Customer and Consumer Panel 21 August 2015 Welcome to Powerlink - - PowerPoint PPT Presentation

21 August 2015

Customer and Consumer Panel

Welcome to Powerlink

Gerard Reilly

Introductions

Amanda Newbery

Meeting overview

• Revenue Proposal update – Ian Lowry
• Afternoon tea (10 mins)
• Pricing overview presentation – Ben Wu
• Pricing discussion
• Meeting Recap

Revenue Proposal Update

Ian Lowry – Revenue Reset Leader

Revenue Proposal

• Key Revenue Proposal milestones
• Stakeholder feedback
• Early indicative forecasts

Revenue Reset timetable

Date Activity June 15 AER Framework and Approach Paper published 30 Jun 2015 Powerlink lodged Expenditure Forecasting Methodology and Overview sheets 31 Jan 2016 Powerlink to lodge Revenue Proposal * May 2016 AER invites public submissions on Powerlink’s Revenue Proposal * Sep 2016 AER publishes Draft Determination Dec 2016 Powerlink to submit Revised Revenue Proposal Apr 2017 AER to publish Transmission Determination

*Indicative

Using your feedback

• Further analysis
• Trend identification
• Opportunities to drive further efficiencies

Benchmarking

• Analysis of long-term opex performance
• Trend and category analysis
• Decision making framework

Opex base year

(2014/15)

• Projects over $10m
• Network reconfiguration or non-

network solution

Capex criteria

Opportunities for feedback

Possible reset specific forums

• September – depreciation
• September – pricing (Revenue Proposal/BAU)

Customer and Consumer Panel

• November – update on final Revenue Proposal
• February – to be confirmed

Other opportunities

• Email us on: revenueresetteam@powerlink.com.au

Early indicative forecasts

• High level overview
• Key areas of focus for expenditure
• Early thinking –figures may change

Total indicative capex – network & non- network

Total indicative opex

Indicative price path

Pricing

Ben Wu – Regulatory and Pricing Analyst

Overview

• Introduction
• Tariff reform
• Potential areas for change:

– Pricing methodology – Business as Usual

Introduction

• Transmission pricing process is not straight forward
• Focus of today:

– identify where more value can be provided to customers and consumers – principles for the allocation of revenue not the $ impact – receive input and guidance on where to do more work

• Note:

– detailed modelling of outcomes to individual customers has not been done (mindful of customer confidentiality) – each connection point impacted differently depending on load profile – transitional impacts need to be considered

Tariff reform

• Recent years – greater focus on clearer pricing signals and consumer

choice

• Rule change (Nov 2014)

– primarily focused on restructuring DNSP and retail tariffs – not directed at transmission charges – key outcome was DNSPs must use the Long Run Marginal Cost (LRMC) to determine tariffs However:

• Tariff reform principles already apply to transmission pricing

– Cost reflective pricing signals – Demand based charges

Feedback Revenue Proposal for 2018-22 Regulatory Period

What is Cost Reflective Network Pricing (CRNP)?

• Methodology in Rules for allocating

locational revenue requirements

• For each connection point, the cost of

using the shared network is calculated – outcome reflects peak utilisation – $ based largely on historic asset (backward-looking) costs

From CRNP to modified CRNP

• CRNP and Modified CRNP are the only two methodologies allowed

under the Rules for locational price setting

• Modified CRNP:

– similar to CRNP – gives additional utilisation signal – more reflective of LRMC – increase to non-locational bucket

Pricing Signal: Locations with lower utilisation have a lower locational price (Encourages more efficient locational decisions)

Long Run Marginal Cost (LRMC)

• LRMC bases charges on future investment costs
• DNSPs must use LRMC to calculate network tariffs
• LRMC methodology not in Rules for transmission pricing

– will require a Rule change

• Due to lumpy nature of transmission investment, is this

appropriate?

Pricing Signal: Prices signal future network costs

Alternative Locational pricing split

• Currently revenue allocated to TUOS services is split 50:50

locational/non-locational

• Should we use:

– 75:25? – other?

Pricing Signal: Increased weight to actual network usage

Demand based charges

• Rules require locational charges to be demand based
• Reflects costs of providing transmission network to

meet peak demand – current locational charges based evenly on Maximum Demand and Average Demand

• Shift to Maximum Demand only?

– impacts non contract demand customers only

• Need to consider impacts to avoided TUOS payments

Pricing Signal: Locational prices more reflective of peak demand

Feedback Business as Usual

(outside revenue reset timeframe)

Greater price predictability

• For direct connect customers
• Can help customers with internal business planning, budgeting

and investment horizons

• Option:

– investigate potential to fix/limit price changes for x-years – recover variations from this by other means – potential non-prescribed service

• Would this provide value to customers?

For feedback today

Revenue Reset 1. Should Powerlink propose any of the changes described today (table in pre-reading) in its 2018-22 Revenue Proposal? 2. What, if any, other key pricing changes should be proposed? Business as Usual 3. Should Powerlink investigate options for providing more price predictability?

Possible changes to pricing methodology

From To Impact CRNP Modified - CRNP Stronger locational utilisation based pricing signal CRNP (backward-looking) LRMC (forward-looking) LRMC signals future costs

• Not allow under current Rules

50/50 locational/non- locational revenue split 70/30 or other locational/non-locational revenue split Stronger weighting on locational prices. Better reflects costs to supply each connection point. Reduced postage stamped charges. Max Demand and Average Demand based locational prices Max Demand only location prices Stronger locational pricing signal which better reflects costs to supply each connection point.

• Needs to consider impacts to avoided

TUOS payments to embedded generators

Questions?

Pricing discussion

Meeting Recap

• Action items
• Where to from here
• Other business