NSP can rely on the framework to produce a capex forecast that meets the NER criteria. While not generally examined in detail, we may also assess the governance framework as it applies to opex decisions. COSBOA had limited faith in the ability of methodology reviews, and governance and policy reviews to determine efficient expenditure by NSPs. COSBOA considered that such techniques should not be relied upon to set allowed expenditures and should be only be used if necessary (e.g., they can add something to the AER’s decisions). We acknowledge that methodology and governance reviews aren’t assessment techniques that produce an alternative efficient allowance themselves. However, these techniques do provide information regarding whether the process used by the NSP to develop the forecast was sound. These assessment techniques, in combination with other techniques, provide a set of information of assistance to the AER in forming a view about an NSP’s forecast expenditure. Predictive modelling Predictive modelling uses statistical analysis to determine the expected efficient costs over the regulatory control period associated with the demand for electricity services for different categories of works. We acknowledge that modelling will generally be a simplification of reality and will have inherent limitations as a result. We will consider any limitations in the modelling when using the results of modelling in our assessment. The MEU was strongly supportive of the use of predictive models as they would provide a good indication of what level of expenditure is appropriate (such as repex and augex), recognising the inherent risks of using such models as definitive tools for setting allowances. In contrast, COSBOA considered that the limitations associated with such tools may lead them to being of narrower value. The NSW DNSPs expressed concerns about the deterministic use of the repex model. More detail on predictive modelling and submissions on its use are considered in Attachment A which covers the modelling of replacement and augmentation capex. Trend analysis We will compare a NSP’s forecast expenditure and work volumes to its historical levels. In doing so, we will expect NSPs to explain where its forecast expenditures and volumes are materially different to recent
NSP can rely on the framework to produce a capex forecast that meets the NER criteria. While not generally examined in detail, we may also assess the governance framework as it applies to opex decisions. COSBOA had limited faith in the ability of methodology reviews, and governance and policy reviews to determine efficient expenditure by NSPs. COSBOA considered that such techniques should not be relied upon to set allowed expenditures and should be only be used if necessary (e.g., they can add something to the AER’s decisions). We acknowledge that methodology and governance reviews aren’t assessment techniques that produce an alternative efficient allowance themselves. However, these techniques do provide information regarding whether the process used by the NSP to develop the forecast was sound. These assessment techniques, in combination with other techniques, provide a set of information of assistance to the AER in forming a view about an NSP’s forecast expenditure. Predictive modelling Predictive modelling uses statistical analysis to determine the expected efficient costs over the regulatory control period associated with the demand for electricity services for different categories of works. We acknowledge that modelling will generally be a simplification of reality and will have inherent limitations as a result. We will consider any limitations in the modelling when using the results of modelling in our assessment. The MEU was strongly supportive of the use of predictive models as they would provide a good indication of what level of expenditure is appropriate (such as repex and augex), recognising the inherent risks of using such models as definitive tools for setting allowances. In contrast, COSBOA considered that the limitations associated with such tools may lead them to being of narrower value. The NSW DNSPs expressed concerns about the deterministic use of the repex model. More detail on predictive modelling and submissions on its use are considered in Attachment A which covers the modelling of replacement and augmentation capex. Trend analysis We will compare a NSP’s forecast expenditure and work volumes to its historical levels. In doing so, we will expect NSPs to explain where its forecast expenditures and volumes are materially different to recent
AER%20explanatory%20statement%20-%20expenditure%20forecast%20assessment%20guideline%20-%20November%202013.DOCX