The Australian Energy Regulator has issued its transitional determinations for TransGrid and Transend for the placeholder regulatory period of 1 July 2014 – 30 June 2015. These decisions will determine transmission prices for New South Wales and Tasmanian customers in this period.
“Our decisions are expected to reduce the average residential customer electricity charges in NSW and Tasmania,” AER Chairman Andrew Reeves said.
TransGrid and Transend are the principal electricity transmission network service providers in NSW and Tasmania, respectively. The AER’s transitional determinations set the maximum revenue, that TransGrid and Transend can recover from their customers in 2014-15 via the transmission network component of an electricity charge.
“The AER has not accepted the revenue allowances proposed by TransGrid and Transend for the transitional year. The AER has applied a lower rate of return and corporate tax allowance, consistent with our rate of return guideline and recent market trends.
The AER estimates that if the lower transmission charges are passed on to end customers, the average annual electricity charge for customers in NSW will reduce by $4 and for customers in Tasmania the average annual charge will reduce by $20, over the next 12 months. If this occurs, these reductions will be greater for larger customers.
“In comparison, if we had accepted the businesses’ proposals, the average annual residential charges in NSW would increase by around $12 and the average annual charges in Tasmania would decrease by around $5,” Mr Reeves said.
The placeholder determination process has been designed so that the AER is required only to make a high level assessment of the revenue proposals. The placeholder determination is a placeholder based on indicative inputs. Any differences between our placeholder revenue allowance and our approved revenue allowance in the full determination will be recovered as part of our full determination to be published by 30 April 2015.
Apart from the adjustments for a lower cost of capital and corporate tax allowance, the AER has not made any adjustments to the revenue proposals for these businesses for the transitional year. All aspects of the revenue proposals will be examined in detail as part of the AER’s full determination process.In considering TransGrid’s and Transend’s revenue proposals for the transitional period, the AER is required to be satisfied that the revenue allowances for these businesses are reasonably likely to minimise price shocks to consumers.
TransGrid has an under-recovery of around $71 million in 2013-14 and Transend has an under-recovery of $37 million across 2012-13 and 2013-14 associated with their revenue caps. Any decision by the service providers to recoup these under-recoveries in future prices, including in 2014-15, could affect transmission prices fortheir customers. These amounts can be recovered at the discretion of the service providers and are outside the scope of this determination.
Transgrid and Transend were to have their full revenue determinations, typically for the next five year period, in place by 1 July 2014. However, to enable recent reforms to the regulatory framework to immediately apply to these service providers, these full determinations were delayed and transitional arrangements were introduced to provide these businesses with a placeholder revenue allowance for 2014-15 until the full determinations are made by the AER in April 2015.