The Australian Competition and Consumer Commission today issued its draft decision on the revenue cap for NSW and ACT electricity transmission services.
The draft decision proposes the maximum revenue that may be earned in the provision of electricity transmission (the physical wires infrastructure used for transporting high voltage electricity) in NSW and ACT for the five year period commencing July 1999. TransGrid is the main provider of transmission services in these jurisdictions, while energyAustralia provides some transmission services in NSW in parallel to TransGrid's network. The two businesses were separated from Pacific Power in 1995.
"This draft decision is the first made by the ACCC as the economic regulator of electricity transmission in the National Electricity Market," ACCC Deputy Chairman, Mr Allan Asher, said.
The ACCC assumes responsibility for the regulation of transmission services in the National Electricity Market on a progressive basis, commencing with NSW and the ACT in July 1999.
It has conducted its review in conjunction with the Independent and Pricing and Regulatory Tribunal (IPART), the NSW state regulator. The ACCC's decision draws on consultancy reports released in early April, the analysis of data and information currently before the ACCC and submissions from interested parties.
If adopted, the ACCC draft decision will result in a reduction in TransGrid's revenue, which in turn should result in lower prices for TransGrid's customers.
"The intent of the reform process at both the national and state levels is to encourage the provision of competitive inputs for Australia's existing and prospective energy intensive industries and to encourage the delivery of competitively priced electricity to consumers," Mr Asher said. "I believe this decision will help to achieve these objectives. Importantly, customers will benefit through reduced transmission charges.
The ACCC's draft decision balances the lower customer prices with the need to provide the TransGrid and energyAustralia with a reasonable return and ability to undertake prudent capital expenditure.
The ACCC's decision is in accordance with the principles in the National Electricity Code, which was established to create competition in the electricity market and provide customers with a choice of suppliers.
Consistent with these principles, the ACCC in its draft decision has adopted an opening asset base for TransGrid of $1 845 million for regulatory purposes, a figure provided to the ACCC by IPART. This compares to NSW Treasury's valuation of TransGrid of $2 064 million using the depreciated optimised replacement cost method.
The ACCC has chosen to apply a pre tax real weighted average cost of capital (WACC) of 7.25 per cent to TransGrid. This equates to a post tax nominal return on equity of approximately 11.5 per cent. The ACCC believes these figures are close to the mid point of a feasible range.
Regarding energyAustralia's transmission assets, the ACCC has adopted an opening base of $345 million and has applied the same WACC figure.
Matters such as the appropriate asset value, the weighted average cost of capital and the treatment of capital expenditure raise a number of substantive issues. The ACCC welcomes feedback and submissions on these issues.
The ACCC will hold a public forum on 3 June 1999 regarding its draft decision. The ACCC has also called for submissions from interested parties on its decision. Submissions are due by 11 June. The ACCC will consider the issues raised at the public forum and submissions from interested parties before making a final decision.
The draft decision proposes the maximum revenue that may be earned in the provision of electricity transmission (the physical wires infrastructure used for transporting high voltage electricity) in NSW and ACT for the five year period commencing July 1999. TransGrid is the main provider of transmission services in these jurisdictions, while energyAustralia provides some transmission services in NSW in parallel to TransGrid's network. The two businesses were separated from Pacific Power in 1995.
"This draft decision is the first made by the ACCC as the economic regulator of electricity transmission in the National Electricity Market," ACCC Deputy Chairman, Mr Allan Asher, said.
The ACCC assumes responsibility for the regulation of transmission services in the National Electricity Market on a progressive basis, commencing with NSW and the ACT in July 1999.
It has conducted its review in conjunction with the Independent and Pricing and Regulatory Tribunal (IPART), the NSW state regulator. The ACCC's decision draws on consultancy reports released in early April, the analysis of data and information currently before the ACCC and submissions from interested parties.
If adopted, the ACCC draft decision will result in a reduction in TransGrid's revenue, which in turn should result in lower prices for TransGrid's customers.
"The intent of the reform process at both the national and state levels is to encourage the provision of competitive inputs for Australia's existing and prospective energy intensive industries and to encourage the delivery of competitively priced electricity to consumers," Mr Asher said. "I believe this decision will help to achieve these objectives. Importantly, customers will benefit through reduced transmission charges.
The ACCC's draft decision balances the lower customer prices with the need to provide the TransGrid and energyAustralia with a reasonable return and ability to undertake prudent capital expenditure.
The ACCC's decision is in accordance with the principles in the National Electricity Code, which was established to create competition in the electricity market and provide customers with a choice of suppliers.
Consistent with these principles, the ACCC in its draft decision has adopted an opening asset base for TransGrid of $1 845 million for regulatory purposes, a figure provided to the ACCC by IPART. This compares to NSW Treasury's valuation of TransGrid of $2 064 million using the depreciated optimised replacement cost method.
The ACCC has chosen to apply a pre tax real weighted average cost of capital (WACC) of 7.25 per cent to TransGrid. This equates to a post tax nominal return on equity of approximately 11.5 per cent. The ACCC believes these figures are close to the mid point of a feasible range.
Regarding energyAustralia's transmission assets, the ACCC has adopted an opening base of $345 million and has applied the same WACC figure.
Matters such as the appropriate asset value, the weighted average cost of capital and the treatment of capital expenditure raise a number of substantive issues. The ACCC welcomes feedback and submissions on these issues.
The ACCC will hold a public forum on 3 June 1999 regarding its draft decision. The ACCC has also called for submissions from interested parties on its decision. Submissions are due by 11 June. The ACCC will consider the issues raised at the public forum and submissions from interested parties before making a final decision.