrical safety inspection levy (ESISC)

. the national energy market levy (NEMC)

. distribution use of system (DUOS) unders and overs

. TUOS unders and overs.

Aurora is to comply with the revenue cap control mechanism in its annual
pricing proposal. Adjustments are to be made for the ESISC and NEMC revenue
adjustments on a one year lagged basis and adjustments for DUOS and TUOS
under and over recoveries on a one year lagged basis for estimates and a
two year lagged basis for actual revenues.

The AER does not accept the revenue adjustments for the forthcoming
regulatory control period in relation to:

. banking mechanism

. trunk mobile radio (TMR) levy

. GSL Cap

. Excess GSL Payments.

To close out the revenue adjustments from the current regulatory period,
the AER has incorporated the carryover revenues (as calculated by the
current control mechanism) as a building block into the annual revenue
requirement for the forthcoming regulatory control period. Part of the
carryover revenues are an estimate. Therefore, the AER has included a
revenue adjustment mechanism in the transitional parameter of the revenue
cap to account for the difference between the actual carryover revenues and
the estimate.

The transitional parameter will also include revenue adjustment mechanisms
to account for the outcome of current control mechanism adjustments that
will not be known until 2012-13. The transitional parameter will extend no
further than 2013-14.

The revenue cap formula is outlined in detail in section 2.3.3 below.


2. Assessment approach

The AER has not changed its assessment approach for Aurora's control
mechanism since its draft determination, so it is not repeated here. See
section 2.3 of attachment 2 of the AER's draft determination for this
detail.[7]

However, two matters relevant to the AER's assessment of the control
mechanism have arisen since the draft determination, and were not included
in Aurora's revised regulatory proposal. These issues relate to how the AER
should carryover the under recovery of revenue from the current regulatory
period into the forthcoming regulatory control period and the proposed
smoothing of revenues within the forthcoming regulatory control period. The
AER's consideration of these issues is outlined in detail in section 2.3.2
below.


3. Reasons for determination

The AER's draft determination accepted Aurora's proposal that the control
mechanism for standard control services be a revenue cap.[8] The AER also
accepted Aurora's:[9]

. distribution use of system (DUOS) unders and overs mechanism

. national electricity market charge (NEMC) cost revenue adjustment
mechanism

. electrical safety inspection levy (ESISC), in the event Aurora wins the
tender to provide these services in the forthcoming regulatory control
period.

The AER's draft determination did not however accept Aurora's proposed
revenue adjustment mechanisms for:

. trunk mobile radio (TMR) levy

. full retail contestability charges (FRC)

. the mitigation of the risk of the GSL scheme

. unfunded shared network costs.

In addition, the AER did not accept Aurora's proposed TUOS unders and overs
adjustment mechanism.[10] Instead the AER applied an unders and overs
mechanism consistent with the DUOS unders and overs mechanism.[11] The AER