Note This attachment forms part of the AER's preliminary decision on CitiPower's 2016–20 distribution determination. It should be read with other parts of the preliminary decision. The preliminary decision includes the following documents: Overview Attachment 1 – Annual revenue requirement Attachment 2 – Regulatory asset base Attachment 3 – Rate of return Attachment 4 – Value of imputation credits Attachment 5 – Regulatory depreciation Attachment 6 – Capital expenditure Attachment 7 – Operating expenditure Attachment 8 – Corporate income tax Attachment 9 – Efficiency benefit sharing scheme Attachment 10 – Capital expenditure sharing scheme Attachment 11 – Service target performance incentive scheme Attachment 12 – Demand management incentive scheme Attachment 13 – Classification of services Attachment 14 – Control mechanism Attachment 15 – Pass through events Attachment 16 – Alternative control services Attachment 17 – Negotiated services framework and criteria Attachment 18 - f-factor scheme
categories that it removed, then a service provider would be incentivised to remove categories of opex where the effect is relatively immaterial. It still may adopt biased forecasting approaches. Putting these concerns aside, we also do not consider there is sufficient evidence that a category specific forecasting approach for superannuation will in fact lead to a more accurate estimate of total opex. CitiPower’s justification for forecasting costs differently is that it considers them to be uncontrollable. Our defined benefit superannuation scheme reflect the net position of the scheme’s defined benefit obligations relative to its defined benefit assets. These costs, therefore, are driven by a range of factors that are largely beyond our control. This includes the state of the global and domestic economies, interest rates, and market returns more generally. For this reason, our defined benefit costs are excluded from our Efficiency Benefit Sharing Scheme (EBSS) calculations. the above, our actual defined benefit superannuation scheme costs are removed from our base year operating expenditure, and replaced by a forecast of costs for the 2016–2020 regulatory control period. This approach provides a more accurate reflection of our recurrent base year expenditure. While we agree defined benefits costs are, to some degree, uncontrollable, we do not consider this is a sufficient reason to adopt a category specific forecasting approach. The economic factors which CitiPower refers to (global economic conditions, interest rates, market returns), while relatively uncontrollable, are also subject to some uncertainty. Given such uncertainty, it is not clear how accurate CitiPower’s forecasting approach is. It did not justify assumptions used in estimating its defined benefits costs, or how sensitive those assumptions are to fluctuations in different variables. As outlined in Figure C.1, CitiPower’s reported defined benefits costs have varied considerably in recent years. This creates some doubt as to the robustness of its defined benefits superannuation forecast. Figure C.1 CitiPower defined benefits superannuation ($2015) Source: CitiPower, CP Public MOD 1.30, 1.36. We also have not included a step change relating to the change in contributions required under legislation. CitiPower already pays its workers 1 per cent more than the statutory minimum. Monitoring IT security We have not included a step change in our opex forecast for IT security monitoring.