AER releases final guidance note on the impact of capitalisation differences on benchmarking

The Australian Energy Regulator (AER) has published a final guidance note on how it will assess the impact of differences in Distributed Network Service Providers’ capitalisation practices (how costs are allocated between operating and capital) on its electricity distribution benchmarking.

This follows the draft guidance note released in October 2022, and the Consultation paper released in November 2021.

Our final guidance maintains that there are material differences in capitalisation between Distributed Network Service Providers, which are having a material impact on our benchmarking results.

Following stakeholder submissions and further analysis, our preferred approach to address these differences, has not changed from our position in the draft guidance note. Our final approach is to benchmark on the basis of allocating 100% of corporate overhead expenditure to operating expenditure for benchmarking purposes. This approach focuses on a known, measurable and material source of capitalisation differences and does not inadvertently account for factors unrelated to capitalisation.

We intend to implement this approach to addressing differences in capitalisation in our 2023 Annual Benchmarking Report for Distribution Network Service providers.

Issued date: 
26 May 2023
AER reference: 
AC 53/23
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