Energex. Statement of expected price trends. 1 July 2014 to 30 June /15 Statement of expected price trends

(1)

1 July 2014 to 30 June 2015

Statement of expected

price trends

Energex

(2)

Version control

Version Date Description

1.0 16 June 2013 Published on Energex’s website

Energex Limited (Energex) is a Queensland Government Owned Corporation that builds, owns, operates and maintains the electricity distribution network in the region of South East Queensland. Energex provides distribution services to almost 1.4 million domestic and business connections, delivering electricity to a population base of around 3.2 million people.

Energex’s key focus is distributing safe, reliable and affordable electricity in a commercially balanced way that provides value for its customers, manages risk and builds a sustainable future.

This work is copyright. Material contained in this document may be reproduc ed for personal, in-house or non-commercial use, without formal permission or charge, provided there is due acknowledgment of Energex Limited as the source.

Requests and enquiries concerning reproduction and rights for a purpose other than personal, in-house or non-commercial use should be addressed to:

Network Pricing Manager Energex

GPO Box 1461 BRISBANE QLD 4001

(3)

List of appendices

APPENDIX 1 – GLOSSARY ... 2

List of tables

Table 3.1 – Average indicative DUOS price impacts for the 2010–15 regulatory control period ... 5

Table 4.1 – Summary of street light services percentage increase for for the 2010–15 regulatory control period... 6

Table 4.2 – Summary of the fee-based percentage increase for the 2010–15 regulatory control period ... 7

(4)

1 Introduction

RULE REQUIREMENT

Clause 6.18.9 Publication of information about tariffs and tariff classes (a) A Distribution Network Service Provider must maintain on its website:

(3) a statement of expected price trends (to be updated for each regulatory year) giving an indication of how the Distribution Network Service Provider expects prices to change over the regulatory control period and the reasons for the expected price changes.

This document is Energex’s Statement of Expected Price Trends for 2014/15. It has been prepared for the final year of Energex’s 2010–2015 regulatory control period in accordance with Clause 6.18.9(a)(3) of the National Electricity Rules (the Rules). The NER limits the requirement to provide indicative price trends beyond the current regulatory control period, which ends 30 June 2015.

When developing tariffs and charges, Energex has considered customers’ changing expectations and the current upwards pressure being exerted on energy prices. Energex is committed to ensuring a balanced commercial outcome while meeting customer

requirements and managing sustainability and risk.

Energex is currently working on its Regulatory Proposal for 2015-20 regulatory control period which will be submitted to the Australian Energy Regulator (AER) on 31 October 2014. Our Regulatory Proposal will set out indicative prices for Standard Control Services (SCS) and Alternative Control Services (ACS) for 2015-20. The AER will assess our Regulatory Proposal and will release a distribution determination in 2015 which ultimately sets the revenue or prices we are allowed to collect or charge for our distribution services in the next regulatory control period. More information about the Regulatory Proposal is available on Energex’s website.¹

This document supports Energex’s 2014/15 Pricing Proposal² which contains additional information about network pricing, including tariffs and charges and was approved by the Australian Energy Regulator (AER) on 13 June 2014.

1https://www.energex.com.au/about-us/network-regulation-and-pricing/energex-regulatory-proposal

2 Energex’s 2014/15 Pricing Proposal, as approved by the AER, is available on the AER’s website at [http://www.aer.gov.au/node/24850].

(5)

2 Network cost drivers

Energex is aware of the changing expectations of customers and the current upward pressure being exerted on energy prices. These factors have been considered by Energex, alongside the need to recover its regulated revenue, when developing its 2014/15 network tariffs and charges. Energex is committed to achieving a balanced commercial outcome while meeting its obligations to customers and managing sustainability and risk.

2.1 Regulatory framework

Under the current regulatory framework³, prior to the commencement of a five year

regulatory control period, the AER determines Energex’s revenue cap for the entire period, including specifying the revenue requirement for each year. In 2009, the AER published the Energex distribution determination for 2010/11 to 2015/16⁴ (Final Determination) which detailed the regulated revenue that Energex is required to recover across the period and for each regulatory year.

