The Australian Energy Regulator today released a draft decision on the amount of revenue that Murraylink, the owner and operator of the electricity transmission interconnector between Victoria and South Australia, can collect through network charges for the 2018 – 23 regulatory period.
Working to make all Australian energy consumers better off now and in the future is the guiding principle of AER decision making, and as a result, we have determined that Murraylink can recover $84.6 million over the regulatory period, a reduction of 12.1 per cent from Murraylink’s proposed revenue allowance.
A key element of the AER’s decision regards Murraylink’s proposed capital expenditure in order to replace a control system that is approaching obsolescence. Murraylink had proposed a capital expenditure of $33.8 million over the regulatory period. The AER’s draft decision allows for capital expenditure of $26.6 million.
The Murraylink interconnector between South Australia and Victoria plays a vital role in providing security of supply in South Australia. In this context, it is vital that this key link in the National Energy Market has a modern, reliable control system.
AER chair Paula Conboy said the lower capital expenditure forecast reflected the need for spending on infrastructure to be prudent and efficient.
“We have been mindful in making this decision of Murraylink’s need to upgrade its control system in order to ensure secure supply of electricity to consumers. But it is consumers who ultimately foot the bill for such spending.
“Our view is that Murraylink can make this vital infrastructure improvement in a way that minimises the cost impact on households and businesses while still providing for safe and secure energy supply to South Australians,” said Ms Conboy.
Another factor in the determination is the rate of return that Murraylink can expect.
Investment is required to sustain the Murraylink interconnector and the return that the organisation must pay lenders and investors is referred to as the rate of return.
The AER draft decision sets the allowed rate of return at 5.7 per cent for 2018-19 against Murraylink’s proposed 6.54 per cent.
“We consider that Murraylink has sought a rate of return that is higher than necessary given the current investment environment. This translates to lower financing costs necessary to attract efficient investment,” said Ms. Conboy.