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

3Capital base

82. 
    The capital base roll forward accounts for the value of Envestra's regulated assets over the access arrangement period. The opening capital base value for a regulatory year is rolled forward by indexing it for inflation, adding any conforming capex, and subtracting depreciation and other possible factors (for example, disposals or customer contributions). Following this process, the AER arrives at a closing value of the capital base at the end of the relevant year. The opening value of the capital base is used to determine the return of capital (regulatory depreciation) and return on capital building block allowances.
    
83. 
    The AER is required to make a decision on Envestra's opening capital bases as at 1 January 2013 for the 2013–17 access arrangement period. The AER is also required to make a decision on Envestra's projected capital bases for the 2013–17 access arrangement period. This attachment presents the AER's final decision on these matters.
    

1. Final decision

84. 
    The AER does not approve Envestra's revised proposed opening capital bases as at 1 January 2013 of:
    

• 
  Envestra Victoria—$1109.7 million ($nominal)
  
• 
  Envestra Albury—$34.6 million ($nominal).
  

85. 
    The AER considers the capital bases should include an additional six months indexation adjustment. Envestra did not propose this adjustment in its revised proposal, but the AER now considers it is necessary to apply such an adjustment to transition from the ESC's assumed timing of the capital base modelling to the AER's timing assumption.
    
86. 
    After making this adjustment, the AER has determined opening capital bases as at 1 January 2013 of:
    

• 
  Envestra Victoria—$1117.4 million ($nominal)
  
• 
  Envestra Albury—$34.8 million ($nominal).
  

87. 
    Tables 3.1 and 3.2 set out the AER's final decisions on the capital base roll forward for Envestra's Victoria and Albury networks during the 2008–12 access arrangement period.
    

Table 3.1 AER's final decision on the capital base roll forward for Envestra Victoria during the 2008–12 access arrangement period ($million, 2012)

	2008	2009	2010	2011	2012
Opening capital base	992.2	1013.6	1022.1	1037.7	1067.6
Net capex	55.5	46.2	56.8	73.7	95.6
Less: regulatory depreciation	34.1	37.8	41.1	43.8	45.8
Closing capital base	1013.6	1022.1	1037.7	1067.6	1117.4

Source: AER analysis.

Note: Totals may not add due to rounding.

Table 3.2 AER's final decision on the capital base roll forward for Envestra Albury during the 2008–12 access arrangement period ($million, 2012)

	2008	2009	2010	2011	2012
Opening capital base	35.5	35.8	35.9	35.8	35.5
Net capex	1.5	1.3	1.3	1.1	0.8
Less: straight-line depreciation	1.2	1.3	1.3	1.4	1.5
Closing capital base	35.8	35.9	35.8	35.5	34.8

Source: AER analysis.

Note: Totals may not add due to rounding.

90. 
    Based on the approved opening capital bases and the AER's final decisions on forecast capex, forecast depreciation and the inflation forecast, the AER has determined projected closing capital bases as at 31 December 2017 of:
    

• 
  Envestra Victoria—$1473.4 million ($nominal)
  
• 
  Envestra Albury—$38.0 million ($nominal).
  

91. 
    Tables 3.3 and 3.4 set out the AER's projected roll forward of Envestra's capital bases during the 2013–17 access arrangement period.
    

Table 3.3 AER's final decision on projected capital base roll forward for Envestra Victoria during the 2013–17 access arrangement period ($million, nominal)

	2013	2014	2015	2016	2017
Opening capital base	1117.4	1196.8	1277.8	1345.4	1420.0
Net capex	91.5	95.4	85.6	95.3	76.3
Less: straight-line depreciation	40.1	44.3	50.0	54.3	58.4
Indexation	27.9	29.9	31.9	33.6	35.5
Closing capital base	1196.8	1277.8	1345.4	1420.0	1473.4

Source: AER analysis.

Note: Totals may not add due to rounding.

Table 3.4 AER's final decision on projected capital base roll forward for Envestra Albury during the 2013–17 access arrangement period ($million, nominal)

	2013	2014	2015	2016	2017
Opening capital base	34.8	35.4	36.2	36.8	37.1
Net capex	1.2	1.4	1.3	1.2	1.8
Less: straight-line depreciation	1.4	1.5	1.7	1.8	1.9
Indexation	0.9	0.9	0.9	0.9	0.9
Closing capital base	35.4	36.2	36.8	37.1	38.0

Source: AER analysis.

Note: Totals may not add due to rounding.

104. 
     The AER also does not approve Envestra's proposal to use actual depreciation to establish its opening capital bases as at 1 January 2018. The AER considers that the use of approved forecast depreciation to roll forward the opening capital bases from 2013–17 at the next access arrangement review is appropriate.
     

1.