Chapter 4: Controls on revenue and prices for Standard Control Services

Transcription

1 Chapter 4: Cntrls n revenue and prices fr Standard Cntrl Services Intrductin The AER places cntrls n the amunt f revenue we are allwed t cllect fr ur Standard Cntrl Services thrugh a revenue cap, cnsistent with the arrangements in the NER. This chapter details Ergn Energy s prpsal fr hw the frm f cntrl will be translated int charges fr custmers. These cntrls ultimately specify hw Ergn Energy can prpse prices each year, cnsistent with the revenue cap, taking int accunt adjustments allwed fr matters such as inflatin, incentive schemes, any under r ver recveries frm previus years, r any cst pass thrugh amunts. Custmer benefits In cnsidering the pricing matters in this chapter we have lked t minimise price vlatility where ever pssible, deliver price relief at the beginning f the perid and keep increases verall in netwrk charges n average under inflatin. Regulatry Prpsal

2 4. Cntrls n revenue and prices fr Standard Cntrl Services 4.1 Backgrund Fr Standard Cntrl Services, the AER will place cntrls n the amunt f revenue we can cllect fr these services (a revenue cap ) cnsistent with the arrangements in the NER. This will determine the cap n revenue each year, as well as hw Ergn Energy will prpse prices cnsistent with the revenue cap, taking int accunt adjustments allwed fr matters such as inflatin, incentive schemes, any under r ver recveries frm previus years, r any cst pass thrugh amunts. This chapter details Ergn Energy s prpsal fr hw the frm f cntrl will be translated int charges fr custmers and cnsiders a range f ther pricing matters that need t be addressed as part f the Distributin Determinatin. These include: hw prices and/r revenues will be cntrlled ver the regulatry cntrl perid, 40 including the frm f the cntrl mechanism 41 and the X-factr 42 hw cmpliance with the cntrl mechanism will be demnstrated 43 hw custmers will be assigned t tariff classes and, if required, be re-assigned between tariff classes 44 hw designated pricing prpsal charges (r Transmissin Use f System (TUOS) charges) will be recvered, including any unders and vers adjustments 45 hw Ergn Energy will reprt n recvery f any jurisdictinal scheme amunts, including any unders and vers adjustment fr each scheme. 46 Additinally, this chapter utlines ther ptential adjustments t the allwable revenue frm factrs such as cntingent prjects and pass thrugh events. 4.2 Applicatin f the standard cntrl frmula The Framewrk and Apprach Paper indicated that the Standard Cntrl Services frmula that wuld apply in the next regulatry cntrl perid wuld take the fllwing frm: Revenue cap (as determined by the PTRM): (1) AR t = AR t 1 (1 + CPI t ) (1 X t ) Ttal allwed revenue (including adjustments): n m (2) TR t = AR t + I t + B t + C t t t q ij TR t = i=1 j=1 p ij i = 1,, n and j = 1,, m and t = 1,, 5 40 NER, clause 6.2.5(a). 41 NER, clause (11). 42 NER, clause (12). 43 NER, clause (13). 44 NER, clause (17). 45 NER, clause (19). 46 NER, clause (20). Regulatry Prpsal