On 19 May 2011, a revised Determination was made by the Australian Competition Tribunal⁵ which set revised regulated revenue requirements for Energex for the regulatory control period. Energex’s regulated revenue requirements are adjusted annually to determine its Maximum Allowed Revenue (MAR) for that regulatory year.

When setting tariffs and charges, Energex does so in a manner that is consistent with clause 6.18.5 of the Rules. For Standard Control Services, Energex’s objective is to ensure its regulated revenue is recovered from customers through tariffs and for ACS, which are subject to a price cap, the objective is to ensure that the price charged is cost-reflective.

2.2 Cost drivers for 2014/15

For 2014/15, the MAR includes costs to meet:

 energy, demand and growth expectations

 security and reliability standards and

 contemporary network service expectations.

The MAR also accounts for approved annual adjustments, including the increasing costs to fund Feed-in-Tariff (FiT) payments associated with the Queensland Government’s Solar

3 The regulatory framework exists under the National Electricity Law which is established under the National Electricity (South Australia) Act 1996. The current version came into force on 17 April, 2014.

4 AER, 2010. Energex - Distribution determination 2010-11 to 2014-15, 4 May 2010.

http://www.aer.gov.au/sites/default/files/Queensland%20determination%20-%20Energex.pdf

5 Australian Competition Tribunal, 2011. Review of a Distribution Determination by Energex Limited, 19 May 2011.

http://www.aer.gov.au/sites/default/files/Australian%20Competition%20Tribunal%20order%20Energex%20-

%2019%20May%202011.pdf

(6)

Bonus Scheme (SBS)⁶, adjustments for Service Target Performance Incentive Schemes (STPIS)⁷, and under recoveries.

In 2014/15 a reduction to the MAR was made subsequent to a direction from the

Queensland Government in relation to the Electricity Network Capital Program (ENCAP) Review.

2.2.1 Queensland Government SBS

The Queensland Government SBS was established to promote the installation of Solar Photovoltaic (PV) by Queensland households and to encourage these customers to export excess energy to the grid through the payment of a Feed-in-Tariff (FiT). Since the

introduction of the SBS, the growth in customer uptake of residential Solar Photovoltaic (PV) generators in Queensland has significantly exceeded expectations and is now having a significant impact on network charges which have to account for the cost of these payments.

2.2.2 ENCAP review

For 2014/15, the MAR has been adjusted as a result of the ENCAP Review. Commissioned by the Queensland Government in 2011, the ENCAP Review established an independent panel to undertake a review of the capital infrastructure programs of Energex, Ergon Energy and Powerlink with the view to achieving improved efficiencies and cost savings while maintaining network security and reliability. The panel made a number of recommendations that were endorsed by the Queensland Government and have been implemented by

Energex, including revision of the network security standard and significant potential capital expenditure savings.

On 11 February 2012 Energex received a Direction Notice from the Queensland

Government⁸ requiring it to exclude revenue related to the expected reduction in its capital expenditure (capex) program, arising from the ENCAP Review, from its Pricing Proposals for 2012/13 and the remaining years of the regulatory control period. As such, the 2014/15 MAR includes an adjustment for this direction.

2.2.3 Distribution Use of System (DUOS) overs and unders account

To moderate price increases for customers and provide a smooth transition into the next regulatory control period, no under recovery has been included in the prices for 2014/15.

Instead, Energex has utilised the provisions of clauses 6.3(a)(6) and 6.4.3(b)(6) of the Rules which allow for the carry forward of balances of a control mechanism from one regulatory control period to the next and for these to be smoothed across the next 5 years of the Regulatory Determination.

6 AER, 2013. Determination 2012/13 Queensland solar bonus scheme pass-through for Energex, December 2013 http://www.aer.gov.au/node/23154

7Adjustment for STPIS consistent with the 2011-12 S-banking approval from the AER received 22 April 2013.

