Download Expenditure workshop - Essential Services Commission

Electricity Distribution Price Review
2006-10
Metering Workshop
14 July 2005
1
Metering workshop outline
 Framework & Approach
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Responsibility for metering services
Form of regulation
Interval meter rollout
Responsibility for metering services
 Revenue requirement
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Capital expenditure
Operating expenditure
Return on capital
Return of capital (regulatory depreciation)
Forecast tax liability
 Metering price controls & incentive arrangements
 Metering service charges
2
Metering framework & approach
 The framework & approach was developed on basis
that the approach to metering services would be :
– The same, regardless of whether the customer was first
tier or second tier
– Consistent with the Final Report from the joint
jurisdictional regulators’ review of metrology procedures
as understood by the Commission
– Consistent with the NEC, & reliant on an extension to the
derogation to the NEC authorising DBs exclusive
responsibility for providing metering services to “small”
second tier customers
3
Metering framework & approach –
responsibility for metering services
 At the time of the development of the framework &
approach:
– Retailer choice over whether the retailer or distributor is
responsible for:
 “Large” (>160 MWh p.a.) first tier customers or customers
with a meter that meets the requirements of a metering
installation type 1 – 4
 Second tier customers with a meter that meets the
requirements of a metering installation type 1 – 4
– Distributor responsibility for:
 “Small” (<160 MWh p.a.) first tier customers with a meter that
does not meet the requirements of a metering installation
type 1 – 4
 “Small” second tier customers with a
metering installation type 5 – 7
4
Metering framework & approach – form
of regulation
 Prescribed service where DB exclusively
responsible
– Charges unbundled from DUoS charges
 Excluded service where the retailer has the choice
of responsible person
– A separate process to be undertaken under Electricity
Industry Guideline No. 14 to declare services contestable
 Non-contestable excluded service for:
– First tier customers that consume >160 MWh p.a. & have a
manually read meter
– Charges subject to Commission approval
5
Metering framework & approach –
Interval Meter Rollout (IMRO)
The Commission has mandated a rollout of
interval meters commencing during the
2006-10 regulatory period
Revenue requirement for prescribed
metering services to consider analysis
underpinning the Commission’s IMRO
decision
6
Responsibility for metering services
 Subsequent to the framework & approach the joint
jurisdictional regulators’ review was finalised & the
ACCC extended a derogation to the NEC relating to
DB exclusive responsibility for metering services
– The Commission maintains consistency with the joint
jurisdictional regulators’ review of metrology procedures
recommendations
– The ACCC extended the derogation, excluding interval
meters that are remotely read
7
Prescribed metering services revenue
requirement
Approach mirrors the methodology applied
to developing the revenue requirement for
DUoS
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–
–
–
–
Capital expenditure
Operating & maintenance expenditure
Regulatory depreciation (return of capital)
Return on capital
Forecast tax liability
8
Prescribed metering services revenue requirement
2006-10 – DB proposals vs. Draft Decision
Prescribed metering services revenue requirement - DB
proposals vs. Draft Decision, all distributors, 2006, $million,
real$2004
$m, real $2004
200
150
100
50
0
AGLE
CitiPower
Powercor
DB Proposals
TXU
United Energy
Draft Decision
9
Metering services revenue requirement
– capital expenditure
Capital expenditure categories
– Meter volumes
– Unit costs – meter supply, installation, back
office functions, site costs
– Metering data services (IT)
– Metering data services (other)
– Project management & training
Assessed with the assistance of ECG
10
Capital expenditure – meter volumes
 Framework & approach required DBs to set targets to meet
IMRO schedule for each year (2006-12) based on meter type,
meter purpose, reason
 DB determined rollout profile
 The Commission reviewed volumes for internal consistency
with customer numbers & new connections recommended by
Wilson Cook
– Reductions in volumes proposed by AGLE & CitiPower
 The Commission also considered feasibility of proposed
volumes
– AGLE: smoothed volume of meters proposed in 2007 over 2007,
2008 & 2009
– United Energy: reduced volume of meters
proposed in 2008, smoothed remaining volume
over 2008 & 2009
11
Capital expenditure – unit costs meter
supply
 Meter supply costs: includes unit costs, & delivery/storage
costs – adopted ECG’s recommendations
12
Capital expenditure – unit costs
installation
Installation costs: includes travel time,
labour & supervision costs; excludes
complex installation (site) costs
– New meter costs recovered through excluded
service charge, replacement meter costs
included in metering price control
– Commission adopted consistent unit cost across
similar DBs
– Incorporated a real labour rate escalation of 1.5%
p.a.
