On 28 November 2019 we released a Guidance Note explaining our non-network ICT capex forecast assessment approach. This Guidance Note considers the issues raised by stakeholders in their submissions during the consultation process and outlines our expectations on electricity distributors when preparing their proposals relating to non-network ICT capex. We intend to adopt this approach when we review non-network ICT capex forecast proposals going forward.
When we initially commenced this review on 8 May 2019, the consultation paper we published referred to this process as the “ICT Expenditure Assessment Review”. However, our intention was for this review to focus on non-network ICT investments only. For this reason, we have amended the title to state that this refers to non-network ICT only.
We have also amended the title to say ‘ICT capex’ as opposed to ‘ICT expenditure’, as we did not review the process by which we assess ICT opex. ICT opex will remain to be assessed through the base-step-trend approach applied to total opex. Information on the base-step-trend approach applied to assessing forecast opex can be found in our expenditure forecast assessment guideline. This Guidance Note explains our approach to assessing non-network ICT capex only.
The focus of our review and subsequent consultation focussed on distribution network service providers, rather than the entire electricity and gas networks. For that reason, we have specified that this review concerns our approach for assessing ICT capex forecasts for electricity distributors. However, the approach outlined in this document may be applied in some way to other regulatory determinations in the future.
The AER is reviewing its methodology in assessing expenditure on information and communications technology (ICT). This review is part of continuous improvement of our regulatory toolkit for assessing electricity determinations and will help to ensure that energy consumers pay no more than necessary for the safe and reliable distribution of electricity.
ICT is increasingly becoming a more integral component of delivering energy services. In line with this, we are considering whether our current set of ICT expenditure assessment tools are fit for purpose both now and into the future.
We started a review of our current ICT expenditure assessment approach and developed preliminary thinking which we discussed with stakeholders to assist us in developing our views. In our consultation paper we outlined a suggested revised assessment approach. The views we heard on our outlined approach were used to further refine our assessment.
More details on the techniques we currently apply to assess a distributor’s expenditure assessment proposals is provided in our Expenditure forecast assessment guideline.