The revenues and prices for many of the services delivered by our network are subject to controls, which are determined by an independent regulator under a legislative framework. These controls are established every 5 years, the most recent determination being made in April 2009 for the period 2009-2014.
Regulatory framework
Three key changes have occurred in the regulatory framework applicable to Ausgrid in the last five years:
- In 2005, the National Electricity Market (NEM) institutions and legal framework were substantially reformed through amendments to the National Electricity Law (NEL). These amendments included the conversion of the National Electricity Code which governed the operation of the NEM and access to distribution and transmission networks into National Electricity Rules and the establishment of the Australian Energy Market Commission as the body responsible for making rules and market development. A new specialised regulator, the Australian Energy Regulator was established to monitor and enforce compliance with the Rules and to be responsible for economic regulation of transmission networks.
- Commencing in January 2008, responsibility for regulating energy distribution networks was transferred from IPART in NSW, to the AER. At the same time, the National Electricity Rules, provided a new framework for the economic regulation of distribution networks.
- In December 2008, the Minister for Energy imposed new conditions upon Ausgrid’s distribution licence with respect to network design and planning, and reliability outcomes.
2009-14 Distribution determination
On 2 June 2008, Ausgrid filed a Regulatory Proposal with the AER to approve revenues and prices for electricity distribution services for the period from 1 July 2009 to 30 June 2014.
In April 2009, the AER made its determination and approved the majority of Ausgrid’s capital program of network investment for the next five years. Ausgrid will invest in the network between 2009-14 to meet our obligations in providing a quality network service to our customers. This program is designed to:
- Serve growing demand for electricity and customer connection
Ausgrid is witnessing an increase in domestic air conditioning use that continues to drive up peak demand. In the residential sector, peak demand growth outstrips energy growth by a wide margin.
- Replace ageing assets
Ausgrid has the oldest energy distribution network in Australia, with many assets over 50 years old. As these assets age, their ability to provide a safe, secure, and reliable energy supply decreases.
- Comply with the network planning and reliability licence conditions
These licence conditions drive investment to ensure sufficient equipment is in place to restore supply quickly in the event of a failure.
The AER also approved an amount of operating expenditure for the period to address the significant impacts of:
- increased workload largely arising from the larger asset base, adding approximately 25 percent to direct maintenance costs;
- increased workload due to the average age of certain asset classes, which requires more preventative and corrective maintenance;
- increased costs for labour and materials for the electricity supply sector.
The operating cost increase in the next period is consistent with the growth in the size of the network, input cost escalations and changes in costs driven by new obligations and improved management systems.