Customer and Consumer Panel 21 August 2015
Welcome to Powerlink Gerard Reilly
Introductions Amanda Newbery
Meeting overview • Revenue Proposal update – Ian Lowry • Afternoon tea (10 mins) • Pricing overview presentation – Ben Wu • Pricing discussion • Meeting Recap
Revenue Proposal Update Ian Lowry – Revenue Reset Leader
Revenue Proposal • Key Revenue Proposal milestones • Stakeholder feedback • Early indicative forecasts
Revenue Reset timetable Date Activity June 15 AER Framework and Approach Paper published 30 Jun 2015 Powerlink lodged Expenditure Forecasting Methodology and Overview sheets 31 Jan 2016 Powerlink to lodge Revenue Proposal * May 2016 AER invites public submissions on Powerlink’s Revenue Proposal * Sep 2016 AER publishes Draft Determination Dec 2016 Powerlink to submit Revised Revenue Proposal Apr 2017 AER to publish Transmission Determination *Indicative
Using your feedback • Further analysis • Trend identification Benchmarking • Opportunities to drive further efficiencies • Analysis of long-term opex performance Opex base year • Trend and category analysis (2014/15) • Decision making framework • Projects over $10m Capex criteria • Network reconfiguration or non- network solution
Opportunities for feedback Possible reset specific forums • September – depreciation • September – pricing (Revenue Proposal/BAU) Customer and Consumer Panel • November – update on final Revenue Proposal • February – to be confirmed Other opportunities • Email us on: revenueresetteam@powerlink.com.au
Early indicative forecasts • High level overview • Key areas of focus for expenditure • Early thinking –figures may change
Total indicative capex – network & non- network
Total indicative opex
Indicative price path
Pricing Ben Wu – Regulatory and Pricing Analyst
Overview • Introduction • Tariff reform • Potential areas for change: – Pricing methodology – Business as Usual
Introduction • Transmission pricing process is not straight forward • Focus of today: – identify where more value can be provided to customers and consumers – principles for the allocation of revenue not the $ impact – receive input and guidance on where to do more work • Note: – detailed modelling of outcomes to individual customers has not been done (mindful of customer confidentiality) – each connection point impacted differently depending on load profile – transitional impacts need to be considered
Tariff reform • Recent years – greater focus on clearer pricing signals and consumer choice • Rule change (Nov 2014) – primarily focused on restructuring DNSP and retail tariffs – not directed at transmission charges – key outcome was DNSPs must use the Long Run Marginal Cost (LRMC) to determine tariffs However: • Tariff reform principles already apply to transmission pricing – Cost reflective pricing signals – Demand based charges
Feedback Revenue Proposal for 2018-22 Regulatory Period
What is Cost Reflective Network Pricing (CRNP)? • Methodology in Rules for allocating locational revenue requirements • For each connection point, the cost of using the shared network is calculated – outcome reflects peak utilisation – $ based largely on historic asset (backward-looking) costs
From CRNP to modified CRNP • CRNP and Modified CRNP are the only two methodologies allowed under the Rules for locational price setting • Modified CRNP: – similar to CRNP – gives additional utilisation signal – more reflective of LRMC – increase to non-locational bucket Pricing Signal: Locations with lower utilisation have a lower locational price (Encourages more efficient locational decisions)
Long Run Marginal Cost (LRMC) • LRMC bases charges on future investment costs • DNSPs must use LRMC to calculate network tariffs • LRMC methodology not in Rules for transmission pricing – will require a Rule change • Due to lumpy nature of transmission investment, is this appropriate? Pricing Signal: Prices signal future network costs
Alternative Locational pricing split • Currently revenue allocated to TUOS services is split 50:50 locational/non-locational • Should we use: – 75:25? – other? Pricing Signal: Increased weight to actual network usage
Demand based charges • Rules require locational charges to be demand based • Reflects costs of providing transmission network to meet peak demand – current locational charges based evenly on Maximum Demand and Average Demand • Shift to Maximum Demand only? – impacts non contract demand customers only • Need to consider impacts to avoided TUOS payments Pricing Signal: Locational prices more reflective of peak demand
Feedback Business as Usual (outside revenue reset timeframe)
Greater price predictability • For direct connect customers • Can help customers with internal business planning, budgeting and investment horizons • Option: – investigate potential to fix/limit price changes for x-years – recover variations from this by other means – potential non-prescribed service • Would this provide value to customers?
For feedback today Revenue Reset 1. Should Powerlink propose any of the changes described today (table in pre-reading) in its 2018-22 Revenue Proposal? 2. What, if any, other key pricing changes should be proposed? Business as Usual 3. Should Powerlink investigate options for providing more price predictability?
Possible changes to pricing methodology From To Impact CRNP Modified - CRNP Stronger locational utilisation based pricing signal CRNP (backward-looking) LRMC (forward-looking) LRMC signals future costs - Not allow under current Rules 50/50 locational/non- 70/30 or other Stronger weighting on locational prices. locational revenue split locational/non-locational Better reflects costs to supply each revenue split connection point. Reduced postage stamped charges. Max Demand and Average Max Demand only location Stronger locational pricing signal which Demand based locational prices better reflects costs to supply each prices connection point. - Needs to consider impacts to avoided TUOS payments to embedded generators
Questions?
Pricing discussion
Meeting Recap • Action items • Where to from here • Other business
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