The Australian Energy Regulator today issued its final 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.
"The final decision underpins a significant amount of investment in the Queensland transmission network," AER Chairman, Mr Steve Edwell, said. "The AER has approved revenues supporting investment of over $2.6 billion in the next five years. The AER is satisfied that the additional expenditure is necessary for Powerlink to respond to the strong growth in forecast electricity demand by both residential and industrial customers, and to replace ageing network assets."
"The decision provides for investment in Queensland worth about $520 million on average each year, which represents an increase of more than 80 per cent from an average annual capital expenditure by Powerlink of $283 million over the last five years," he said. "A further investment allowance of $1.4 billion 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 to meet Queensland's continuing economic growth in an environment of increasing resource constraints.
The AER has set maximum allowed revenues for Powerlink, ranging from $537 million in 2007–08 to $815 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 in the decision.
"Powerlink's investment expenditure is accompanied by increases in average transmission charges in nominal terms of 6 per cent per year over the regulatory period," Mr Edwell said. "Transmission charges represent about 8 per cent of the average cost of final delivered energy in Queensland. This increase is primarily due to the need for significantly increased investment associated with forecast high demand growth, ageing assets, high construction materials and labour costs, and increased operating expenditure to maintain an expanding network."
In making its final decision, the AER took into consideration submissions from interested parties on the draft decision and advice from independent experts. These documents are available on the AER's website.
Background
Under the National Electricity Rules, the AER is responsible for regulating the revenues associated with prescribed transmission services provided by Powerlink.
The AER was established on 1 July 2005 as an independent entity within the Australian Competition and Consumer Commission. 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. On 15 December 2006, the AER received a supplementary revenue cap proposal from Powerlink that sought an additional capex allowance of $469 million. On 8 December 2006, the AER made its draft decision prior to receiving the supplementary proposal and therefore did not take into account this information. As part of making its final decision, the AER has considered the issues raised in Powerlink's supplementary proposal.
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 kilometres 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.