Table B3 below shows the drivers of Essential Energy's HV feeders forecast as set out in the revised proposal. This shows that the vast majority of the forecast is not driven by thermal capacity constraints on the network (of which peak demand is the primary driver). Rather, 58 per cent of the forecast is driven by the expected consequences of spatial demand driven network growth (including voltage issues, fault levels, and quality of supply) and the other 42 per cent is driven by reliability, compliance-related and demand management capex. Table Drivers of Essential Energy's HV network augex Proportion of Driver HV network capex Voltage constraints based on voltage Growth (Voltage issues) requirement to new customers. Driven by 18% spatial growth. Demand constraint when new connection is Growth (Thermal required. Driven by demand and spatial 12% constraint) growth Faults in asset protections based on spatial Growth levels) 12% growth. Additional work required at the time of new Growth (Customer) customer connections. Driven by customer 6% numbers. Voltage fluctuations based on customer Quality of supply 10% complaints. Driven by spatial growth. Program to maintain the number of poor Reliability performing feeders under the licence 27% condition. Independent from spatial growth. Compliance with safety requirements. Compliance 13% Independent from spatial growth. Proactive program aimed at reducing Demand management 2% overall network demand. Source: Essential Energy revised proposal, pp. 11-12 Essential Energy's revised proposal states that the growth related augex forecast is calculated based on the average of the actual 2012–13 and 2013–14 growth capex. Essential states that this is likely to be at the lower end of the prudent and efficient level of augex because 2012–13 and 2013–14 experienced the lowest level of growth on its network. We consider that it is reasonable to calculate a forecast based on past capex if the underlying trend is expected to be similar in each period. In Essential Energy's approach, trending forward the capex in 2012–13 and 2013–14 assumes that the spatial growth of the network is expected to be similar in 2014–19 as it was in 2012–13 and 2013-14. However, for the reasons set out below, we consider that the
Table B3 below shows the drivers of Essential Energy's HV feeders forecast as set out in the revised proposal. This shows that the vast majority of the forecast is not driven by thermal capacity constraints on the network (of which peak demand is the primary driver). Rather, 58 per cent of the forecast is driven by the expected consequences of spatial demand driven network growth (including voltage issues, fault levels, and quality of supply) and the other 42 per cent is driven by reliability, compliance-related and demand management capex. Table Drivers of Essential Energy's HV network augex HV network capex Proportion of Driver Growth (Voltage issues) 18% Voltage constraints based on voltage requirement to new customers. Driven by spatial growth. Growth (Thermal constraint) 12% Demand constraint when new connection is required. Driven by demand and spatial growth Growth levels) 12% Faults in asset protections based on spatial growth. Growth (Customer) 6% Additional work required at the time of new customer connections. Driven by customer numbers. Quality of supply 10% Voltage fluctuations based on customer complaints. Driven by spatial growth. Reliability 27% Program to maintain the number of poor performing feeders under the licence condition. Independent from spatial growth. Compliance 13% Compliance with safety requirements. Independent from spatial growth. Demand management 2% Proactive program aimed at reducing overall network demand. Source: Essential Energy revised proposal, pp. 11-12 Essential Energy's revised proposal states that the growth related augex forecast is calculated based on the average of the actual 2012–13 and 2013–14 growth capex. Essential states that this is likely to be at the lower end of the prudent and efficient level of augex because 2012–13 and 2013–14 experienced the lowest level of growth on its network. We consider that it is reasonable to calculate a forecast based on past capex if the underlying trend is expected to be similar in each period. In Essential Energy's approach, trending forward the capex in 2012–13 and 2013–14 assumes that the spatial growth of the network is expected to be similar in 2014–19 as it was in 2012–13 and 2013-14. However, for the reasons set out below, we consider that the
AER%20-%20Final%20Decision%20Essential%20Energy%20distribution%20determination%20-%20Attachment%206%20-%20Capital%20expenditure%20-%20April%202015.DOCX