Making the case for electricity network investment expenditure

As the regulatory regime applying to electricity network businesses continues to evolve, the requirements in relation to transparency and communication of investment decisions by electricity transmission and distribution network service providers continue to increase. These are driven by a combination of consumer interest in better understanding why certain expenditure is required, a lower electricity demand environment than previously anticipated and the increasing viability of non-network alternatives.

Our experts worked extensively with South Australian transmission provider, ElectraNet, on the preparation of its regulatory proposal for the 2018-2023 period to develop and implement a number of best practices for undertaking economic assessments of investment programs. The objective was to adopt simple modelling and presentation techniques that would inspire confidence by stakeholders that projects were being assessed using an economically robust framework and that, ultimately, any expenditure to be recovered from customers was, in fact, prudent and efficient.

We prepared a number of handbooks and economic models that ElectraNet practitioners applied in reviewing various ‘options’ for capital and operating expenditure for the purposes of proposing prudent and efficient expenditure to the Australian Energy Regulator (AER). We subsequently led the review of around 60 individual capital expenditure projects (~85 per cent of ElectraNet’s total capital expenditure proposal) and six operating expenditure projects to identify the prudent and efficient capital and operating expenditure (and include in their proposal).

Our work culminated in the preparation of:

• a presentation to ElectraNet’s Board as well as a separate presentation to the AER and the Consumer Advocacy Panel as part of an early consumer engagement initiative; and
• an independent report submitted to the AER along with ElectraNet’s regulatory proposal, which can be found here.

Feedback from this process reinforced that it was highly commendable, consistent with best practice and exceeded the level of rigour applied in the past.

The AER released its Draft Decision for ElectraNet in October 2017 and accepted 100 per cent of ElectraNet’s proposed capital expenditure –the first time such an outcome has been achieved by any electricity network businesses in the history of the National Electricity Market.

A more structured, transparent process also saved ElectraNet, the AER and consumer groups time and effort in preparing and assessing its regulatory proposal.

Other reports and case studies

View all