3 Where: AR t is the allwed revenue fr regulatry year t. Fr the first year f the regulatry cntrl perid , this amunt will be equal t the smthed revenue requirement fr set ut in the PTRM apprved by the AER. The subsequent years allwed revenue is determined by adjusting the previus year s allwed revenue fr CPI and the X-factr CPI t is the annual percentage change in the Australian Bureau f Statistics (ABS) CPI All Grups, Weighted Average f Eight Capital Cities frm December in year t 2 t December in year t 1 X t is the X-factr fr each year f the next regulatry cntrl perid as determined in the PTRM TR t is the ttal revenue allwable in year t I t is the sum f incentive scheme adjustments in year t B t is the sum f annual adjustment factrs in year t. Likely t incrprate but nt limited t adjustments fr the vers and unders accunt C t is the sum f adjustments likely t incrprate but nt limited t pass thrugh events and feed-in tariff payments that are nt made under jurisdictinal schemes p t ij is the price f cmpnent i f tariff j in year t q t ij is the frecast quantity f cmpnent i f tariff j in year t Cmpnents f the revenue cap and ttal allwed revenue frmula The fllwing pints are made in respect f the prpsed frmula: Adjustments assciated with the trailing average cst f debt will be made in the X t cmpnent f the AR t frmula (refer t ur supprting dcument Cmpliance with Cntrl Mechanisms). Based n the current and prpsed incentive scheme arrangements, I t is likely t incrprate adjustments relating t: STPIS. This includes rewards r penalties assciated with ur perfrmance under the scheme in and , which will result in adjustments in and , respectively. It als encmpasses rewards r penalties relating t ur perfrmance under the scheme in the first three years f the next regulatry cntrl perid, which will generally result in adjustments tw years after the respective perfrmance year. DMIS. Under the current DMIS, 47 the AER will calculate a ttal carryver amunt t accunt fr any amunt f allwance unspent r nt apprved ver the current regulatry cntrl perid and the time value f mney accrued/lst as a result f the expenditure prfile selected by Ergn Energy. The final carryver amunt will be deducted frm/added t allwed revenue in AER (2008), Demand Management Incentive Scheme, Energex, Ergn Energy and ETSA Utilities , Octber 2008, p8. Regulatry Prpsal

4 B t will encmpass: any under r ver-recveries relating t capital cntributins and shared assets frm and the DUOS under and ver-recvery adjustments apprved t be passed thrugh in the relevant pricing year. C t is expressed quite bradly in the frmula fr ttal revenue and is likely t be used fr a number f adjustments thrughut the regulatry cntrl perid. We cnsider that it shuld include adjustments assciated with: FiT cst pass thrugh amunts relating t and amunts relating t the ccurrence f any f the prescribed and nminated cst pass thrugh events (refer t Sectin 4.4) ther ne-ff revenue adjustments apprved by the AER. This wuld be used in limited circumstances, and nly t the extent that such adjustments are unable t be accunted fr within ther parameters f the revenue cap frmula. Fr example, in the next regulatry cntrl perid, this adjustment culd (if required) encmpass any ther true-up adjustments which may be necessary between the AER s Preliminary Determinatin and Substitute Determinatin. Further infrmatin n ur prpsed treatment f the revenue cap cmpnents in the next regulatry cntrl perid is cntained in ur supprting dcument Cmpliance with Cntrl Mechanisms. 4.3 Pricing arrangements Clause 6.18 f the NER details the distributin pricing rules t apply t Ergn Energy s tariffs and tariff classes related t Direct Cntrl Services in the next regulatry cntrl perid. The fllwing sectins set ut the appraches t setting tariffs that Ergn Energy intends t adpt. Ergn Energy will submit a full Pricing Prpsal t the AER fllwing the publicatin f the AER s Preliminary Determinatin, cnsistent with the requirements under clause f the NER Allcatin f ARR t tariffs The prcess fr allcating and cnverting the ARR t netwrk tariffs fr varius custmers grups is described in detail in ur website publicatin Infrmatin Guide fr Standard Cntrl Services Pricing. 48 At a high level, the ARR is allcated t the three pricing znes (being East, West and Munt Isa) and the znal csts are apprtined t different asset categries within each zne. The csts within the znes are then assigned t ur fur netwrk user grups and cnverted int netwrk tariffs that recver the csts. TUOS charges and jurisdictinal scheme charges are then allcated t custmers. 48 Available at Regulatry Prpsal

