repex forecast is reasonable and unbiased costs and work practices are prudent and efficient; and risk management is prudent and efficient. Broadly, on these aspects EMCa found in its October 2014 report that: Essential Energy applies its risk criteria overly-conservatively, and its investment decision making relies heavily on risk-based justification. it is unclear, at a detailed level, how Essential Energy estimated its proposed repex program. Essential Energy's repex strategies were not informed by robust options analysis or adequate cost-benefit analysis. Essential Energy has enough asset information to determine which assets need attention, but data quality shortcomings compromise its decision making. Essential Energy's options analysis is inadequate due to a lack of robust input data and assumptions. For example, in some cases only the recommended option or 'do nothing' option was considered. It was not always clear how Essential Energy derived its proposed replacement volumes. Essential Energy's cost-benefit analysis was not robust and was often characterised by qualitative assessment. Considering the magnitude of Essential Energy's proposed repex program EMCa would expect to see comprehensive quantitative analysis. Finally, EMCa could not establish how Essential Energy constructs its cost estimates, and whether or how it applies contingency amounts. EMCa were unconvinced that Essential Energy's cost estimation approach is sufficiently robust to support efficient outcomes. We engaged EMCa to consider whether Essential Energy's revised proposed forecast repex reflected an efficient and prudent expenditure forecast. EMCa reviewed new information Essential Energy provided with its revised proposal in response to EMCa's October 2014 report. EMCa was of the view that Essential Energy has substantively addressed the systemic issues EMCa identified in its October 2014 report. EMCa were satisfied that Essential Energy has mitigated its concerns regarding elements of the asset management approach, cost estimation and deliverability risk. However, EMCa still considered Essential Energy has retained a residual bias towards conservative risk assessment and has programs of expenditure which are not adequately justified. EMCa considered this indicates Essential Energy’s revised repex proposal does not represent a reasonable forecast of prudent and efficient expenditure. EMCa summarised: there remains evidence of a conservative bias in Essential Energy’s risk assessment approach Essential Energy typically has not undertaken or presented robust quantitative analysis to demonstrate economically optimal timing and volume of work
repex forecast is reasonable and unbiased costs and work practices are prudent and efficient; and risk management is prudent and efficient. Broadly, on these aspects EMCa found in its October 2014 report that: Essential Energy applies its risk criteria overly-conservatively, and its investment decision making relies heavily on risk-based justification. it is unclear, at a detailed level, how Essential Energy estimated its proposed repex program. Essential Energy's repex strategies were not informed by robust options analysis or adequate cost-benefit analysis. Essential Energy has enough asset information to determine which assets need attention, but data quality shortcomings compromise its decision making. Essential Energy's options analysis is inadequate due to a lack of robust input data and assumptions. For example, in some cases only the recommended option or 'do nothing' option was considered. It was not always clear how Essential Energy derived its proposed replacement volumes. Essential Energy's cost-benefit analysis was not robust and was often characterised by qualitative assessment. Considering the magnitude of Essential Energy's proposed repex program EMCa would expect to see comprehensive quantitative analysis. Finally, EMCa could not establish how Essential Energy constructs its cost estimates, and whether or how it applies contingency amounts. EMCa were unconvinced that Essential Energy's cost estimation approach is sufficiently robust to support efficient outcomes. We engaged EMCa to consider whether Essential Energy's revised proposed forecast repex reflected an efficient and prudent expenditure forecast. EMCa reviewed new information Essential Energy provided with its revised proposal in response to EMCa's October 2014 report. EMCa was of the view that Essential Energy has substantively addressed the systemic issues EMCa identified in its October 2014 report. EMCa were satisfied that Essential Energy has mitigated its concerns regarding elements of the asset management approach, cost estimation and deliverability risk. However, EMCa still considered Essential Energy has retained a residual bias towards conservative risk assessment and has programs of expenditure which are not adequately justified. EMCa considered this indicates Essential Energy’s revised repex proposal does not represent a reasonable forecast of prudent and efficient expenditure. EMCa summarised: there remains evidence of a conservative bias in Essential Energy’s risk assessment approach Essential Energy typically has not undertaken or presented robust quantitative analysis to demonstrate economically optimal timing and volume of work