Replacement expenditure modelling assumptions review 2019

Sector: 
Segment: 
Status: 
Date completed: 
6 December 2019
Date initiated: 
26 August 2019
Effective date: 
6 December 2019
Contact: 
AER General inquiries AERInquiry@aer.gov.au

Overview

On 6 December 2019 we released an Explanatory Note explaining our review of a set of replacement expenditure (repex) modelling assumptions.

Background

On 26 August 2019 the AER began a process to consult on a set of current replacement expenditure (repex) modelling assumptions. The objective is to continue refining the AER's repex model. In addition, our aim is to help the industry understand the model, including how it is applied during distribution determinations. We expect that more informed users of the repex model will mean more certainty about the likely repex modelling outcomes and more consistent treatment of repex data, promoting regulatory certainty.

The AER's repex model is a statistical tool used to assess electricity distributors' forecast replacement expenditure for future regulatory control periods. It has been applied in all electricity distribution decisions since 2011. The repex model was also referred to as a capital expenditure assessment technique in the AER’s Better Regulation Guideline. Since the release of Guideline and the repex model handbook, there has been further refinements to the AER's repex model, which have been applied in more recent decisions. The issues paper sought comments from stakeholders on a series of assumptions that underpin the repex model.

Assumptions in review include:

  • Limiting asset replacement lives
  • Calibration period
  • Excluded asset categories
  • Other issues