Final decision

6.5Inflation of base opex

Our base opex for this final decision is different to the base opex amount we used in our preliminary decision, and SA Power Networks adopted in its revised proposal. This difference is due to the inflation used to convert nominal amounts to real 2014─15 dollars. For our preliminary decision we estimated the annual inflation rate to June 2015 would be 2.0 per cent, based on the RBA’s forecast in its statement on monetary policy.⁵⁷ For this final decision we have use the actual inflation rate of 1.5 per cent as reported by the ABS.⁵⁸ This actual inflation rate was not available at the time of our preliminary decision.

7.Rate of change

Our forecast of total opex includes an allowance to account for efficient changes in opex over time.

There are several reasons why forecast opex that reflects the opex criteria might differ from expenditure in the base year.

As set out in the Expenditure Forecast Assessment Guideline (the Guideline), we have developed an opex forecast incorporating the rate of change to account for:⁵⁹

price growth

output growth

productivity growth.

This appendix contains our assessment of the opex rate of change for use in developing our estimate of total opex.

1. Position

We have applied the same rate of change methodology to derive our alternative estimate of opex as we used in our preliminary decision. We do not agree with SA Power Networks' criticisms of our rate of change forecasting methodology. We consider our rate of change forecasting methodology for the 2015–20 regulatory control period leads to a forecast rate of change in opex an efficient service provider would require to meet the opex objectives.

We have updated our estimate of the rate of change in opex to reflect the most recent forecasts of labour price growth in the South Australian utilities industry from Deloitte Access Economics (DAE) and BIS Shrapnel. The net impact of these changes results in an annual rate of change that is on average 0.36 per cent higher than our preliminary decision estimate.

Our average annual estimated rate of change for the 2015–20 regulatory control period is 1.15 per cent (see table B.1).


Table B. SA Power Networks and AER rate of change (per cent real)⁶⁰

	2015–16	2016–17	2017–18	2018–19	2019–20
SA Power Networks revised proposal
Price growth	1.21	1.21	1.44	1.50	1.58
Output growth	1.05	0.96	0.94	1.02	0.92
Productivity growth	–	–	–	–	–
Overall rate of change	2.28	2.18	2.40	2.54	2.51
AER
Price growth	0.31	0.28	0.62	0.78	0.90
Output growth	0.57	0.57	0.57	0.57	0.57
Productivity growth	–	–	–	–	–
Overall rate of change	0.88	0.85	1.19	1.35	1.47
Overall difference	1.40	1.33	1.20	1.19	1.04

Source: AER analysis.