A revenue cap limits the amount of revenue a distributor may raise through prices to meet its expected costs. Where prices are set too high or too low, an adjustment is required in a subsequent year to ensure the revenue is capped. This correction can only be determined after the year in question. While the annual revenue cap has been increasing in recent years, the subsequent adjustment has remained relatively small. These small overs and unders adjustments to the distribution use of service (DUOS) revenue requirements are shown in Figure 5. They have remained stable throughout the current regulatory control period. Figure 5: DUOS unders and overs adjustments for Queensland ($ millions) Source: AER While the annual under and over adjustments have been insignificant, it is quite clear that retail electricity charges have not been stable. Factors that have contributed to steep increases in electricity prices, include: substantial increases in network investment that have resulted in real increases in distribution prices each year the last determination was made. This expenditure (approved by us) was made by Qld distributors to improve service reliability, replace aging assets and cope with peak load caused by rising air conditioner use amongst other things. adjustments made by the Tribunal to our final determination. This amounted to a change in revenue requirements in 2013–14 of 9 per cent for Energex and 7 per cent for Ergon Energy. adjustments to incorporate feed-in tariffs that are set by the Queensland Government and which are expected to more than double in 2014–15. Figure 6 shows how variable and fixed electricity charges have changed for a typical residential customer since 2006. What can be seen in this figure is that while charges have risen significantly, the increases have been reasonably stable. That is, the revenue cap form of control is not causing instability. Rather, where prices have varied from year to year, this has been driven by factors like Qld Government retail pricing policies and not the revenue cap used to control distribution prices. An example of this includes the increase in the fixed 'service charge' in 2013.
A revenue cap limits the amount of revenue a distributor may raise through prices to meet its expected costs. Where prices are set too high or too low, an adjustment is required in a subsequent year to ensure the revenue is capped. This correction can only be determined after the year in question. While the annual revenue cap has been increasing in recent years, the subsequent adjustment has remained relatively small. These small overs and unders adjustments to the distribution use of service (DUOS) revenue requirements are shown in Figure 5. They have remained stable throughout the current regulatory control period. Figure 5: DUOS unders and overs adjustments for Queensland ($ millions) Source: AER While the annual under and over adjustments have been insignificant, it is quite clear that retail electricity charges have not been stable. Factors that have contributed to steep increases in electricity prices, include: substantial increases in network investment that have resulted in real increases in distribution prices each year the last determination was made. This expenditure (approved by us) was made by Qld distributors to improve service reliability, replace aging assets and cope with peak load caused by rising air conditioner use amongst other things. adjustments made by the Tribunal to our final determination. This amounted to a change in revenue requirements in 2013–14 of 9 per cent for Energex and 7 per cent for Ergon Energy. adjustments to incorporate feed-in tariffs that are set by the Queensland Government and which are expected to more than double in 2014–15. Figure 6 shows how variable and fixed electricity charges have changed for a typical residential customer since 2006. What can be seen in this figure is that while charges have risen significantly, the increases have been reasonably stable. That is, the revenue cap form of control is not causing instability. Rather, where prices have varied from year to year, this has been driven by factors like Qld Government retail pricing policies and not the revenue cap used to control distribution prices. An example of this includes the increase in the fixed 'service charge' in 2013.