Access arrangement final decision Envestra Ltd 2013–17 Part 2: Attachments

Revisions

611. 
     The AER proposes the following revisions to make the access arrangement acceptable.
     
612. 
     Revision 5.1
     
613. 
     Make all necessary amendments to reflect the AER's final decision on the rate of return on capital for the access arrangement period, as set out in Table 5 .44 of this attachment.
     

6Depreciation

614. 
     When determining the total revenue for Envestra’s Victorian and Albury distribution businesses (Envestra), the AER must decide on the depreciation for the projected capital base (or return of capital).⁶²⁸ Regulatory depreciation is used to model the nominal asset values over the access arrangement period and represents the depreciation allowance in the total revenue requirement. In this attachment, the AER outlines its final decision on Envestra’s annual regulatory depreciation allowance.⁶²⁹ The AER also sets out its consideration of specific matters that affect the estimate of regulatory depreciation over the 2013–17 access arrangement period. These include:
     

• 
  the standard economic lives for depreciating new assets associated with forecast net capex
  
• 
  the remaining economic lives for depreciating existing assets in the opening capital base.
  

1. Final decision

615. 
     The AER does not approve Envestra’s revised proposed total forecast regulatory depreciation allowances for the 2013–17 access arrangement period of:
     

• 
  $88.5 million ($nominal) for Envestra Victoria
  
• 
  $3.9 million ($nominal) for Envestra Albury.
  

616. 
     This is because the AER's adjustments to other building block components have had a consequential effect on the forecast regulatory depreciation allowances. These are discussed in other attachments and include:
     

• 
  the roll forward of the opening capital base (attachment 3)
  
• 
  forecast capex (attachment 4).
  

617. 
     The AER's final decision on Envestra's total forecast regulatory depreciation allowances over the 2013–17 access arrangement period is:
     

• 
  $88.1 million ($nominal) for Envestra Victoria as shown in Table 6 .50. This represents a reduction of $0.4 million ($nominal) or 0.4 per cent of the revised proposed regulatory depreciation allowance for Envestra Victoria
  
• 
  $3.8 million ($nominal) for Envestra Albury as shown in Table 6 .51. This represents a reduction of $0.1 million ($nominal) or 1.3 per cent of the revised proposed regulatory depreciation allowance for Envestra Albury.
  

618. 
     The AER accepts Envestra's revised proposed standard economic lives. The AER also accepts Envestra's revised proposed weighted average method to calculate the remaining economic lives as at 1 January 2013. Based on the AER's final decision on the roll forward of the opening capital base (discussed in attachment 3), the AER has updated the remaining economic lives for this final decision.
     

Table 6.50 AER's final decision on Envestra Victoria's depreciation allowance ($million, nominal)

	2013	2014	2015	2016	2017	Total
Straight-line depreciation	40.1	44.3	50.0	54.3	58.4	247.1
Less: indexation on opening capital base	27.9	29.9	31.9	33.6	35.5	158.9
Regulatory depreciation	12.2	14.4	18.0	20.7	22.9	88.1

Source: AER analysis.

Table 6.51 AER's final decision on Envestra Albury's depreciation allowance ($million, nominal)

	2013	2014	2015	2016	2017	Total
Straight-line depreciation	1.4	1.5	1.7	1.8	1.9	8.3
Less: indexation on opening capital base	0.9	0.9	0.9	0.9	0.9	4.5
Regulatory depreciation	0.5	0.7	0.8	0.9	1.0	3.8

Source: AER analysis.

1.