AER releases its draft decision on its approach to forecasting opex productivity growth for electricity distribution

The Australian Energy Regulator (AER) has released a draft decision paper on its approach to forecasting operating expenditure (opex) productivity growth for electricity distributors.

Productivity growth is one element in the trend component of our opex forecasting approach. Our forecast of productivity growth is intended to capture the efficiency improvements distributors can make in providing distribution services. More details on how we use the forecast opex trend to assess distributors’ opex proposals are outlined in our Expenditure forecast assessment guideline.

We have applied the same approach to forecasting productivity growth since we published the Expenditure forecast assessment guideline in 2013. We have now applied this approach to all of the electricity distributors in the NEM. We think it is now an appropriate time to review this approach.

This review is part of our continuous improvement of our regulatory toolkit and will help to ensure that energy consumers pay no more than necessary for the safe and reliable distribution of electricity.

The draft decision paper is the first stage of our review of our approach to forecasting opex productivity growth. The paper sets out:

  • how we use forecast opex productivity growth and how we have forecast it in the past
  • why now is an appropriate time to reconsider our approach to forecasting opex productivity growth
  • what information is available
  • options for using this information to forecast opex productivity growth.

We think that each of the available information sources are broadly consistent and when considered together support an opex productivity growth forecast between 0.5 and 1.6 per cent. Based on the information we have reviewed, we are satisfied that 1.0 per cent is a reasonable expectation of the opex productivity growth that an efficient and prudent distributor can achieve.

We are seeking feedback on this proposed productivity growth forecast and invite you to make written submissions on the draft decision paper by close of business Friday 21 December 2018. We have asked a series of questions in the consultation paper. We welcome your answers to these questions as well as provide any other feedback you may have. Details on how you can provide written submissions are outlined in the paper as well as on our website. Stakeholders will also have an opportunity to participate in a workshop.

Once we have considered all submissions, and the views expressed at the workshop, we will publish our final decision on our approach to forecasting opex productivity growth. We expect to publish this in the first quarter of 2019.

Issued date: 
9 November 2018
AER reference: 
AC 137/18
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