5 In accrdance with clause f the NER, Ergn Energy des nt charge netwrk users DUOS charges fr the exprt f electricity generated by the user int the distributin netwrk. Hwever, charges fr the prvisin f cnnectin services may apply Side cnstraints Clause (b) f the NER requires the expected weighted average revenue t be raised frm a Standard Cntrl Services tariff class t nt exceed the crrespnding expected weighted average revenue frm the preceding year by mre than a permissible percentage (side cnstraint). Under clause (d) f the NER the fllwing recvery f revenue is t be disregarded in deciding whether the permissible percentage (side cnstraint) has been exceeded in a particular regulatry year: a variatin t the distributin determinatin as a result f cst pass thrugh under clause 6.6 f NER a revcatin and substitutin f distributin determinatin fr wrng infrmatin r errr under clause 6.13 f NER pass thrugh f designated pricing prpsal charges pass thrugh f jurisdictinal scheme amunts fr apprved jurisdictinal schemes any increase in the ARR as a result f changes t the allwed rate f return (effected thrugh applicatin f the cntrl mechanism frmula specified in the distributin determinatin). In sectin f the AER s Final Distributin Determinatin, the AER prvided further guidance n the applicatin f side cnstraints, and utlined a frmula that Ergn Energy was t use t demnstrate that prpsed DUOS prices set thrugh the annual Pricing Prpsal prcess met the permissible percentage. The AER s Framewrk and Apprach Paper did nt cver matters f detail relating t annual Pricing Prpsals (such as the side cnstraint frmula). Hwever, Ergn Energy expects the new NER requirements fr the allwed rate f return, as well as changes the AER has made t the revenue cap frmula will have a cnsequential impact n the side cnstraint frmula. Further infrmatin is set ut in ur supprting dcument Cmpliance with Cntrl Mechanisms DUOS unders and vers accunt Ergn Energy currently reprts t the AER annually in ur Pricing Prpsal n the recvery f DUOS frm ur netwrk tariffs, and makes adjustments t subsequent pricing perids t accunt fr ver r under recvery f thse charges in accrdance with the DUOS unders and vers accunt set ut in the Distributin Determinatin Ergn Energy prpses t apply a principles-based apprach in the next regulatry cntrl perid which seeks t balance the need t: reduce the amunt f ver r under recveries ver time minimise vlatility fr prices in the shrt r lnger term s as nt t exacerbate future ver r under recveries. Included in ur prpsal is an apprach that allws fr flexibility if future ver r under recveries can be reasnably freseen. Finally, we prpse that the AER shuld allw clearance f under r Regulatry Prpsal

6 ver balances t span regulatry cntrl perids (where apprpriate). Further infrmatin can be fund in ur supprting dcument Cmpliance with Cntrl Mechanisms Assignment f custmers t tariff classes Assignment r reassignment f custmers t Ergn Energy s Standard Cntrl Service tariff classes ccurs as result f: new cnnectins t the netwrk existing custmers applying fr increased capacity n the netwrk a change in the custmer s Natinal Metering Identifier classificatin annual review as part f the prcess fr develping and submitting the Pricing Prpsal fr apprval by the AER requests fr a review f the assigned netwrk tariff r tariff class by either a custmer and/r retailer. Our Infrmatin Guide fr Standard Cntrl Services Pricing 49 sets ut the current prcedures fr assigning r reassigning custmers t tariff classes, as well as reviewing the basis n which a custmer is charged. These prcesses have been effective during the current regulatry cntrl perid and are cnsistent with the principles gverning assignment r re-assignment f custmers t tariff classes set ut in clause f the NER. Therefre, we prpse t cntinue t apply these prcedures in the next regulatry cntrl perid Designated pricing prpsal charges Under clause f the NER, Ergn Energy s pricing prpsal must prvide fr tariffs designed t pass n t retail custmers the designated pricing prpsal charges t be incurred by us fr TUOS services. The NER defines designated pricing prpsal charges as any f the fllwing: charges fr prescribed exit services, prescribed cmmn transmissin services and prescribed TUOS services avided custmer TUOS charges charges fr distributin services prvided by anther DNSP charges r payments specified in clause f the NER. The amunt t be passed n fr a particular regulatry year must nt exceed the estimated amunt f the TUOS charges adjusted fr ver and under recvery. Clause (c) f the NER sets ut hw the ver and under recvery amunt must be calculated. Specifically: it must be cnsistent with the methd determined in the AER s Distributin Determinatin the amunt must be n mre and n less than the TUOS charges Ergn Energy incurs it must adjust fr an apprpriate cst f capital that is cnsistent with the allwed rate f return used in the relevant Distributin Determinatin fr the relevant regulatry year. 49 Available at Regulatry Prpsal

