Investor Presentaiton
Regulatory key value drivers
The regulatory framework is incentive-based, meaning that the regulator allows Ausgrid to outperform the regulated rate of
return by pursuing desirable objectives
Value Driver
Opex
Capex
Debt pricing
Gearing
STPIS
Income tax
Description
AER determines an efficient level of opex by reference to peer benchmarking and a
range of other factors
Provided a business is 'efficient', AER typically adopts a 'base-step-trend' approach in
setting the opex allowance, which relies on escalation of actual opex in a base year
The EBSS which rewards opex underspend and penalises opex overspend against the
regulatory allowance in a future period
AER determines an efficient level of capex, typically based on a bottom-up
assessment and trend analysis of historical expenditure
The CESS rewards capex underspend and penalises capex overspend against the
regulatory allowance
AER can challenge any capex above the capex allowance on the basis it is imprudent
or inefficient
In determining regulatory WACC, the AER assumes a cost of debt by reference to a
benchmark basket comprised of 2/3 efficient entities with a BBB+ rating and 1/3
efficient entities with an A rating issuing 10 year debt
In determining regulatory WACC, the AER consistently assumes a gearing ratio of
60% for all electricity utilities
AER offers incentive payments / penalties based on performance against reliability
targets relating to length and frequency of outages and telephone response times
AER assumes Ausgrid pays a corporate tax rate of 30% in determining the regulatory
tax allowance
Outperformance potential
The EBSS entitles Ausgrid to retain approximately 30% of any opex
underspend against the opex allowance
EBSS will apply in the FY20-24 regulatory period
The CESS entitles Ausgrid to retain approximately 30% of any underspend
against the capex allowance
Underspend also removes the risk of the AER challenging the
prudency/efficiency of any capex if there is an aggregate capex overspend
across the regulatory period
Regulated returns are improved by achieving borrowing costs below the
AER benchmark - for example by:
Targeting a weighted average debt tenor shorter than the
benchmark
Active treasury management to achieve more attractive pricing
than the benchmark
Hedging current debt book at current rates (whereas the AER
uses a 10-year trailing average approach which includes higher
historical debt costs)
Regulated returns are improved by targeting higher gearing than the AER
assumption of 60%
Exceeding performance and reliability targets will result in additional
incentive payments to Ausgrid
Ausgrid's regulatory tax allowance will exceed actual tax paid where
Ausgrid's effective tax rate is less than 30%
Ausgrid
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