Victoria F-factor amount determinations for 2012

Background

On 24 June 2010, the Victorian Parliament passed the Energy and Resources Legislation Amendment Act 2010. The Act amended the National Electricity (Victoria) Act 2005 (the NEVA) to introduce an 'f-factor scheme'. The Victorian Government published the f-factor scheme order 2011 (the Order) on 23 June 2011 under the NEVA. The scheme provides incentives for Distribution Network Service Providers (DNSPs) to reduce the risk of fire starts due to electricity infrastructure, and to reduce the risk of loss or damage caused by fire starts. The Order prescribes that, for the first four years of the scheme (2012-15), DNSPs will be either rewarded or penalised at the pre-determined incentive rate of $25,000 per fire for performing better or worse than their respective targets.

The scheme works by rewarding distribution network businesses for reducing the number of fire starts compared to their targets and penalising them if they go above their targets.

The f-factor scheme order 2011 (the Order) prescribes that the AER sets the fire start targets for 2012-15 on the basis of a historical average and to determine the annual reward/penalty amounts for this period, at the predetermined rate of $25,000 per fire. The Order also requires us to publish a draft "f-factor amount determination" for consultation before determining the final reward or penalty amounts each year.

On 22 December 2011, we (the AER) made our f-factor scheme final determination. This set the fire start benchmark target for each Victorian DNSP. As required by the Order, the targets were based on the average of historical fire starts of each DNSP over the five previous calendar years — that is, the average of 2006-10.

This f-factor amount determination

Following public consultation, we decided to confirm our decision to adopt our previously published draft determination, on 20 June 2013, for the 2012 fire start results. 

Under this determination, each of the Victorian DNSPs will receive a reward under the scheme as their actual number of fire starts for the 2012 year were below that of their respective fire start targets. This will mean a small increase in network tariffs of between $0.03 to $3.16 for the 2014 calendar year, depending on a customer’s distribution area. The table below provides further details of the average impact on customers' network charges for 2014. 

The f-factor is an incentive scheme. DNSPs can only retain their rewards for sustained and continuous improvements. Once improvement is made, the benchmark fire-start targets will be tightened in future years.