8 Direction Notice issued to Energex by the Queensland Government under section 115 of the Government Owned Corporations Act 1993 (Qld).

(7)

The timing allows the closing balance of the DUOS unders and overs account as at 30 June 2015 to be carried over into the building block revenue for the next regulatory period, allowing Energex to commence the next regulatory control period with a zero account balance.

Energex has consulted with customers and advocacy groups who favoured Energex

recovering the balance over a longer period of time to enable price stability given the extent of the under recovery.

(8)

3 Standard Control Services

The approved prices for SCS are available in Energex’s 2014/15 Annual Pricing Proposal⁹, which is published on the Energex website. A summary of the average DUOS price impacts for the current regulatory control period for each SCS tariff class is provided in Table 3.1.

Table 3.1 – Average indicative DUOS price impacts for the 2010–15 regulatory control period

Tariff class

Indicative average DUOS price impacts for 2010/11 to 2014/15¹

2010/11² (approved)

%

2011/12³ (approved)

%

2012/13⁴ (approved)

%

2013/14⁵ (approved)

%

2014/15⁶ (approved)

%

ICC 10.0% 12.0% 13.1% 10.2% 12.7%

CAC – 33 kV 4.9% 14.0% 13.1% 16.2% 11.9%

CAC – 11 kV Bus 6.8% 14.2% 15.5% 21.0% 12.8%

CAC – 11 kV Line 9.4% 14.2% 17.4% 21.3% 14.2%

EG 4.9% 13.4% 14.1% 14.0% 13.9%

SAC Demand 16.1% 13.7% 18.0% 20.4% 19.9%

SAC Non-Demand 13.8% 12.9% 18.1% 19.7%% 16.7%

Notes:

1. Prices include an escalation factor to account for increases in the value of money over time.

2. As per Energex’s approved 2010/11 Pricing Proposal.

Indicative Designated Pricing Proposal Charges (DPPC) tariffs have not been provided, as these charges are a direct pass-through from Powerlink.

Average indicative DUOS prices for the next regulatory control period will be available in Energex’s Regulatory Proposal for 2015-20.

9Energex’s 2014/15 Pricing Proposal, as approved by the AER, is available on the AER’s website at [http://www.aer.gov.au/node/24850].

(9)

4 Alternative Control Services

4.1 Street lighting services

In 2010/11 and 2011/12 street light prices were escalated subject to the price path approved by the AER in the 2010–2015 Final Determination.¹⁰ For 2012/13, 2013/14 and 2014/15, the street light prices will be subject to the price path outlined in the tribunal order dated

19 May 2011.¹¹

The approved prices for street lighting services are available in Energex’s 2014/15 Annual Pricing Proposal¹², which is published on the Energex website. A summary of the price increases for street lighting services for the current regulatory control period is provided in Table 4.1.

Table 4.1 – Summary of street light services percentage increase for for the 2010–15 regulatory control period

Street light service

Percentage (%) increase for 2010-2015 regulatory control period

2010/11 2011/12 2012/13 2013/14 2014/15

Major non–contributed

9.41% 8.60% 8.91% 9.09%

Major contributed

8.70% 8.00% 11.11% 10.00%

Minor non–contributed

8.82% 10.81% 7.32% 9.09%

Minor contributed

11.11% 10.00% 9.09% 8.33%

Indicative prices for street lighting services for the next regulatory control period will be available in Energex’s Regulatory Proposal for 2015-20.

4.2 Fee-based services

The prices for fee-based services were determined using the AER’s approved formula based price cap control mechanisms. The fee-based prices for 2011/12 to 2014/15 included in the 2010–15 Final Determination do not represent a binding capped price. The actual prices for fee-based services each year are subject to an annual escalation process.

10 AER, 2010. Energex - Distribution determination 2010-11 to 2014-15, 4 May 2010.

http://www.aer.gov.au/sites/default/files/Queensland %20determination%20-%20Energex.pdf (Date accessed: 24/04/13).

