The Australian Competition and Consumer Commission today issued its final revenue cap decisions covering TransGrid and EnergyAustralia, the transmission network service providers in NSW and ACT.
"The decisions accommodate over $1.4 billion in new investment in the NSW and ACT transmission network over a five year period", an ACCC Commissioner, Mr Ed Willett, said. "These investment levels are unprecedented and follow over a billion dollars of transmission investment in the previous regulatory period.
"Together with the ACCC's previous decisions investment in NSW and ACT transmission networks will amount to around $2.6 billion, which more than doubles the value of transmission assets (in replacement cost terms) in just ten years.
"The ACCC's decisions also allow TransGrid and EnergyAustralia to seek up to $800 million to fund additional investments if the need arises.
"The additional costs to NSW and ACT consumers from these decisions amount to around $400 million over five years. However, the ACCC has been persuaded that the additional expenditure is necessary.
"The high investment levels in these decisions are consistent with the ACCC's other electricity transmission decisions. Responsibility for transmission regulation in the National Electricity Market has been progressively transferred to the ACCC since 1999. Since then the ACCC's decisions have accommodated over $4.5 billion in transmission investment.
TransGrid
"The ACCC's decision increases TransGrid's revenues in real terms by 15 per cent from an average of $389 million in the last regulatory period to an average of $448 million in the current period.
"The increases are primarily driven by high capital expenditure. The ACCC has accepted a capital allowance of $1.18 billion for TransGrid for this regulatory period which includes a significant increase in reliability-driven investment. This follows expenditure of around $1.1 billion ($2004) over the first regulatory period.
"In addition, the decision approves a contingency allowance of around $722 million. These projects can be undertaken in this regulatory period if criteria set out in the decision are satisfied.
"The decision also provides for increases in operating expenditure. In real terms the operating expenditure allowance increases from $568 million ($2004) in the previous regulatory period to $581 million in this regulatory period.
"The ACCC has appreciated TransGrid's cooperation throughout this process, and believes the decision is evidence of the ability of a regulator and a TNSP to work well together.
EnergyAustralia
"EnergyAustralia's revenues also increase as a result of the ACCC's decision. Excluding $91 million worth of assets which have been reclassified as transmission, EnergyAustralia's revenues increase by around 10 per cent in real terms from an average of $81 million in the previous regulatory period to an average $89 million in the current period. After adding the new transmission assets the revenue cap will average $100 million per annum over the regulatory period.
"Increased replacement capital expenditure accounts for most of the balance of the revenue increase. The ACCC's allowance of $105 million is four times EnergyAustralia’s replacement capital expenditure in the last regulatory period.
"In contrast to TransGrid, EnergyAustralia substantially underspent against the replacement capital expenditure allowance granted by the ACCC in the last regulatory period (by around 25%).
"The ACCC encourages EnergyAustralia to move quickly to implement the replacement program to which it has committed. Given EnergyAustralia's track record on replacement capital expenditure, the ACCC will monitor EnergyAustralia's performance closely.
"The ACCC is also concerned by EnergyAustralia's failure to comply with key obligations in the National Electricity Code. The code requires transmission network service providers to carry out a cost-benefit assessment of new investment options (the 'regulatory test'). In contrast to TransGrid and all of the other transmission network service providers in the NEM, EnergyAustralia has failed to carry out the required assessments.
"Regulators, energy users and other stakeholders cannot have confidence in the efficiency of EnergyAustralia's investment spending if the required cost-benefit assessments are not carried out.
"The ACCC referred this matter to the code enforcement body, the National Electricity Code Administrator (NECA). NECA required EnergyAustralia to provide an undertaking regarding future conduct and compliance with the code. The ACCC will encourage the AER to closely monitor EnergyAustralia's compliance with its undertaking".
The TransGrid Transmission Network Revenue Cap 2004-2009 and the EnergyAustralia Transmission Network Revenue Cap 2004-2009 Final Decisions will be available on the ACCC website.