Capital expenditure sharing scheme This attachment sets out our proposed approach and reasons for how we intend to apply the CESS to AusNet Services in the next regulatory control period. The capital expenditure sharing scheme (CESS) provides financial rewards for TNSPs whose capex becomes more efficient and financial penalties for those that become less efficient. Consumers benefit from improved efficiency through lower regulated prices in the future. The CESS approximates efficiency gains and efficiency losses by calculating the difference between forecast and actual capex. It shares these gains or losses between TNSPs and network users. The CESS works as follows: We calculate the cumulative underspend or overspend for the current regulatory control period in net present value terms. We apply the sharing ratio of 30 per cent to the cumulative underspend or overspend to work out what the TNSP's share of the underspend or overspend should be. We calculate the CESS payments taking into account the financing benefit or cost to the TNSP of underspends or overspends. We can also make further adjustments to account for deferral of capex and ex post exclusions of capex from the RAB. The CESS payments will be added or subtracted to the TNSP's regulated revenue as a separate building block in the next regulatory control period. Under the CESS a TNSP retains 30 per cent of an underspend or overspend, while consumers retain 70 per cent of the underspend on overspend. This means that for a one dollar saving in capex the TNSP keeps 30 cents of the benefit while consumers keep 70 cents of the benefit. Under the CESS an ex post review for any overspends in the next regulatory control period also applies, but this assessment will be undertaken in the subsequent control period. As noted in the introduction, AusNet Services has queried whether in the next regulatory control period the AER will undertake an ex post review in relation to the current regulatory control period. Our preliminary view is that as we intend to apply the CESS we should undertake the review as mandated within the Guideline. However, we recognise that in this unique circumstance this review would be confined to a single year. In such circumstances any particular observed outcome may not merit treatment as significant. Proposed approach
Capital expenditure sharing scheme This attachment sets out our proposed approach and reasons for how we intend to apply the CESS to AusNet Services in the next regulatory control period. The capital expenditure sharing scheme (CESS) provides financial rewards for TNSPs whose capex becomes more efficient and financial penalties for those that become less efficient. Consumers benefit from improved efficiency through lower regulated prices in the future. The CESS approximates efficiency gains and efficiency losses by calculating the difference between forecast and actual capex. It shares these gains or losses between TNSPs and network users. The CESS works as follows: We calculate the cumulative underspend or overspend for the current regulatory control period in net present value terms. We apply the sharing ratio of 30 per cent to the cumulative underspend or overspend to work out what the TNSP's share of the underspend or overspend should be. We calculate the CESS payments taking into account the financing benefit or cost to the TNSP of underspends or overspends. We can also make further adjustments to account for deferral of capex and ex post exclusions of capex from the RAB. The CESS payments will be added or subtracted to the TNSP's regulated revenue as a separate building block in the next regulatory control period. Under the CESS a TNSP retains 30 per cent of an underspend or overspend, while consumers retain 70 per cent of the underspend on overspend. This means that for a one dollar saving in capex the TNSP keeps 30 cents of the benefit while consumers keep 70 cents of the benefit. Under the CESS an ex post review for any overspends in the next regulatory control period also applies, but this assessment will be undertaken in the subsequent control period. As noted in the introduction, AusNet Services has queried whether in the next regulatory control period the AER will undertake an ex post review in relation to the current regulatory control period. Our preliminary view is that as we intend to apply the CESS we should undertake the review as mandated within the Guideline. However, we recognise that in this unique circumstance this review would be confined to a single year. In such circumstances any particular observed outcome may not merit treatment as significant. Proposed approach
Final%20Decision%20-%20Framework%20and%20approach%20for%20AusNet%20Services%2C%20regulatory%20control%20period%20commencing%201%20April%202017%2C%20April%202015.DOCX