13
Capital expenditure – unit costs
installation – urban
14
Capital expenditure – unit costs
installation – rural
15
Capital expenditure – unit costs back
office
 Back office functions: adopted ECG’s recommendations
16
Capital expenditure – site costs
Site costs: include costs associated with
meter board replacement, rewiring &
asbestos removal
– Commission adopted consistent unit cost across
similar DBs
– Incorporated a real labour rate escalation of 1.5%
p.a.
– Costs expensed by TXU & United Energy
A separate charge to be levied where meters
installed after hours
17
Capital expenditure – site costs
Capital expenditure site costs per meter 2006 - DB proposals
vs. Draft Decision, real$2004
real $2004
200
150
100
50
0
AGLE
CitiPower
Powercor
DB Proposals
TXU
United Energy
Draft Decision
18
Capital expenditure – metering data
services (IT)
Cost recovery of IT based on principle:
– Costs of IT systems required by all customers
recovered through DUoS price control
– Costs of IT systems required by customers with
a DB’s meter installed to be recovered through
metering price control
ECG developed benchmark costs for a
generic metering data system, which the
Commission has accepted as reasonable
19
Capital expenditure – metering data services (IT)
Capital expenditure metering data service (IT) 2006-10 - DB
proposals vs. Draft Decision, $million, real$2004
$m, real $2004
30
25
20
15
10
5
0
AGLE
CitiPower
Powercor
DB Proposals
TXU
United Energy
Draft Decision
20
Capital expenditure – metering data
services (other)
 Metering data services (other) costs associated
with Portable Data Entry Units
– Commission accepted ECG recommendation that DB
proposals are reasonable
Capex – metering data services (other), $million, real $2004
AGLE CitiPower Powercor
As per
submissions &
ECG
recommendations
0.2
0.4
0.9
TXU
United
Energy
1.0
1.0
21
Capital expenditure – project
management & training
 Project management & training
– ECG assessed DB proposals
– ECG estimated project management costs based on 4 people
at $100,000 each
– ECG estimated training costs based on training cost per
installer & number of installers
– The Commission accepted ECG’s recommendations
Project management & training, $million, real $2004
As per
submissions
ECG
recommendation
AGLE
CitiPower
Powercor
TXU
United
Energy
3.1
Incl in
installation
costs
Incl in
installation
costs
4.4
4.2
2.0
2.1
2.3
2.3
2.4
22
Prescribed metering services capital expenditure
2006-10 – DB proposals vs. Draft Decision
Prescribed metering services capital expenditure - DB proposals
vs. Draft Decision, all distributors, 2006, $million, real$2004
$m, real $2004
250
200
150
100
50
0
AGLE
CitiPower
Powercor
DB Proposals
TXU
United Energy
Draft Decision
23
Metering services revenue requirement
– operating & maintenance expenditure
Operating & maintenance expenditure
categories
– Maintenance: meters, metering data services (IT)
– Operating: unit costs of meters, metering data
services
– Indirect costs
– Project management & training (TXU only)
24
Maintenance – meters
Meters
– Costs associated with maintaining metering
stock
 To be recovered through metering price control where
DB is exclusively responsible for metering services
– ECG assessed on a per customer basis, &
recommended DB proposals for all but AGLE
– The Commission has accepted ECG’s
recommendations as reasonable
25
Maintenance – meters
cost per customer, real $2004
Maintenance meters cost per customer - DB proposals vs.
