Total overheads Very High High Very High Total corporate overheads Comparable Comparable High Total network overheads Very High Comparable Comparable Maintenance High High Comparable Emergency response High High High Vegetation management High High Very High Source: AER analysis. Given the NSW service providers generally have high expenditure on category analysis for most categories of expenditure, we consider this supports the view that it is likely systemic issues exist across the service providers (particularly for Ausgrid and Essential Energy). The results of the labour and total overhead metrics (which are broader measures) tend to support this view as well. Detailed review Category analysis suggested labour and (for Essential Energy) vegetation management appeared to be significant drivers of costs. Accordingly, we have conducted more detailed analysis of these categories of expenditure. Labour Labour costs are the largest component of the NSW service providers' opex, accounting for more than 70 per cent of total opex. Given this magnitude, we engaged Deloitte to provide a review of the labour and workforce management practices of the NSW service providers. Deloitte found in respect of the labour costs incurred in delivering the capex program (labour-related capex), there is evidence to suggest that the expenditure and approach to resourcing the program was not consistent with that of a prudent or efficient service provider. In particular: All service providers seem to have relied too heavily on hiring permanent internal labour resources rather than using temporary external contractors to undertake the capex program In 2007, Ausgrid entered into an arrangement which appears to have driven its costs up, or at a minimum entrenched them at a relatively high level
Total overheads Very High High Very High Total corporate overheads Comparable Comparable High Total network overheads Very High Comparable Comparable Maintenance High High Comparable Emergency response High High High Vegetation management High High Very High Source: AER analysis. Given the NSW service providers generally have high expenditure on category analysis for most categories of expenditure, we consider this supports the view that it is likely systemic issues exist across the service providers (particularly for Ausgrid and Essential Energy). The results of the labour and total overhead metrics (which are broader measures) tend to support this view as well. Detailed review Category analysis suggested labour and (for Essential Energy) vegetation management appeared to be significant drivers of costs. Accordingly, we have conducted more detailed analysis of these categories of expenditure. Labour Labour costs are the largest component of the NSW service providers' opex, accounting for more than 70 per cent of total opex. Given this magnitude, we engaged Deloitte to provide a review of the labour and workforce management practices of the NSW service providers. Deloitte found in respect of the labour costs incurred in delivering the capex program (labour-related capex), there is evidence to suggest that the expenditure and approach to resourcing the program was not consistent with that of a prudent or efficient service provider. In particular: All service providers seem to have relied too heavily on hiring permanent internal labour resources rather than using temporary external contractors to undertake the capex program In 2007, Ausgrid entered into an arrangement which appears to have driven its costs up, or at a minimum entrenched them at a relatively high level
AER%20%E2%80%93%20Draft%20decision%20Ausgrid%20distribution%20determination%20%E2%80%93%20Attachment%207%20%E2%80%93%20%20Operating%20expenditure%20%E2%80%93%20November%202014_0.DOCX