11 Refer to Footnote 5.

(10)

The approved prices for fee-based services are available in Energex’s 2014/15 Annual Pricing Proposal¹³, which is published on the Energex website. A summary of the price increases for fee-based services for the current regulatory control period is provided in Table 4.2.

Table 4.2 – Summary of the fee-based percentage increase for the 2010–15 regulatory control period

Percentage (%) increase for 2010-15 regulatory control period

2010/11 2011/12 2012/13 2013/14 2014/15

All fee-based services

5.30% 7.40% 3.78% 4.00%

Indicative prices ACS for the next regulatory control period will be available in Energex’s Regulatory Proposal for 2015-20.

4.3 Quoted services

Quoted services are those services for which the nature and scope cannot be known in advance. The indicative prices for quoted services were determined using the AER’s approved formula based price cap control mechanisms. These prices are provided in the pricing proposal for an illustrative configuration and do not represent a binding capped price for individual quoted services.

(11)

APPENDIX 1 Glossary

(12)

Appendix 1 – Glossary

1.1 Acronyms and abbreviations

Table A.1.1 - Acronyms and abbreviations used throughout this document

Abbreviation Description

ACS Alternative Control Services AER Australian Energy Regulator CAC Connection Asset Customers Capex Capital expenditure

DNSP Distribution Network Service Provider

DPPC Designated Pricing Proposal Charges (previously known as TUOS) DUOS Distribution Use of System

EG Embedded generators

ENCAP Electricity Network Capital Expenditure Program (ENCAP Review) FiT Feed-in-Tariff (Solar PV)

ICC Individually Calculated Customers

MAR Maximum Allowed Revenue

PV Photovoltaic (Solar PV) Rules National Electricity Rules SAC Standard Asset Customers SCS Standard Control Services

1.2 Measurements

Table A.1.2 - Units of measurement used throughout this document

Base Unit Unit name Multiples used in this document

VA volt-ampere kVA, MVA

h hour GWh, kWh, MWh

W watt W, kW, kWh, MW

Table A.1.3 - Multiples of prefixes (units) used throughout this document Prefix

symbol

Prefix name

Prefix multiples by unit

Prefixes used in this document

G giga 10⁹ GWh

M mega 1 million or 10⁶ MW, MWh, MVA

k kilo 1 thousand or 10³ kV, kVA, kW, kWh

(13)

1.3 Definitions

Table A.1.4 - Definitions of terminology used throughout this document

Term Abbreviation /

Acronym Definition

Australian Energy Regulator

AER The economic regulator of the National Electricity Market established under Section 44AE of the Competition and Consumer Act 2010 (Commonwealth).

Capital expenditure

Capex Expenditure typically resulting in an asset (or the amount Energex has spent on assets).

Connection Asset Customer

CAC Typically, those customers with electricity consumption greater than 4 GWh but less than 40 GWh per year at a single

connection point; or where demand is greater than or equal to 1 MVA; or where a customer has a dedicated supply system with significant connection assets or the customer has contributed to their dedicated connection assets.

Customer At Energex we define our customers through their mutual relationships with us. Through the diversity of our local and broader influences, they are the many who influence how we make decisions and provide services to our region. Energex has categorised customers into 4 broad categories: Community and Connected Customers (who we do work for) and

Stakeholders and Partners (who we do work with).

Demand The amount of electricity energy being consumed at a given time measured in either kilowatts (kW) or kilovolt amperes (kVA). The ratio between the two is the power factor.

Distribution Network Service Provider

DNSP An entity that engages in the activity of owning, controlling or operating a distribution system which is the distribution network, together with the connection assets associated with the distribution network, which is connected to another transmission or distribution system.

Distribution Use of System

DUOS This refers to the network charges for the use of the distribution network.

Designated Pricing Proposal Charge

DPPC Refers to the charges incurred for use of the transmission network; previously referred to as Transmission Use of System (TUOS).

