The Australian Energy Regulator has issued its draft decision on Powerlink's proposal to operate the Queensland electricity transmission network for 1 July 2012 to 30 June 2017.
For the five years to 30 June 2017, Powerlink sought total revenue of $5,954 million, based on its forecast operating and capital costs, including a rate of return on assets.
The AER has not accepted Powerlink's forecast costs for this period and has set revenues of $4,563 million, or 23 per cent below Powerlink's proposal.
"Based on the AER’s decision, Queensland residential power bills are estimated to increase by a total of $1.40 per year," AER chairman Andrew Reeves said.
The most significant driver of the difference between the AER and Powerlink's position is the allowance for the rate of return.
“Conditions in the financial markets have eased since Powerlink submitted it's proposal and this has led the AER to estimate a lower base rate than Powerlink,” Mr Reeves said.
“Furthermore, the AER has adopted different values for the cost of debt, which also contributed to a lower rate of return.”
The financial measures will be updated closer to the time of the final decision.
The AER also has lower expectations of capital and operating costs over the five year forecast period, partly driven by lower forecasts of electricity demand growth.
The AER's analysis indicates peak demand is likely to be about 10 per cent lower than proposed by Powerlink in 2016–17. The lower estimate of demand means that Powerlink should be able to defer approximately 16 per cent per cent of its proposed capital works.
In addition, the AER was not satisfied that Powerlink has adequately justified the need for all aspects of its capital works. As a result, the AER has reduced Powerlink's proposed capital expenditure by an additional 13 per cent.
The AER also reduced Powerlink's operational expenditure forecast by 8 per cent, citing lower forecasts for escalation in labour costs.
“The AER considers that the draft decision represents a reasonable assessment of the efficient costs of providing the transmission services, and that the forecasts provide sufficient for network investment to keep pace with growth in peak demand and to meet reliability requirements,” Mr Reeves said.
Powerlink can submit a revised regulatory proposal to the AER by 16 January 2012. Stakeholder submission on both the draft decision and revised regulatory proposal will be accepted until 20 February 2012.