Similarly, Endeavour Energy and Essential Energy spent largely comparable amounts of opex to a combination of two Victorian or South Australian service providers despite (in all but one measure) providing less outputs. While these simplistic comparisons do not account for differences between the service providers, they support evidence of material inefficiency shown by our more sophisticated benchmarking techniques and our detailed analysis. Assessment approach In our Expenditure forecast assessment guideline (our Guideline), we explain that although we examine revealed expenditure in the first instance, we will use our various assessment techniques to test its suitability for the purpose of developing a forecast. If a service provider performs well compared to its peers we can be satisfied that it is appropriate to rely on its revealed expenditure. Conversely, if our techniques show the service provider has high expenditure relative to its peers, it may be inappropriate to rely on revealed expenditure as the efficient starting point for total forecast opex. While we use several assessment techniques to assess efficiency, benchmarking in particular is an essential part of our approach. The NER provide us with discretion as to how and when we use benchmarking in decision-making and support us in using it as the basis for adjusting a service provider's total forecast opex. For this determination, our approach is to use various benchmarking techniques. This includes economic benchmarking, partial performance indicators and category-based techniques. If benchmarking shows a service provider's base year opex is materially inefficient, our approach is to complement our benchmarking findings with other analysis such as PPIs, category-based techniques and detailed review to investigate the drivers of, or potential explanations for, the apparently high expenditure. The NSW service providers support some parts or our approach but disagree with others. Therefore, while we are to some extent reiterating the approach we outlined in our Guideline, we consider it appropriate to discuss the economic theory behind our approach. Building on this, we then explain our approach to identifying and adjusting for inefficiencies and why we find this approach to be more appropriate than the approach proposed by the NSW service providers. First, however, we explain how we choose the base year.
Similarly, Endeavour Energy and Essential Energy spent largely comparable amounts of opex to a combination of two Victorian or South Australian service providers despite (in all but one measure) providing less outputs. While these simplistic comparisons do not account for differences between the service providers, they support evidence of material inefficiency shown by our more sophisticated benchmarking techniques and our detailed analysis. Assessment approach In our Expenditure forecast assessment guideline (our Guideline), we explain that although we examine revealed expenditure in the first instance, we will use our various assessment techniques to test its suitability for the purpose of developing a forecast. If a service provider performs well compared to its peers we can be satisfied that it is appropriate to rely on its revealed expenditure. Conversely, if our techniques show the service provider has high expenditure relative to its peers, it may be inappropriate to rely on revealed expenditure as the efficient starting point for total forecast opex. While we use several assessment techniques to assess efficiency, benchmarking in particular is an essential part of our approach. The NER provide us with discretion as to how and when we use benchmarking in decision-making and support us in using it as the basis for adjusting a service provider's total forecast opex. For this determination, our approach is to use various benchmarking techniques. This includes economic benchmarking, partial performance indicators and category-based techniques. If benchmarking shows a service provider's base year opex is materially inefficient, our approach is to complement our benchmarking findings with other analysis such as PPIs, category-based techniques and detailed review to investigate the drivers of, or potential explanations for, the apparently high expenditure. The NSW service providers support some parts or our approach but disagree with others. Therefore, while we are to some extent reiterating the approach we outlined in our Guideline, we consider it appropriate to discuss the economic theory behind our approach. Building on this, we then explain our approach to identifying and adjusting for inefficiencies and why we find this approach to be more appropriate than the approach proposed by the NSW service providers. First, however, we explain how we choose the base year.