Overview The AER regulates all electricity networks in the National Electricity Market (NEM). We set network prices so that energy consumers pay no more than necessary for the safe and reliable delivery of electricity services. Benchmarking underpins this by enabling us, at an overall level, to identify the relative efficiency of electricity networks, and to track changes in efficiency over time. This is the second annual benchmarking report. The benchmarking models presented in this report are the culmination of a substantial work program that commenced in 2012 after changes to the electricity rules removed impediments to the use of benchmarking in making regulatory determinations. For this program, we worked with leading economic experts and consulted extensively with the distribution network service providers (DNSPs) and electricity consumers to establish benchmarking data requirements, model specifications and a guideline setting out how benchmarking would be used in determinations. We consider that our benchmarking models are the most robust measures of overall efficiency available. At the same time, however, we recognise that there is no perfect benchmarking model, and have been cautious in our initial application of these results in recent distribution determinations. Benchmarking is a critical exercise in assessing the efficiency of the DNSPs’ regulatory proposals and we will continue to invest in refining our benchmarking techniques into the future. This report uses a different format to our 2014 report, with less emphasis on technical detail. We have focused on an economic benchmarking technique—multilateral total factor productivity (MTFP)—as the primary technique to compare relative efficiency. MTFP is a sophisticated down’ technique that enables us to measure each ‘top DNSP’s overall efficiency at providing electricity services. In addition to MTFP, we present supporting techniques, including econometric opex modelling, which was not included in the 2014 report. Key messages Productivity across the industry has been declining over the past several years. This can be seen in Figure 1, which shows the combined industry inputs have increased at a greater rate than outputs since 2007. Figure 1 MTFP input, output and TFP indices for all DNSPs, 2006–14 This can also be seen in Figure 2, which shows the MTFP score for most DNSPs is sloping downwards over the observation period. Figure 2 Multilateral total factor productivity by DNSP for 2006–14
Overview The AER regulates all electricity networks in the National Electricity Market (NEM). We set network prices so that energy consumers pay no more than necessary for the safe and reliable delivery of electricity services. Benchmarking underpins this by enabling us, at an overall level, to identify the relative efficiency of electricity networks, and to track changes in efficiency over time. This is the second annual benchmarking report. The benchmarking models presented in this report are the culmination of a substantial work program that commenced in 2012 after changes to the electricity rules removed impediments to the use of benchmarking in making regulatory determinations. For this program, we worked with leading economic experts and consulted extensively with the distribution network service providers (DNSPs) and electricity consumers to establish benchmarking data requirements, model specifications and a guideline setting out how benchmarking would be used in determinations. We consider that our benchmarking models are the most robust measures of overall efficiency available. At the same time, however, we recognise that there is no perfect benchmarking model, and have been cautious in our initial application of these results in recent distribution determinations. Benchmarking is a critical exercise in assessing the efficiency of the DNSPs’ regulatory proposals and we will continue to invest in refining our benchmarking techniques into the future. This report uses a different format to our 2014 report, with less emphasis on technical detail. We have focused on an economic benchmarking technique—multilateral total factor productivity (MTFP)—as the primary technique to compare relative efficiency. MTFP is a sophisticated ‘top down’ technique that enables us to measure each DNSP’s overall efficiency at providing electricity services. In addition to MTFP, we present supporting techniques, including econometric opex modelling, which was not included in the 2014 report. Key messages Productivity across the industry has been declining over the past several years. This can be seen in Figure 1, which shows the combined industry inputs have increased at a greater rate than outputs since 2007. Figure 1 MTFP input, output and TFP indices for all DNSPs, 2006–14 This can also be seen in Figure 2, which shows the MTFP score for most DNSPs is sloping downwards over the observation period. Figure 2 Multilateral total factor productivity by DNSP for 2006–14