The Australian Energy Regulator today issued its draft decision on the transmission determination to apply to Transend's electricity transmission network for the regulatory control period 1 July 2009 to 30 June 2014.
Transend is the principal electricity transmission network service provider in the Tasmanian region of the National Electricity Market.
The maximum allowed revenue for Transend in the draft decision will result in a per MWh transmission charge of $19.89 in 2013-14, compared to the current per MWh transmission charge of $13.56 in 2008-09. This amounts to an average increase of 8.1 per cent per annum.
The AER estimates that the increase in average transmission charges for customers under this draft transmission determination will add approximately $32 (or 2.3 per cent) in 2009-10 and approximately $12 for each subsequent year of the forthcoming regulatory period to the average residential customer's annual bill. The increase proposed in Transend's revenue proposal would be $48 and $14 in 2009-10 and $14 for each subsequent year of the regulatory period. For this comparison, the AER has recalculated Transend's proposal to include the effect of inflation.
The major drivers of Transend's costs leading to this increase in charges are:
- additions to Transend's asset base from expenditure in the current regulatory period
- the need for Transend to augment its network to meet the new network performance requirements, network security requirements and increases in electricity demand
- continuing replacement of ageing assets
- significant increases in labour costs resulting from the national skills shortage, and
- substantial increases in materials and equipment costs.
In announcing the release of the draft decision today, AER Chairman Mr Steve Edwell said: "Transend spent substantially more than the amount allowed for when the ACCC set its revenue allowance in 2003. That additional expenditure has been reviewed and we have now accepted that it may be added to Transend's asset base.
"The draft decision provides for $615 million worth of investment in Transend's electricity transmission network over the next six years, which, while significantly higher than that spent in the current period, in aggregate is almost 10 per cent below that proposed by Transend.
"While the AER has accepted the need for most of the work proposed by Transend, it has not accepted Transend's forecasts of its costs."
The draft decision also approves Transend's negotiating framework and negotiating services criteria for negotiated transmission services.
In making its draft decision, the AER took into account submissions from interested parties and advice from independent experts. These documents will be available on the AER's website.
There will be a pre-determination conference on the draft transmission determination on 10 December 2008 in Hobart to outline the draft decision and receive oral submissions from interested parties. Interested parties are invited to make written submissions on issues regarding this draft transmission determination and the consultants' reports by 18 February 2009.
The AER will consider all issues raised by interested parties in response to the draft decision before issuing its final decision.
Under the National Electricity Law and the National Electricity Rules, the Australian Energy Regulator is responsible for the economic regulation of electricity transmission services provided by transmission network service providers in the National Electricity Market. Before 1 July 2005, the ACCC was responsible for regulating Transend's revenues. Transend's current revenue cap expires on 30 June 2009.
The AER makes determinations according to chapter 6A of the NER in respect of certain services provided by transmission businesses. The AER's principal task is to set the revenues that a TNSP can receive from the provision of prescribed transmission services.
On 30 May 2008, Transend submitted a revenue proposal, proposed negotiating framework and proposed pricing methodology in accordance with chapter 6A of the NER.
Transend owns and operates the transmission network in Tasmania. It operates 3650 circuit kms of transmission lines predominantly at 110 kV and 220 kV. Transend also operates sub-transmission assets at voltages of 6.6 kV, 11 kV, 22 kV, 33 kV and 44 kV at substations connecting the Tasmanian transmission and distribution networks.
Transmission charges represent approximately 12 per cent on average of end user electricity charges of $1400 in Tasmania. Transend submitted its proposal in real prices which do not include inflation. To reflect what customers will pay over time the AER has recalculated Transend's proposal to allow for inflation. This is referred to as a nominal price. The AER estimates that in nominal terms the increase in average transmission charges under this draft transmission determination will add approximately $32 (or 2.3 per cent) in 2009-10 and approximately $12 for each subsequent year of the forthcoming regulatory period to the average residential customer's annual bill. For comparison, the AER has recalculated Transend's proposal* on the same nominal basis. The nominal increase in 2009-10 would be $48 and $14 for each subsequent year of the regulatory period.
The AER notes that the prices charged to small retail customers in Tasmania are subject to oversight by the Office of the Tasmanian Energy Regulator. The process for setting retail prices includes allowance for variations in network charges, including transmission network charges. The retail price paid by Tasmanian consumers is subject to further review and determination by OTTER.
The Tasmanian transmission network is influenced by the connection of a large number of low capacity generators at geographically dispersed locations. As there is a small customer base compared to other states, demand growth on the transmission network is influenced by large customers connected directly to the transmission network. The Transend network and the mainland NEM states are connected via the privately owned Basslink interconnector.
*Transend proposed a $42 real increase in 2009-10, and $6 real increase in each subsequent year of the regulatory period ending 30 June 2014. But customers pay nominal prices which include the effects of inflation, hence the need to recalculate nominal prices.