(14)

Electricity Network Capital Program Review

ENCAP The ENCAP Review was commissioned by the Queensland Government in late 2011. An independent panel was

established to undertake a review of the capital infrastructure programs of Energex, Ergon Energy and Powerlink with the view to achieving efficiencies and cost savings while maintaining network security and reliability.

The panel identified significant potential capital expenditure savings and Energex’s program of capital work was reduced in line with these findings.

Energy The amount of electricity consumed by a customer (or all customers) over a period of time. Energy is measured in terms of watt hours (Wh), kilowatt hours (kWh), megawatt hours (MWh) or gigawatt hours (GWh).

Feed-in Tariff FiT The rate that is to be paid for the excess energy generated by customers and fed back into the electricity grid under the Queensland Solar Bonus Scheme. The FiT rate is determined by the Queensland Government and is paid by the purchaser of the excess energy.

Final

Determination

A distribution determination document published by the AER in its role as Energex’s economic regulator that provides for distribution charges to increase during Energex’s Regulatory Control Period.

Individually Calculated Customer

ICC Typically those customers with electricity consumption greater than 40 GWh per year at a single connection point; or where the customers demand is greater than or equal to 10 MVA; or where a customer’s circumstances mean that the average shared network charge becomes meaningless or distorted.

Maximum Allowable Revenue

MAR The maximum revenue which can be recovered through tariffs for the regulatory year.

National

Electricity Market

NEM The interconnected electricity grid covering Queensland, New South Wales, Victoria, Tasmania, South Australia and the Australian Capital Territory.

National

Electricity Rules

NER (the Rules)

The legal provisions (enforced by the AER) that regulate the operation of the NEM and the national electricity systems, the activities of market participants and the provision of connection services to retail customers.

Network Use of System

NUOS The tariff for use of the distribution and transmission networks.

It is the sum of both Distribution Use of System (DUOS) and Designated Pricing Proposal Charges (DPPC).

(15)

Price on Application

POA Where a service is POA, Energex must be contacted by the customer, their retailer or their electrical contractor to obtain a price.

Pricing Proposal Prepared by Energex in accordance with Clause 6.18.2(a)(2) of the Rules, it is provided to the AER for approval and outlines how Energex will collect its revenue during the relevant regulatory year.

Queensland Government Solar Bonus Scheme

A program that pays residential and other small energy customers for the surplus electricity generated from roof-top solar photovoltaic (PV) systems that is exported to the Queensland electricity grid.

Regulatory control period

A standard regulatory control period for DNSPs is a period of not less than 5 regulatory years; Energex’s current regulatory control period is 2010-2015, as per the Final Determination.

Solar Photovoltaic

Solar PV A system that uses sunlight to generate electricity for residential use. The system provides power for the premises with any excess production feeding into the electricity grid.

Standard Asset Customer

SAC Generally those customers with annual electricity consumption below 4 GWh per year, whose supply arrangements are consistent across the customer group; and where there is no contribution for their dedicated connection assets. SAC Non- Demand are customers within SAC with consumption less than 100 MWh per year and who are on consumption (kWh) tariffs.

SAC Demand are customers within SAC with consumption greater than 100 MWh per year and less than 4 GWh per year and who are on demand (kW) tariffs.

Standard Control Service

SCS This service class includes network, connection and metering services.

Street lights (major)

Lamps in common use for major road lighting including:

a) high pressure sodium 100 watt (S100) and above;

b) metal halide 150 watt (H150) and above; and c) mercury vapour 250 watt (M250) and above.

Street lights (minor)

All lamps in common use for minor road lighting, including mercury vapour, high pressure sodium and fluorescent.

(16)

Tariff schedule The tariff schedule is published by Energex annually at the beginning of the financial year and outlines its tariffs for SCS and ACS. It also provides information about how Energex assigns customers to tariff classes and the internal review process undertaken if a customer requests a review of a decision. The tariff schedule applies for the duration of the relevant financial year.