7 Our supprting dcument 50 includes details f ur reprting and calculatin f designated pricing prpsal charges. Ergn Energy currently reprts t the AER annually in ur Pricing Prpsal n the recvery f TUOS frm ur netwrk tariffs, and makes adjustments t subsequent pricing perids t accunt fr ver r under recvery f thse charges in accrdance with the Distributin Determinatin Ergn Energy prpses t cntinue this prcess in the upcming regulatry cntrl perid. With the exceptin f changes t transitinal arrangements, ur apprach is cnsistent with current perid arrangements. Ergn Energy ntes that a transitinal definitin f designated pricing prpsal charges applied t Ergn Energy in the regulatry cntrl perid Specifically, designated pricing prpsal charges included: charges levied n Ergn Energy fr use f the 220kV netwrk which supplies the Clncurry twnship as apprved by the AER in its Distributin Determinatin charges levied by Pwerlink n Ergn Energy fr entry services and exit services at the fur cnnectin pints, being Queensland Nickel, Stney Creek, King Creek and Oakey Twn. 52 Cnsistent with the AER s psitin in the Framewrk and Apprach Paper, Ergn Energy has included the charges levied n Ergn Energy fr the use f the 220kV netwrk that supplies the Clncurry twnship in the perating expenditure frecasts fr Standard Cntrl Services. We have included these csts as a bttm up adjustment t the base year perating expenditure (see Appendix A fr mre detail). We have als included the charges levied by Pwerlink fr entry and exit services at the three nnprescribed cnnectin pints in the perating expenditure frecasts fr Standard Cntrl Services fr and Ergn Energy understands that Pwerlink is cnsidering applying t the AER t have these cnnectin services classified as prescribed services fr its next regulatry cntrl perid, cmmencing n 1 July Subject t apprval by the AER, the csts will therefre be reflected in the TUOS charges frm nwards Jurisdictinal schemes Clause A f the NER states that a Pricing Prpsal must prvide fr tariffs designed t pass n t custmers a DNSP s jurisdictinal scheme amunts fr apprved jurisdictinal schemes. In Queensland, the Slar Bnus Scheme 53 will apply as a jurisdictinal scheme in the next regulatry cntrl perid. The amunt t be passed n t custmers fr a particular regulatry year must nt exceed the estimated amunt f the jurisdictinal scheme amunts fr a DNSP s apprved jurisdictinal schemes adjusted fr ver r under recvery Designated Pricing Prpsal Charges 51 NER, clause There will nly be three nn-prescribed cnnectin pints in the next regulatry cntrl perid. 53 Pursuant t sectin 44A f the Electricity Act 1994 (Qld). 54 NER, clause A(b). Regulatry Prpsal

