PROJECTS

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.

Impact

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

Executive Director

Peter Hoogland

Director

Find out more

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

View more Castalia projects

How can we help you?

WASHINGTON, DC
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United States of America

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Australia

AUCKLAND
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New Zealand

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New Zealand

PARIS
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France

BOGOTÁ
+57 (1) 508 5794
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Colombia

Thinking for a better world.

PROJECTS NEWS BLOG CONTACT

WASHINGTON, DC
+1 (202) 466-6790
1747 Pennsylvania Avenue NW, Suite 1200
United States of America

SYDNEY
+61 (2) 8075 4654
Suite 3652, Level 36, Gateway
1 Macquarie Place
Sydney NSW 2000
Australia

AUCKLAND
+64 (4) 913 2800
74D France Street, Newton South
New Zealand

WELLINGTON
+64 (4) 913 2800
Level 2, 88 The Terrace
New Zealand

PARIS
+33 (1) 73 44 26 97
6 Rue Duret
France

BOGOTÁ
+57 (1) 508 5794
Calle 81 #11-08, Piso 5, Oficina 5-127
Colombia

Thinking for a better world.

PROJECTS NEWS BLOG CONTACT

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