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

The Australian Energy Regulator (AER) has released a final 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.

In this final decision, we determine that a prudent electricity distributor, acting efficiently, can achieve opex productivity growth of 0.5 per cent each year. This reflects the best estimate of the opex productivity growth that an electricity distributor on the efficiency frontier should be able to achieve. It does not account for any efficiency ‘catch-up’ that an inefficient distributor may also be able to achieve. Based on updated analysis and additional information provided by stakeholders, this forecast is a departure from the 1.0 per cent per year that we had forecast in our draft decision paper, which we published on 9 November 2018.

We intend to use this productivity growth forecast in our next regulatory determination for each electricity distributor. We do not expect that we will need to update this forecast prior to 2021 unless we identify significant change in the underlying economic drivers of opex that may affect electricity distributors' abilities to achieve productivity growth. This should provide some predictability for electricity distributors in preparing their regulatory proposals.

This final decision has been informed by public consultation on our draft decision paper, including 21 written submission and a public workshop. We thank stakeholders for their participation in this review. We have benefited from the inputs and analysis provided by stakeholders and we have carefully considered stakeholders' feedback in arriving at our final decision.

Issued date: 
8 March 2019
AER reference: 
AC 26/19
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