Review of Capital Expenditure Guidelines for Electricity Distributors, Australia

The problem

Following a change in legislation in 2013, the Australian Energy Regulator (AER) was required to issue guidelines on how it would assess CAPEX proposals by distribution utilities. AER issued draft guidelines which required both forward-looking approval at the start of the regulatory period, and a backward-looking reasonableness and efficiency review at the end of the regulatory period. Distribution utilities were concerned that the “belts and braces” approach undermined the incentive properties of the regulatory regime.

How we helped

Castalia was engaged by five distribution utilities in Victoria to comment on the AER’s guidelines. We addressed both the broad policy direction in the guidelines Issues Paper, and the quality of the guidelines, from the perspective of their clarity and specificity. We evaluated several best practice guidelines issued by other regulators to identify their characteristics and evaluated the draft guidelines against those characteristics. We showed that AER’s approach of requiring both ex ante bench-marking and ex post efficiency reviews increased risk for distribution utilities and would need to be compensated through higher returns.


Our recommendations were presented to the AER but AER retained an engineering-oriented belt-and-braces approach.

The client

Victorian Distribution Network Services Providers

Our team

Alex Sundakov

Alex Sundakov

Executive Director
Peter Hoogland

Peter Hoogland


Find out more

  • Read the joint response to AER Issues Paper Expenditure Forecast Assessment Guidelines for electricity distribution and transmission

How can we help you?

How can we help you?