Note This attachment part of the AER's final decision on Powercor's distribution determination for 2016–20. It should be read with all other parts of the final decision. The final 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 mechanisms Attachment 15 – Pass through events Attachment 16 – Alternative control services Attachment 17 – Negotiated services framework and criteria Attachment 18 – f-factor scheme
Powercor forecast output growth using the same output growth measures and weightings we used in our preliminary decision. It updated its maximum demand forecasts and used the customer numbers and circuit length forecasts in our preliminary decision. We have also updated our output growth forecasts to reflect the output weights in our latest benchmarking report. Consequently we have forecast annual output growth 0.03 percentage points higher, on average, than Powercor did. We outline our detailed assessment of the rate of change in appendix B. Step changes We have included step changes in our alternative opex forecast for the following proposals: mobile devices customer information system and customer relationship management RIN compliance introduction of Chapter 5A. In these step changes contribute $10.2 million ($2015) or 0.9 per cent to our total opex forecast for Powercor for the 2016–20 regulatory control period. We consider these step changes represent the efficient and prudent costs of meeting new regulatory obligations or represent an efficient capex/opex trade-off. We were not satisfied there were reasons to change our opex forecast for other step changes. A summary of our conclusions are in Table 7.5. Table 7.5 Step changes ($ million, 2015) Initial proposal Preliminary decision Revised proposal Final decision Customer charter 0.5 – - - Superannuation - accumulation members 4.6 – - - Monitoring IT security 2.0 – 2.0 - Mobile devices 4.1 – 3.5 3.5 Customer Information System and Customer Relationship Management 5.2 3.1 3.1 3.1 Introduction of tariffs - - 5.5 - RIN compliance - - 2.5 2.5
Introduction of chapter 5A - - 1.0 1.0 18.3 3.1 17.7 10.2 Source: Powercor, Regulatory proposal, 2015; AER preliminary decision opex model; Powercor, Revised regulatory proposal, January 2016; AER final decision opex model. Powercor's initial proposal and preliminary position In its initial proposal, Powercor proposed five step changes to its base level of standard control services opex. Powercor stated the step changes reflect new or increased activities, or new or increased costs. In addition, Powercor also forecast several categories of opex using a category specific forecasting approach (defined benefits superannuation, regulatory reset costs, GSL payments). The effect of this approach was a forecast incremental increase in opex in one category (defined benefits superannuation) and a decrease in two categories (reset costs/GSL payments). In our preliminary decision, we included one step change in our opex forecast. We were satisfied that additional opex associated with Powercor’s customer relationship management system arises due to new regulatory requirements, although we included a lower amount than Powercor had forecast. Powercor's revised proposal and submissions In its revised proposal, Powercor accepted our revised forecast for the costs of its customer relationship management system. It did not re-propose step change for its customer charter and superannuation (accumulation members) or category specific forecasts for defined benefits superannuation and regulatory reset costs. Powercor re-proposed step changes for monitoring IT security and mobile devices. It revised its estimate for its mobile devices step change. Powercor proposed new step changes for: the introduction of cost reflective tariffs RIN compliance introduction of chapter 5A. We received general comments about our consideration of step changes from VECUA and the CCP. While VECUA has some residual concerns with the step changes we allowed in our preliminary decision, overall, it agreed with our assessments of the Victorian service providers' proposed step changes. The CCP considered we were correct to reject most of the step changes in the Victorian service providers' proposals. It considered there is a tendency for the service providers to present a range of small