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

Revisions

1051. 
      The AER proposes the following revisions to make the revised access arrangement proposal acceptable:
      
1052. 
      Revision 10.1: All necessary amendments to reflect the AER's final decision on demand forecasts as set out in Table 10 .76 and Table 10 .77 above.
      

11Tariff setting

1053. 
      This attachment outlines the AER’s assessment of the reference tariffs proposed by Envestra against the requirements of the NGR, specifically rr. 93 and 94. The AER's assessment takes into account the revenue and pricing principles, including ss. 24(2) and 24(5) of the NGL, and the NGO.
      

1. Final decision

1054. 
      The AER does not accept the reference tariffs proposed by Envestra for the 2013–17 access arrangement period. Consistent with r 93, the revenue and pricing principles and the NGO, the AER considers that Envestra must amend the quantum (level) of the proposed reference tariffs to reflect the forecast total revenue approved in this final decision. The AER's final decision on Envestra's revised forecast total revenue is set out in chapter 2 of this final decision (Part 1).
      

The AER accepts that the proposed structure of Envestra reference tariffs complies with the requirements under rr. 93 and 94 of the NGR.⁸⁶⁴

1055. 
      The reasons for the AER's decision are set out in detail below.
      

1. Revised proposal

1056. 
      Envestra adopted the AER's draft decision in relation to the structure of its proposed reference tariffs.⁸⁶⁵ However, Envestra did not accept the draft decision in relation to the level of its proposed reference tariffs. This is because Envestra did not accept other elements of the AER's draft decision, such as on opex, capex and the rate of return.
      

54. Assessment approach

The AER's approach to assessing Envestra's proposed reference tariffs is set out in Attachment 10 of the AER's draft decision.⁸⁶⁶

The AER did not receive submissions on Envestra's revised reference tariffs.

1. Reasons for decision

1057. 
      The AER does not accept the reference tariffs proposed by Envestra for the 2013–17 access arrangement period. Consistent with r 93, the revenue and pricing principles and the NGO, the AER considers that the quantum of the proposed reference tariffs do not reflect the forecast total revenue approved in this final decision.
      
1058. 
      In its draft decision, the AER determined that the structure of Envestra's proposed reference tariffs complies with the requirements of the NGR. However, the AER required Envestra to amend the level of its proposed reference tariffs to reflect the AER's draft decision on forecast total revenue and forecast demand.⁸⁶⁷ Envestra, instead, revised its proposed reference tariffs in line with the forecast total revenue and forecast demand in its revised access arrangement.⁸⁶⁸
      
1059. 
      While the AER has accepted Envestra's revised demand forecasts, it has not accepted Envestra's revised forecast total revenue (see chapter 2 of this final decision, Part 1).
      
1060. 
      The AER has reviewed the structure of Envestra's revised reference tariffs and is satisfied that the structure of the revised reference tariffs complies with the requirements of the NGR and the AER's draft decision.⁸⁶⁹ The reasons for the AER's decision on Envestra's reference tariff structure are outlined in Attachment 10 of its draft decision.⁸⁷⁰
      

1. Revisions

1061. 
      The AER proposes the following revisions to make the revised access arrangement proposal acceptable:
      
1062. 
      Revision 11.1: All necessary amendments to reference tariffs to reflect the AER's final decision on forecast total revenue as set out in the revisions section of Attachment 12 of this final decision.
      
1063. 
      
      

12Tariff variation mechanism

1064. 
      This attachment sets out the AER’s consideration of Envestra's proposed reference tariff variation mechanism. The reference tariff variation mechanism:
      

• 
  permits building block revenues to be recovered smoothly over the access arrangement period, subject to any differences between forecast and actual demand
  
• 
  accounts for actual inflation
  
• 
  accommodates other tariff adjustments that may be required, such as for an approved cost pass through event
  
• 
  sets administrative procedures for the approval of any proposed changes to tariffs.
  

1. Final decision

1065. 
      The AER does not approve the tariff variation mechanism proposed by Envestra for the 2013–17 access arrangement period. The AER considers that some elements of Envestra's proposed tariff variation mechanism are not consistent with the NGL and the NGR or there are preferable alternatives to some elements of Envestra's proposal. In particular, the AER proposes to amend the following elements as set out in section 61 of this attachment:
      

• 
  the initial reference tariffs
  
• 
  the x factors
  
• 
  the annual tariff variation formula for ancillary reference services
  
• 
  carbon tax tariff true up formula
  
• 
  the timeframe for notifying the AER in respect of any variation of reference tariffs
  
• 
  the definition of the access arrangement revisions commencement date
  
• 
  certain aspects of the proposed cost pass through mechanism, to achieve a consistent approach to assessment of pass through applications.
  
• 
  the following cost pass through events:
  

• 
  Insurance cap event
  
• 
  Network user failure event (to be replaced with a retailer insolvancy event)
  
• 
  Mains replacement event
  
• 
  National energy customer framework event
  

• 
  procedures for approving cost pass through event adjustments
  

1066. 
      Further, the AER does not approve the UAFG event and proposes that it be deleted.
      
1067. 
      The reasons for the AER's decision are set out below.
      

1.