Growth driving electricity distributors expenditure proposals

Queensland electricity distributors Energex and Ergon Energy had until 14 January, 2010, to submit a revised regulatory proposal to the Australian Energy Regulator (AER).

The AER has made its draft determinations on the regulatory proposals submitted by Energex and Ergon Energy. The determinations cover the period 1 July, 2010, to 30 June, 2015, and set the revenue that each of the Queensland distributors are able to recover for the provision of electricity distribution services.

According to the AER draft, the Queensland distribution network service providers (DNSPs) overspent the regulatory allowances established by the Queensland Competition Authority for the five year period ending 30 June, 2010.

The AER reviewed the reasons for these overspends and considered that they were reasonable in view of higher than expected demand at the commencement of the regulatory control period, the need for asset replacement capex and costs associated with improving network reliability and service standards.

The Queensland DNSPs cited customer growth, growth in peak energy demand, improving the safety and reliability of their networks and replacement of aging assets as the key drivers of their expenditure proposals in the next regulatory control period.

While noting the impact of the global financial crisis (GFC) on capital markets, the Queensland DNSPs are forecasting that the GFC will have a more limited impact on economic activity in Queensland than first thought and therefore the need for network growth will continue.

The AER was also not satisfied that the materials and labour cost escalators used to forecast capital and operating expenditures reflected current economic conditions and considered that the escalators used by the Queensland DNSPs were likely to overstate future costs.

The AER has revised the cost escalators and will update these to reflect economic conditions at the time of the final decision.

In making its draft decision and draft distribution determination, the AER assessed the Queensland DNSPs’ regulatory proposals to determine if they were in accordance with the requirements of the National Electricity Rules.