The Australian Competition and Consumer Commission today issued its supplementary draft decisions on the future capital expenditure allowance for TransGrid and EnergyAustralia, the transmission network service providers in the NSW and ACT region of the National Electricity Market.
"The total investment allowance for New South Wales arising from these draft decisions is expected to amount to around $1.5 billion", an ACCC Commissioner, Mr Ed Willett, said. "This compares to investment of $1.34 billion over the past five years.
"The draft decisions give an upfront allowance of $1.1 billion and also pave the way for additional large but uncertain projects that might eventuate during this regulatory period. These projects are expected to add around $400 million in investment, taking total transmission investment to around $1.5 billion. This provides the flexibility to invest in projects if the need arises.
"This decision leads to a high and increased level of investment in NSW transmission networks. This, in turn, allows TransGrid and EnergyAustralia to respond to the forecast increases in demand while improving the reliability of their transmission networks by replacing ageing assets".
"This increased investment is accommodated with stable prices over this regulatory period and no price shocks", Mr Willett said. "This draft decision would produce indicative numbers of an initial price rise of 3.5 per cent followed by constant prices.
"The ACCC has allowed TransGrid an increase of 57 per cent in augmentation expenditure to increase the capacity of the NSW network to meet growing consumer demand. EnergyAustralia has had an increase of 28 per cent in total expenditure to maintain its network.
"The draft decisions are the first to provide a fixed allowance of future capital expenditure up front which gives certainty to transmission companies to about the funds available to undertake their investment program".
These draft decisions are the first to be made under the Statement of Regulatory Principles released by the ACCC in December 2004. The new regime provides an upfront capital expenditure allowance before the TNSP makes its investment decision, thus providing investment certainty. There is no ACCC assessment of a TNSP's investment after it has been completed.
The ACCC is calling for submissions on these draft decisions. The deadline for submissions is 24 March. A final decision on TransGrid and EnergyAustralia will be issued in April.
These draft decisions relate only to future capital expenditure by TransGrid and EnergyAustralia. Final decisions for both will be made after comments and submissions on these supplementary draft decisions have been taken into consideration.
TransGrid
The ACCC has provided TransGrid with an ex ante (up front) capital allowance of $932 million for this regulatory period. This compares with TransGrid's allowed expenditure of $1,071 million ($2004) over the first regulatory period. In addition, the ACCC has defined a list of projects indicatively costed at $930 million which will be allowed if the need arises.
"If all of these excluded projects eventuate, the allowed investment for TransGrid would be in the order of $1.86 billion", Mr Willett said. "This is substantially more than TransGrid was allowed in the previous regulatory period. This is in addition to the substantial investment of over $1 billion undertaken over the past five years.
"The full impact of price rises won't be seen until all of the ACCC's decisions on TransGrid are released after submissions on this supplementary draft decision have been taken into account. However, this decision by itself would lead to relatively constant prices".
EnergyAustralia
The ACCC has provided EnergyAustralia with an ex ante capital allowance of $145 million for this regulatory period. This compares with EnergyAustralia's allowed expenditure of $135 million ($2004) over its first regulatory period. In addition, the ACCC has provided an indicative allowance of $37 million for one specific excluded project as well as a defined list of projects indicatively costed at $72 million which will be allowed if the need arises.
"If all of these excluded projects eventuate, the allowed investment for EnergyAustralia would be in the order of $254 million", Mr Willett said. "This is substantially more than EnergyAustralia was allowed in the previous regulatory period and is in addition to the investment of $135 million undertaken over the past five years.
"As with the TransGrid decision, the full impact of price rises won't be seen until the ACCC's revenue cap decision on EnergyAustralia is released after submissions on this supplementary draft decision have been taken into account. However, this decision by itself would lead to relatively constant transmission prices".
The ACCC invites comments on the supplementary draft decisions. The TransGrid Transmission Network Revenue Cap 2004-2009 and the EnergyAustralia Transmission Network Revenue Cap 2004-2009 supplementary draft decisions will be available on the ACCC website.