8 Clause A(c) f the NER details hw the ver and under recvery amunt must be calculated. Specifically: it must be cnsistent with the methd determined in the AER s Distributin Determinatin, r where n such methd has been determined, with the methd determined by the AER in the relevant Distributin Determinatin in respect f TUOS charges the amunt must be n mre and n less than the jurisdictinal scheme amunts Ergn Energy incurs it must adjust fr an apprpriate cst f capital that is cnsistent with the allwed rate f return used in the relevant Distributin Determinatin fr the relevant regulatry year. Slar Bnus Scheme The csts f the FiT paid under the Slar Bnus Scheme were treated as perating expenditure fr the current regulatry cntrl perid, with the differences between the frecast FiT payments and actual FiT payments being a nminated pass thrugh event. Once the cst pass thrugh amunts are apprved, Ergn Energy adjusted ur annual revenue allwances t pass thrugh these amunts t custmers in ur DUOS charges. In practice, this means there is a tw year lag between the year in which the payments are made, and the year in which adjustments are made t prices t fully recver amunts assciated with FiT payments. Fr example, in ur DUOS charges, amunts were factred in t recver the under-recvery f actual FiT payments made in the year. In the next regulatry cntrl perid, Ergn Energy prpses that these csts be recvered as jurisdictinal scheme amunts. We prpse that the recvery f the csts be delayed by tw years, such that the jurisdictinal scheme amunt fr wuld be recvered in , the jurisdictinal scheme amunt fr wuld be recvered in , and s n. This apprach will avid recvery f bth a FiT cst pass thrugh amunt and jurisdictinal scheme amunt in a single year, which wuld create price shcks fr custmers. Fr example, the under-recvery f actual FiT payments made in the year wuld be recvered in and the jurisdictinal scheme amunt fr wuld be recvered in , instead f bth being recvered in Table 14 sets ut the frecast FiT payments under the Slar Bnus Scheme and the timing f the prpsed recvery f the jurisdictinal scheme amunts. Table 14: Frecast jurisdictinal scheme amunts, Slar Bnus Scheme $m (real ) Frecast feed-in tariff payments Prpsed recvery f jurisdictinal scheme amunts Mre detailed infrmatin n the estimatin f the frecast jurisdictinal scheme amunts fr the Slar Bnus Scheme, and hw we prpse t recver these amunts, is prvided in ur supprting dcument Jurisdictinal schemes. Delaying the recvery f the jurisdictinal scheme amunts fr the Slar Bnus Scheme means that the actual amunts paid will be knwn when the amunt is included in the annual revenue Regulatry Prpsal

9 submitted in the Pricing Prpsal. This means that there will be n need fr the jurisdictinal scheme amunts t be estimated in advance, and n need fr an adjustment mechanism t accunt fr differences between frecast and actual payments. 4.4 Prpsed pass thrugh events A cst pass thrugh may ccur within a regulatry cntrl perid when a pre-defined event ccurs which materially increases r decreases a DNSP s csts t deliver Direct Cntrl Services. In these circumstances, the AER may apprve a psitive (negative) pass thrugh amunt under the cst pass thrugh prvisins in the NER, effectively adjusting the apprved revenue f a DNSP during a regulatry cntrl perid. There are a number f pre-defined events set ut in clause 6.6.1(a1) f the NER. In additin, the NER als prvides that the Distributin Determinatin may specify any ther event as a pass thrugh event. Ergn Energy prpses the fllwing events be specified as pass thrugh events fr the next regulatry cntrl perid: natural disaster event insurance cap event insurance event retail separatin event islated netwrks separatin event. Ergn Energy cnsiders these events meet the nminated pass thrugh event cnsideratins set ut in the NER. Our prpsed definitins and reasns why these events shuld be cnsidered pass thrugh events is cntained in ur supprting dcument Nminated cst pass thrugh events. 4.5 Cntingent prjects Cntingent prjects are significant prjects that are reasnably required t meet the capital expenditure bjectives if a given trigger event ccurs. In rder t be cnsidered a cntingent prject, the capital expenditure must be at least $30 millin r 5% f Ergn Energy s ARR fr the first year f the regulatry cntrl perid, whichever is the larger amunt. Ergn Energy undertk an assessment prcess t identify ptential cntingent prjects. This assessment: identified thse prjects in Ergn Energy s Netwrk Capital Plan whse frecast capital expenditure exceeded the cntingent prject threshld fr thse prjects identified abve the threshld, cnsidered whether the prject: has an apprpriately defined trigger event is reasnably required t meet the capital expenditure bjectives reasnably reflects the capital expenditure criteria. Regulatry Prpsal

