Unit cost Using a replacement unit cost based on an average benchmark results in an estimate of $1.38bn for the six modelled asset groups (using forecast unit cost). This is lower than the outcome achieved using Ausgrid's forecast unit costs. We consider that the benchmarked average unit cost is a useful comparison with the cost of other service providers in the NEM and have included these values it in the reasonable range. We have decided to exclude the outcomes of both the first quartile and the lowest unit cost unit price benchmarking. Using the lowest observed unit cost or a unit cost one quartile below the mean results in a much lower estimate of repex for Ausgrid. At the lowest unit cost, or the frontier, we are relying on a single observation, whereas the average benchmark is based on all observations from the NEM (after controlling for outliers, as discussed in appendix F). We consider the average benchmark, which is based on multiple observations, is more reliable of the average cost of replacement in the NEM. Table A17 Benchmarked model outcome – Unit costs Unit cost Replacement life Model outcome Forecast Calibrated $1,429.8 Benchmark average Calibrated $1,355.5 Benchmark first quartile Calibrated $979.1 Benchmark lowest Calibrated $681.8 Forecast NSP benchmark average (calibrated) $1,427.9 Benchmark average NSP benchmark average (calibrated) $1,017.4 Benchmark first quartile NSP benchmark average (calibrated) $796.2 Benchmark lowest NSP benchmark average (calibrated) $654.1 Source: AER analysis. The reasonable range The discussion above established the inputs that we consider provide a reasonable estimate of repex for Ausgrid. Based on our predictive modelling, we are of the view that Ausgrid’s efficient repex for those
Unit cost Using a replacement unit cost based on an average benchmark results in an estimate of $1.38bn for the six modelled asset groups (using forecast unit cost). This is lower than the outcome achieved using Ausgrid's forecast unit costs. We consider that the benchmarked average unit cost is a useful comparison with the cost of other service providers in the NEM and have included these values it in the reasonable range. We have decided to exclude the outcomes of both the first quartile and the lowest unit cost unit price benchmarking. Using the lowest observed unit cost or a unit cost one quartile below the mean results in a much lower estimate of repex for Ausgrid. At the lowest unit cost, or the frontier, we are relying on a single observation, whereas the average benchmark is based on all observations from the NEM (after controlling for outliers, as discussed in appendix F). We consider the average benchmark, which is based on multiple observations, is more reliable of the average cost of replacement in the NEM. Table A17 Benchmarked model outcome – Unit costs Replacement life Unit cost Model outcome Calibrated Forecast $1,429.8 Calibrated Benchmark average $1,355.5 Calibrated Benchmark first quartile $979.1 Calibrated Benchmark lowest $681.8 NSP benchmark average (calibrated) Forecast $1,427.9 NSP benchmark average (calibrated) Benchmark average $1,017.4 NSP benchmark average (calibrated) Benchmark first quartile $796.2 NSP benchmark average (calibrated) Benchmark lowest $654.1 Source: AER analysis. The reasonable range The discussion above established the inputs that we consider provide a reasonable estimate of repex for Ausgrid. Based on our predictive modelling, we are of the view that Ausgrid’s efficient repex for those
AER%20%E2%80%93%20Draft%20decision%20Ausgrid%20distribution%20determination%20%E2%80%93%20Attachment%206%20%E2%80%93%20%20Capital%20expenditure%20%E2%80%93%20November%202014_0.DOCX