Investor Presentaiton
Regulatory building block methodology
Background
•
.
AER determines Ausgrid's annual expected revenue requirement based on a building block methodology - this is set at the commencement of each
regulatory period (typically five years), providing transparency and revenue certainty throughout the period
•
Customer tariffs are set annually based on an AER agreed methodology (i.e. a Tariff Structure Statement approved as part of the regulatory determination
process) during each regulatory period to allow Ausgrid to recover its revenue requirement
Under the revenue cap form of regulation, tariffs are adjusted to account for over/under recovery of revenue requirement in previous years, whilst under a
price cap mechanism the price is limited for the applicable service
RAB
Opening value
of assets
Depreciation
over period
+
Capex
Asset
disposals
+
CPI indexation
(inflation
protection)
Revenue 1
requirement
Return on capital
RAB
x
WACC 2
Opex
allowance
Regulatory
depreciation 3
+
Tax
allowance
Efficiency
carryover
Average
tariffs
Revenue
requirement
Forecast
volume
Actual revenue
Average
tariffs
X Actual volume
Annual price setting process sets tariffs based on revenue requirement and provides:
1) Inflation protection - revenues are adjusted for observed CP15 on a lagged basis
2) Volume protection – adjustments for differences in forecast and actual volumes (revenue cap)
3) Interest rate protection - update to cost of debt in regulatory WACC to incorporate changes in interest rates
Notes:
1. The revenue requirement could include a reduction from the application of the shared assets guideline (if a materiality threshold is met);
2. Weighted average cost of capital;
3. Equal to depreciation over period less CPI indexation;
4. The financial outcome for the application of the STPIS scheme will be added to the revenue requirement in deriving an average tariff;
5. Consumer Price Index (Sydney all groups) published by the Australian Bureau of Statistics
Better
Ausgrid Together
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