One submission on ActewAGL's regulatory proposal suggests ActewAGL has spent 'millions of dollars in costly redundancies.' We consider the existence of the redundancy conditions may limit options for workforce planning and management. Such limitations may impact on management's ability to efficiently and prudently manage its labour costs. Conclusions We consider the information we have viewed presents evidence of material inefficiency in ActewAGL's labour practices in the 2009–14 period (including the base year, 2012–13). We are satisfied that ActewAGL's high labour costs are likely a key driver of ActewAGL's benchmarking performance. This level of expenditure is unlikely to be representative of the efficient and prudent base opex in future years. Further detail of our labour review is in a confidential appendix. Vegetation management ActewAGL's performance in vegetation management expenditure has increased markedly in the 2009–14 period. Its related performance measures, however, have deteriorated. ActewAGL has provided material to explain the cost requirements of its vegetation management program but we consider these do not provide a satisfactory explanation for cost increases over the period. Our analysis indicates that increasing contractor costs and a lack of risk management are the primary causes of inefficiency. Our view is that one of the sources of ActewAGL's high expenditure in its base year opex (identified with our benchmarking techniques) is likely due to vegetation management practices. While we are satisfied that backyard reticulation presents some challenges unique to ActewAGL, on the evidence before us, our view is that backyard reticulation is likely only to be part of the reason for high vegetation management expenditure in the base year. Analysis of expenditure and performance ActewAGL's actual vegetation management expenditure has more than doubled from $2.6 million in 2008-09 to $5.4 million ($2013–14) in 2012–13. For the purposes of assessing base year opex, we are interested in historical actual expenditure rather than forecast expenditure, but it is useful to compare the expenditure trend over time. Figure A.17 shows that ActewAGL has forecast this to decline slightly to $3.9 million ($2013–14) on average in the 2014–19 period, which remains well above 2008–09 levels.
One submission on ActewAGL's regulatory proposal suggests ActewAGL has spent 'millions of dollars in costly redundancies.' We consider the existence of the redundancy conditions may limit options for workforce planning and management. Such limitations may impact on management's ability to efficiently and prudently manage its labour costs. Conclusions We consider the information we have viewed presents evidence of material inefficiency in ActewAGL's labour practices in the 2009–14 period (including the base year, 2012–13). We are satisfied that ActewAGL's high labour costs are likely a key driver of ActewAGL's benchmarking performance. This level of expenditure is unlikely to be representative of the efficient and prudent base opex in future years. Further detail of our labour review is in a confidential appendix. Vegetation management ActewAGL's performance in vegetation management expenditure has increased markedly in the 2009–14 period. Its related performance measures, however, have deteriorated. ActewAGL has provided material to explain the cost requirements of its vegetation management program but we consider these do not provide a satisfactory explanation for cost increases over the period. Our analysis indicates that increasing contractor costs and a lack of risk management are the primary causes of inefficiency. Our view is that one of the sources of ActewAGL's high expenditure in its base year opex (identified with our benchmarking techniques) is likely due to vegetation management practices. While we are satisfied that backyard reticulation presents some challenges unique to ActewAGL, on the evidence before us, our view is that backyard reticulation is likely only to be part of the reason for high vegetation management expenditure in the base year. Analysis of expenditure and performance ActewAGL's actual vegetation management expenditure has more than doubled from $2.6 million in 2008-09 to $5.4 million ($2013–14) in 2012–13. For the purposes of assessing base year opex, we are interested in historical actual expenditure rather than forecast expenditure, but it is useful to compare the expenditure trend over time. Figure A.17 shows that ActewAGL has forecast this to decline slightly to $3.9 million ($2013–14) on average in the 2014–19 period, which remains well above 2008–09 levels.
AER%20draft%20decision%20ActewAGL%20distribution%20determination%20-%20Attachment%2007%20-%20Opex%20-%20November%202014.DOCX