The Australian Energy Regulator today released its draft decision on the amount of revenue that TransGrid, the owner and operator of the electricity transmission network in NSW and the ACT, 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 TransGrid can recover $3910 million over the regulatory period, a reduction of 8.4 per cent from TransGrid’s proposed revenue allowance.
A key driver in the decision is the AER’s reduction of TransGrid’s capital forecast by 39 per cent – a $992 million spend approved by the AER against TransGrid’s proposal of $1,638 million. TransGrid had proposed a 42 per cent increase in capital expenditure over what it spent in the current regulatory period.
AER Chair Paula Conboy said that TransGrid had not provided sufficient information to satisfy the AER that all its forecast capital expenditure is justified – in part as a result of the rapidly changing environment. However, TransGrid and other stakeholders will have the opportunity to provide further information in response to the draft determination. The cost of TransGrid’s capital expenditure program will ultimately be borne by consumers.
“We have been mindful in making this decision of the need for TransGrid to invest in infrastructure in order to provide safe and secure supply to consumers in the medium and long term.
“But the uncertainty over the timing and extent of the need for new investment means that we have taken a flexible approach in order to provide the best possible value to consumers. The AER’s role is to make sure that network businesses have done their due diligence, explored all possible options and are only asking customers to pay for essential projects. In the contemporary high priced environment, it is more important than ever that proposals are subject to thorough review,” said Ms. Conboy
An example of the flexible approach is the Powering Sydney’s Future project. TransGrid had forecast a need to spend $331 million on the project to augment supply to the Sydney inner-city metro and CBD areas.
The AER has not approved this forecast spending in this determination as it does not agree with some of the assumptions made by TransGrid underpinning the proposal. However, the AER recognises that the project may be needed in the future and will be seeking further detail from TransGrid.
“Through this draft decision we are asking for more information and justification from TransGrid for what is a major expenditure proposal. Given the current uncertainty as to the extent of the need and timing for the project, we consider that Powering Sydney’s Future should be a contingent project. We will be working with TransGrid on areas of concern we’ve identified in relation to these contingent projects in this draft determination” said Ms Conboy.
The AER also recognises that TransGrid has advised additional contingent spending such as the high voltage transmission elements of the proposed ‘Snowy 2.0’ project have not been included in this revenue proposal and will need to be considered further.
“Projects like ‘Snowy 2.0’ will inevitably have a cost implication for consumers and this will guide our thinking as we consider future revenue proposals,” said Ms. Conboy.
The AER is seeking feedback from stakeholders on this draft determination.