Draft Decision, real$2004
7
6
5
4
3
2
1
0
AGLE
CitiPower
Powercor
DB Proposals
TXU
United Energy
Draft Decision
26
Maintenance – metering data services
(IT)
Metering data services (IT)
– ECG assumed costs include hardware, software
& labour
– Developed maintenance costs for a generic
metering data system
– Commission accepted ECG’s recommendations
as reasonable, with the exception of TXU
27
Maintenance – metering data services
(IT)
Metering data services (IT) - DB proposals vs. Draft Decision 200610, $million, real$2004
$m, real $2004
15
10
5
0
AGLE
CitiPower
Powercor
DB Proposals
TXU
United Energy
Draft Decision
28
Operating – customer service costs
Customer service costs
– Costs associated with making appointments,
multiple visits, communications & dealing with
customer complaints
 These costs have been included for replacement
meters only
 Commission adopted consistent unit cost across
similar DBs & included an additional $1 per meter for
the provision of information
29
Operating – customer service costs
Customer service costs - DB proposals vs. Draft Decision,
real$2004
25
real $2004
20
15
10
5
0
AGLE
CitiPower
Powercor
DB Proposals
TXU
United Energy
Draft Decision
30
Operating – metering data services
Metering data services
– Costs associated with the collection, processing,
storage & provision of metering data
– DBs indicated that the time & cost per read will
increase for interval meters
– Commission adopted consistent unit costs
across similar DBs
31
Operating – metering data services
32
O&M – Indirect costs
 Indirect costs
– Principle: indirect costs allocated to DUoS price control,
excluded services & metering price control consistent
across regulatory periods
– All DBs except UE allocated indirect costs to the metering
price control, but have maintained the levels ascribed to
the DUoS price control & excluded services
– Therefore, no indirect costs allocated to metering price
control
 Direct overheads included for TXU based on
existing cost allocation
33
Prescribed metering services operating &
maintenance expenditure 2006-10 – DB proposals
vs. Draft Decision
Prescribed metering services operating and maintenance
expenditure - DB proposals vs. Draft Decision, all distributors,
2006, $million, real$2004
$m, real $2004
150
100
50
0
AGLE
CitiPower
Powercor
DB Proposals
TXU
United Energy
Draft Decision
34
Regulatory depreciation
 The annual rate at which accumulated capital is
returned to investors – is a function of the RAB &
the depreciation period
 Applied in a straight-line manner consistent with
depreciation of the DUoS RAB
 Opening asset base as at January 1, 2006 – zero
 Each DB was asked to stipulate the depreciation
period for accumulation meters, interval meters,
metering data services – IT & other
 The depreciation periods assumed by each DB
have been applied
35
Return on assets, taxation & enhanced
offerings
 Return on assets
– The Commission will apply the same WACC as that
decided for the DUoS price control
 Taxation
– As the Commission’s WACC is after-tax in form, an
allowance must be included to cover expected tax
liabilities
– Tax depreciation rates have been applied consistently
across the DBs for each prescribed metering services
category
– Tax liability considered for prescribed services in
aggregate
 Enhanced offerings
– Additional expenditure has not been provided
36
Metering price controls & incentive
arrangements
 The Commission has set an overarching price
control that limits the annual average increase of
prescribed metering service charges similar in
operation to the price control on DUoS tariffs
 An efficiency carryover mechanism will also apply
to the metering price control
 An M-factor has been introduced to counter the
combined effect that a CPI-X price cap & efficiency
carryover mechanism may have on the roll out of
interval meters
 The Commission’s requirements for DUoS tariffs
with regard to reporting requirements, timing &
rebalancing will also apply to metering
service charges
37
Metering price controls
 The Commission will specify the revenue for 2006,
based on the building block revenue requirement &
the value of XM
 Consistent with its approach to the price control for
DUoS, the Commission will adhere to the principles
of
– Net Present Value (NPV) neutrality
– The building block revenue requirement to be
approximately the same as the forecast revenue earned in
2010 to avoid a price shock in 2011
– Where possible, the same XM to be adopted for each
distributor
38
Metering price controls
Value of RMT, all distributors, $million, real $2004
AGLE
CitiPower
Powercor
TXU
United
Energy
5.5
5.8
13.4
12.3
8.9
Value of XMT, all distributors, 2007-10, per cent
AGLE
CitiPower
Powercor
TXU
United
Energy
-5
-15
-20
-25
-20
39
Metering service charges
 Prescribed metering service charges for:
– Meter provision based on the type of meter
– Metering data services based on the frequency of meter
read
 Charges are:
– Set to recover the revenue requirement for the metering
price control
– To be paid by all customers who consume less than 160
MWh per annum who do not have an interval meter that is
remotely read & who utilise the metering services provided
by the distributor
– The same, regardless of whether the customer has an
accumulation meter or an interval meter installed
40