TransGrid submitted its full revenue proposal for the 2014/15 – 2018/19 regulatory period to the AER at the end of May 2014. It sets out the forecast expenditure and revenue that TransGrid requires to effectively manage its operations and maintain a reliable electricity supply to the people of NSW and the ACT.
We have committed to a business plan which responds to the changing environment in the energy industry and is in the interests of NSW energy consumers.
To minimise price rises for consumers, TransGrid has worked hard to ensure its forecast revenue growth is no higher than the Consumer Price Index (CPI). Furthermore, TransGrid proposes to reduce its total capital expenditure by 28% over the next five years and operational efficiencies have led to a cost saving of about $6 million annually.
Overview of our revenue proposal
In this proposal we have outlined how TransGrid will adapt our planning processes, respond to changing energy consumer demand and focus on non-network options rather than building new assets, in order to ensure the safe, reliable and efficient supply of electricity.
To assist in understanding TransGrid's full revenue proposal, we have developed a range of fact sheets of key elements of the proposal and a summary overview of our proposal.
TransGrid Revenue Proposal 2014/15 – 2018/19 Overview
TransGrid Consumer Consultation Fact Sheet
TransGrid Capital Expenditure Fact Sheet
TransGrid Operating Expenditure Fact Sheet
TransGrid Total Revenue Fact Sheet
TransGrid Rate of Return Fact Sheet
TransGrid Demand Management Innovation Fact Sheet
TransGrid Pricing Fact Sheet
Key highlights of TransGrid's revenue proposal
- Maintaining reliability standards;
- An investment program responsive to the changing environment and consumer demand;
- Increased operating efficiency;
- Improved planning processes;
- Decreased network augmentation;
- Replacement program for assets reaching their end of life;
- Focus on non-build options and demand management initiatives;
- Comprehensive consumer engagement program.
We have deferred over $600 million of capital expenditure in response to changes in electricity demand patterns. Consumers will directly benefit from these decisions in this proposal, with forecast revenue over the next five years $230 million lower due to the deferrals. This means lower transmission costs passed on to the bill payers of NSW and the ACT.
The mix of capital expenditure for 2014/15 to 2018/19 is significantly different from any period in recent history. In particular, load driven investment is small, reflecting the significant change in recent electricity usage. In contrast, replacement expenditure has increased from that of the current period, reflecting the assets built during the establishment of the transmission network in the 1950s and 1960s reaching the end of their serviceable lives.
As the demand forecast remains subdued, TransGrid has responded, with this proposal featuring 90% less capital expenditure for network augmentation than the 2009/10 to 2013/14 proposal, and about 28% less overall capital expenditure forecast at $1.8 billion over the next five years.
TransGrid has proposed an asset renewal program in this proposal that comprises the most economic combination of replacement and refurbishment options to ensure a sustainable electricity supply. The asset renewal program is essential to ensure the safety of staff, contractors and the public and maintain a reliable electricity supply.
TransGrid has undertaken a thorough review of its business activities, improving efficiencies and reducing costs. These changes are most significant in operating expenditure for business support. Consumers will benefit from these initiatives from July 2014, with forecast revenue over the next five years some $30 million lower as a result.
The forecast operating expenditure for 2014/15 to 2018/19 is $1.1 billion. In the current regulatory control period, TransGrid pursued a range of operational efficiencies. The cost savings achieved in this period directly benefits consumers in 2014/15 to 2018/19 through a reduction in forecast operating expenditure of approximately $6 million per year.
Full details on all of TransGrid's corporate initiatives, expenditure and revenue can be found in the revenue proposal in the document library.
What we looked at based on your feedback
TransGrid has established a comprehensive consumer engagement program, to give consumers a voice in the development of TransGrid's business plans. We have listened to consumers and taken their feedback into consideration when developing our proposal.
TransGrid held a number of forums with residential and small business customers, talked with our directly connected customers, carried out consumer surveys, started conversations on our new engagement website – Have Your Say - and worked closely with consumer representatives and large businesses on specific aspects of our proposal.
Electricity transmission makes up approx 7% of the average household energy bill. We understand that consumers are concerned about the cost of electricity so we have made a real effort to take on board feedback we have received whilst consulting on our business plans for the future.
Feedback from this consultation has had a direct impact on TransGrid's approach to network support solutions, consumer engagement and its pricing methodology. Topics discussed during TransGrid's consultation that are specifically addressed in the revenue proposal include:
- Balance of price and reliability
- Demand forecasts and network planning
- Demand management innovation and non-build options
- Community consultation practices
- Management of stranded assets
- TransGrid's pricing model and methodology
- Revenue Smoothing
- Evaluation of the proposal.
TransGrid Revenue Proposal 2014-2019
Appendix A - Submission Checklist
Appendix B - Directors Certification of Reasonbleness of Key Assumptions
Appendix C - Network Vision
Appendix D - Asset Management Policy
Appendix E - Network Development Strategy
Appendix F - Summary of Consultation on Five Year Plan
Appendix G - Qualitative Research Report
Appendix H - Labour Escalation Forecast
Appendix I - Commodity Price Escalation Forecast
Appendix J - Property Value Escalation Forecast
Appendix K - Review of Network Investment Plans and Supporting Documents
Appendix L - Contingent Projects
Appendix M - Estimating Risk Assessment
Appendix N - Capital Cost Estimating Review
Appendix O - 2013 Success Estimating Database - Benchmarking Summary
Appendix P - Network Map
Appendix Q - Efficiency Review of Maintenance Tasks
Appendix R - Demand Management Innovation Strategy
Appendix S - Stakeholder Engagement Plan
Appendix T - Insurance and Self-Insurance Market Estimate
Appendix U - Debt Raising Transaction Costs
Appendix V - Return on Capital of a Regulated Electricity Network
Appendix W - Fama French Model
Appendix X - Alternative Versions of the Dividend Discount Model and the Implied Cost of Equity
Appendix Y - Evidence on Return on Equity from Independent Expert Reports
Appendix Z - Grant Samuel's Cost of Equity Capital
Appendix AA - Liquidity of the Interest Rate Swap Market
Appendix AB - TransGrid's Approach to Gamma
Appendix AC - An Appropriate Regulatory Estimate of Gamma
Appendix AD - Depreciation Schedule
Appendix AE - EBSS Mechanism for Bottom Up Costs
Appendix AF - Fitting Probability Distribution Curves to Reliability Data
Appendix AG - Network Capability Incentive Parameter Action Plan
Appendix AH - Transmission Pricing Methodology - Better Outcomes for Customers
Appendix AI - Pricing Methodology
Appendix AJ - Negotiating Framework