The Australian Energy Regulator today issued its draft decision on the revenue cap to apply to Powerlink Queensland over the regulatory period 1 July 2007 to 30 June 2012. This is the first electricity transmission revenue reset determined by the AER.
Powerlink is the sole electricity transmission network service provider in the Queensland region of the National Electricity Market.
"The draft decision accommodates a significant increase in investment in Powerlink's transmission network", AER Chairman, Mr Steve Edwell, said. "The AER has approved an investment allowance of over $2 billion in the next five years. This will allow Powerlink to respond to the rapid growth in forecast demand for electricity by both residential and industrial customers and to replace ageing network assets.
"The draft decision provides for investment in Queensland worth about $406 million on average each year, which represents an increase of more than 40 per cent from the current average level of about $286 million per year", he said. "A further investment allowance of $890 million is provided should certain defined triggers occur within the regulatory period".
In approving such a significant increase in expenditure on infrastructure, the AER took account of evidence indicating Powerlink's sound management processes and its past proven ability to deliver its capital works program in an environment of increasing resource constraints.
The AER proposes to set maximum allowed revenues for Powerlink, ranging from $536 million in 2007–08 to $736 million in 2011–12. The revenue cap is based on a post-tax nominal return on equity of 11.68 per cent and an opening asset value of around $3.8 billion.
"The AER has also applied a service standards scheme to Powerlink for the first time", Mr Edwell said. "The scheme ensures that Powerlink has an incentive to maintain its service levels and is rewarded if it is able to increase its service levels above the targets contained the draft decision".
"Powerlink's investment expenditure is accompanied by increases in average transmission charges in nominal terms of less than two per cent in the first year and around 5 per cent per year thereafter", Mr Edwell said. "Transmission charges represent around 8 per cent of the average cost of final delivered energy in Queensland".
In making its draft decision, the AER took into account submissions from interested parties and advice from independent experts. These documents are available on the AER's website.
The AER invites written submissions in response to its draft decision, which close on 9 February 2007. The AER will take into consideration issues raised by interested parties on its draft decision before issuing its final decision.
Background
Under the National Electricity Rules (rules), the AER is responsible for regulating the revenues associated with the non-contestable transmission services provided by Powerlink.
The AER was established on 1 July 2005 as an independent entity within the Australian Competition and Consumer Commission (ACCC). Before 1 July 2005, the ACCC was responsible for regulating Powerlink's revenues. Powerlink's current revenue cap expires on 30 June 2007.
On 3 April 2006, Powerlink submitted an application for the AER to determine its revenue cap for the period from 1 July 2007 to 30 June 2012. The AER is required to provide Powerlink with sufficient revenues to meet the efficient costs of maintaining and developing its network at a specified level of service, given the forecast growth in demand for electricity transmission services.
Powerlink is a Queensland government owned corporation. It owns, develops, operates and maintains Queensland's only high voltage electricity transmission network. This network:
- is used to transport electricity from generators to electricity distribution networks and directly to large industrial customers in Queensland
- spans more than 1700 km from Cairns in far north Queensland to the New South Wales border in the south.
- includes over 12 000 circuit kilometres of transmission lines and cables, as well as 98 substations throughout Queensland.
Powerlink is required to determine its transmission charges based on the AER's approved revenues and the pricing principles contained in the rules.