10 Using this assessment apprach, Ergn Energy identified the fllwing prject fr cnsideratin as a cntingent prject: Cairns Nrthern Beach Supply Reinfrcement Our supprting dcument Prpsed Cntingent Prjects sets ut the assessment apprach undertaken by Ergn Energy t reach this cnclusin. We have als put frward, fr cnsideratin, a general cntingent prject t cver large custmer cnnectins that are unknwn t Ergn Energy at this time, which will result in a material amunt f shared netwrk augmentatin during the next regulatry cntrl perid. 4.6 Indicative prices The fllwing tables set ut indicative prices fr selected Standard Asset Custmer (SAC) 55 tariffs fr each year f the next regulatry cntrl perid, as required under clause 6.8.2(c)(4) f the NER. These indicative prices are expressed in nminal terms. Our respnse t the Regulatry Infrmatin Ntice prvides indicative prices fr ur larger custmers. 56 Table 15: Indicative prices fr SAC Small Inclining Blck Tariff (IBT) Residential East, IBT Residential (ERIB) Fixed ($/day) Energy Blck 1 ($/kwh) Energy Blck 2 ($/kwh) Energy Blck 3 ($/kwh) Table 16: Indicative prices fr SAC Small Time-f-Use (TOU) Residential East, TOU Residential (ERTOU) Fixed ($/day) Energy Peak ($/kwh) Energy Shulder ($/kwh) Energy Off Peak ($/kwh) Typically custmers with energy cnsumptin less than 4GWh per annum. This includes custmers with micr generatin facilities (such as small scale phtvltaic generatrs) that have similar service cnnectin and usage prfiles as ther Standard Asset Custmers withut such facilities. SACs are split int tw sub-grups: SAC Small (i.e. thse custmers wh cnsume less than 100MWh per annum) and SAC Large (i.e. thse custmers wh cnsume 100MWh r mre per annum). Fr mre infrmatin n ur SAC netwrk tariffs, refer t ur Infrmatin Guide fr Standard Cntrl Services Pricing available at 56 Refer t templates 7.6 and 7.7. Regulatry Prpsal

11 Table 17: Indicative prices fr SAC Small IBT Business East, IBT Business (EBIB) Fixed ($/day) Energy Blck 1 ($/kwh) Energy Blck 2 ($/kwh) Energy Blck 3 ($/kwh) Table 18: Indicative prices fr SAC Small TOU Business East, TOU Business (EBTOU) Fixed ($/day) Energy Peak ($/kwh) Energy Shulder ($/kwh) Energy Off Peak ($/kwh) Table 19: Indicative prices fr SAC Large Demand High Vltage East, Demand High Vltage (EDHT) Fixed ($/day) Demand kw ($/kw/mnth) Demand kva ($/kva/mnth) Energy ($/kwh) Excess kvar ($/kvar/mnth) Regulatry Prpsal

12 Table 20: Indicative prices fr SAC Large Demand Large East, Demand Large (EDLT) Fixed ($/day) Demand kw ($/kw/mnth) Demand kva ($/kva/mnth) Energy ($/kwh) Excess kvar ($/kvar/mnth) Table 21: Indicative prices fr SAC Large Demand Medium East, Demand Medium (EDMT) Fixed ($/day) Demand kw ($/kw/mnth) Demand kva ($/kva/mnth) Energy ($/kwh) Excess kvar ($/kvar/mnth) Table 22: Indicative prices fr SAC Large Demand Small East, Demand Small (EDST) Fixed ($/day) Demand kw ($/kw/mnth) Demand kva ($/kva/mnth) Energy ($/kwh) Excess kvar ($/kvar/mnth) Regulatry Prpsal

13 4.7 Supprting dcumentatin The fllwing dcuments referenced in this chapter accmpany ur Regulatry Prpsal: Name Ref File name Demnstratin f Cmpliance with Cntrl Mechanisms Cmpliance with cntrl mechanisms Designated pricing prpsal charges Designated pricing prpsal charges Jurisdictinal schemes Jurisdictinal schemes Nminated cst pass thrugh events Nminated pass thrugh events Prpsed Cntingent Prjects Cntingent prjects Regulatry Infrmatin Ntice N/A Our respnse t the AER s RIN is cntained in a number f files attached t this prpsal Regulatry Prpsal