The Australian Energy Regulator today issued its final decision on the transmission determination applicable to SP AusNet's Victorian electricity transmission network for the regulatory control period 1 April 2008 to 31 March 2014.
This is the first final decision issued by the AER under the new regulatory regime, contained in chapter 6A of the National Electricity Rules (NER), which came into effect in November 2006.
AER Chairman, Mr Steve Edwell, said the final decision provides for $751.38m worth of investment in SP AusNet's electricity transmission network over the next six years, which, in aggregate, is approximately 57 per cent above the amount invested by SP AusNet over the 2003-2008 period.
"The AER's decision allows for an increased level of investment which is necessary to provide for the efficient replacement and repair of aging assets in the Victorian transmission network over the forthcoming period to maintain reliability and security of supply.
"The approved allowance will enable SP AusNet to significantly step up its replacement and refurbishment programs during the 2008-2014 regulatory period."
The AER has notionally set maximum allowed revenues for SP AusNet that increase from $453.35m in 2008-09 to $541.82m in 2013-14. The total revenue allowance for the forthcoming period is $2 979.21m. SP AusNet's maximum allowed revenue will also be adjusted to incorporate an annual 'bonus' or 'penalty' depending on the availability and reliability of the service delivered by SP AusNet.
The maximum allowed revenue in the final decision will result in a nominal per MWh transmission "price" of $10.15 in 2013-14, compared to the current per MWh price of $7.54 in 2007-08. This amounts to an average increase in transmission costs of 5.08 per cent per year.
In terms of the real price of electricity paid by the average residential customer, the AER estimates that this determination will result in annual increases of approximately 0.88 per cent in 2008-09 and 0.07 per cent per year from 2009-10 to 2013-14. For a typical large industrial user, these increases are expected to be approximately 2.89 per cent in 2008-09, and 0.23 per cent each year thereafter.
Mr Edwell said the final decision provides for a cost of debt that is relatively high compared with previous regulatory decisions.
"This is reflective of the higher cost of borrowing prevailing in financial markets that would be faced by an efficient TNSP. These increases appear to be driven mainly by the 'sub-prime crisis' in the US."
For the first time, the AER's final decision also includes determinations on a proposed pricing methodology for prescribed services, and a proposed framework and negotiating criteria for negotiated services.
In making its final decision, the AER took into account submissions from interested parties and advice from independent experts. The final decision and these documents are available on the AER's website.
The Australian Energy Regulator is responsible for the economic regulation of monopoly transmission services in the National Electricity Market (NEM). These functions are conferred on the AER by the National Electricity Law (NEL) and the National Electricity Rules (NER).
The AER must make transmission determinations for Transmission Network Service Providers (TNSPs) in accordance with the NER in respect of prescribed and negotiated transmission services.
The AER's draft decision on the transmission determination for SP AusNet for the forthcoming 1 April 2008 to 31 March 2014 regulatory control period was released on 31 August 2007.