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
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?
WASHINGTON, DC
+1 (202) 466-6790
1747 Pennsylvania Avenue NW, Suite 1200
United States of America
SYDNEY
+61 (2) 9231 6862
Suite 19.01, Level 19, 227 Elizabeth Street
Australia
AUCKLAND
+64 (4) 913 2800
Sinclair House, 3 Glenside Crescent
New Zealand
WELLINGTON
+64 (4) 913 2800
Level 2, 88 The Terrace
New Zealand
PARIS
+33 (0)1 85 64 10 22
3B Rue Taylor
France
BOGOTÁ
+57 (1) 508 5794
Calle 81 #11-08, Piso 5, Oficina 5-121
Colombia
Thinking for a better world.
WASHINGTON, DC
+1 (202) 466-6790
1747 Pennsylvania Avenue NW, Suite 1200
United States of America
SYDNEY
+61 (2) 9231 6862
Suite 19.01, Level 19, 227 Elizabeth Street
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.