AER issues proposed guidelines for regulating electricity transmission businesses under new electricity rules

The Australian Energy Regulator today issued proposed guidelines and accompanying explanatory statements to assist with its regulation of electricity transmission network businesses. The guidelines are issued for public comment, as required under the new National Electricity Rules.

"The guidelines form an integral and important part of the way the AER regulates electricity transmission networks," AER Chairman, Mr Steve Edwell, said today.

"The AER first issued a compendium of electricity transmission guidelines in 2005, shortly after its inception, which was largely based on approaches developed by the ACCC. This was part of fostering a more transparent environment in terms of AER regulatory processes and approach.

"It was always intended the guidelines would evolve over time as the AER develops its approach to implementing best practice regulation, to promote efficient investment through a stable and predictable regulatory regime. Recent revisions to the NER made by the Australian Energy Market Commission has meant a revised set of guidelines are required to be developed in 2007, to ensure these objectives continue to be met," he said.

The AER will conduct a public consultation process on these proposed guidelines, with a view to finalising the guidelines by 30 September 2007.

The proposed guidelines relate to:

  • the post-tax revenue model
  • the roll forward model
  • an efficiency benefit sharing scheme
  • a service target performance incentive scheme
  • submission guidelines, and
  • cost allocation guidelines.

A copy of each of the proposed guidelines and explanatory statements and related material will be available from the AER's website.


Summary of proposed guidelines

Separate guidelines are proposed that cover each of the following regulatory requirements on transmission network service providers when making applications to the AER in relation to their allowed revenues and prices.

Post-Tax Revenue Model

This model takes as inputs the rolled forward asset base, forecasts of capex, opex and depreciation and calculates the revenue requirement that results for a business. This is a major regulatory tool used in a revenue determination. It also provides the baseline for the price-path for a regulatory control period which can be adjusted (or "smoothed") to avoid sudden price changes using a profile nominated by the regulated business.

Roll-Forward Model

Businesses are required to adjust their regulatory asset base at the end of the current regulatory control period to give an opening asset base for the next period for which a revenue determination is to be made. In addition, regulated businesses are required to use the model to forecast their closing asset base for each year in the next period. This data is an essential input into the post-tax revenue model.

Efficiency Benefit Sharing Scheme

This scheme sets out an incentive mechanism whereby the business can earn additional revenue or be penalised depending on whether the business beats or exceeds targets for its operational expenditure in each year of the regulatory control period.

Service Targets Performance Incentive Scheme

This scheme relates to the actual services provided by the regulated business. It provides opportunities for additional income or penalties to apply depending on whether a business meets, or fails to meet, performance targets for the identified services.

Submission Guidelines

Comprehensive and accurate data is required to process an application for a revenue determination. The submission guideline sets out through a series of templates and spreadsheets and accompanying explanatory materials a comprehensive listing of data needed to efficiently and effectively process an application for a revenue determination.

Cost Allocation Guidelines

Sets out the basis on which a business must allocate costs to the categories of activity within the business. Its primary purpose is to ensure that costs charged to regulated activities are properly related to those regulated activities. Note that this guideline does not cover the allocation of costs for pricing purposes which is to be subject of the pricing guideline under separate development.

Issued date: 
31 January 2007
AER reference: 
NR 001/07
Steve Edwell, AER Chairman 03 9290 1421 0423 047 554
Lin Enright, Media 02 6243 1108 0414 613 520
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