Rate of change The efficient level of expenditure required by a service provider in the 2016–20 regulatory control period may differ from that required in the final year of the 2011–15 regulatory control period. Once we have determined the opex required in the final year of the 2011–15 regulatory control period we apply a forecast annual rate of change to forecast opex for the 2016–20 regulatory control period. Our forecast of the overall rate of change used to derive our alternative estimate of opex is lower than Powercor's over the forecast period. Table 7.4 below compares Powercor's and our overall rate of change in percentage terms for the 2016–20 regulatory control period. Table 7.4 Forecast annual rate of change in opex (per cent) 2016 2017 2018 2019 2020 Powercor 3.36 3.86 3.41 3.59 3.10 AER 1.56 1.77 2.07 2.27 2.39 Difference –1.80 –2.10 –1.35 –1.32 –0.71 Source: AER analysis. The following factors drive the difference between our forecast rate of change and Powercor’s: To forecast labour price growth, Powercor used wage increases in its existing enterprise agreement for 2016 and 2017, then used Frontier Economics' recommended extrapolation of long term enterprise agreements from a comparator group of service providers. Powercor’s forecast is higher than ours, which we base on forecasts from Deloitte Access Economics and BIS Shrapnel. Powercor proposed different output growth drivers to ours. Powercor used four econometric models to quantify the relationship between growth in opex and the growth in key cost drivers that affect the size of its network. We forecast a output growth, using the same output growth measures and weightings as used in Economic Insights' economic benchmarking report. We used customer numbers and circuit length forecasts from Powercor’s reset RIN and ratcheted maximum demand forecasts from AEMO. The differences in each forecast rate of change component are: our forecast of price growth is on average 0.93 percentage points lower than Powercor’s forecast our forecast of output growth is on average 0.51 percentage points lower than Powercor’s forecast We outline our detailed assessment of the rate of change in appendix B. Step changes
Rate of change The efficient level of expenditure required by a service provider in the 2016–20 regulatory control period may differ from that required in the final year of the 2011–15 regulatory control period. Once we have determined the opex required in the final year of the 2011–15 regulatory control period we apply a forecast annual rate of change to forecast opex for the 2016–20 regulatory control period. Our forecast of the overall rate of change used to derive our alternative estimate of opex is lower than Powercor's over the forecast period. Table 7.4 below compares Powercor's and our overall rate of change in percentage terms for the 2016–20 regulatory control period. Table 7.4 Forecast annual rate of change in opex (per cent) 2016 2017 2018 2019 2020 Powercor 3.36 3.86 3.41 3.59 3.10 AER 1.56 1.77 2.07 2.27 2.39 Difference –1.80 –2.10 –1.35 –1.32 –0.71 Source: AER analysis. The following factors drive the difference between our forecast rate of change and Powercor’s: To forecast labour price growth, Powercor used wage increases in its existing enterprise agreement for 2016 and 2017, then used Frontier Economics' recommended extrapolation of long term enterprise agreements from a comparator group of service providers. Powercor’s forecast is higher than ours, which we base on forecasts from Deloitte Access Economics and BIS Shrapnel. Powercor proposed different output growth drivers to ours. Powercor used four econometric models to quantify the relationship between growth in opex and the growth in key cost drivers that affect the size of its network. We forecast a output growth, using the same output growth measures and weightings as used in Economic Insights' economic benchmarking report. We used customer numbers and circuit length forecasts from Powercor’s reset RIN and ratcheted maximum demand forecasts from AEMO. The differences in each forecast rate of change component are: our forecast of price growth is on average 0.93 percentage points lower than Powercor’s forecast our forecast of output growth is on average 0.51 percentage points lower than Powercor’s forecast We outline our detailed assessment of the rate of change in appendix B. Step changes