Energy will be able to maintain both its average reliability level and meet its minimum reliability standards within our approved capex forecast. Our approved capex forecast must also be considered in the context of the significant capex program undertaken in the previous regulatory period. We are satisfied that our alternative estimate reasonably reflects the criteria. AER findings and estimates for augmentation expenditure Essential Energy proposed a forecast of $803 million ($2013–14) for augmentation capex (augex) in its revised proposal (excluding overheads). This is an 8 per cent increase compared to the $745 million ($2013-14) augex forecast in its initial proposal. Position We do not accept Essential Energy's revised augex proposal. We have instead included an amount of $686.3 million ($2013-14) for augex in our alternative estimate of overall total capex (excluding overheads). This is 15 per cent lower than Essential Energy's revised proposal. We are satisfied that this amount, when combined with the rest of our capex decision, reasonably reflects the capex criteria. Table B1 compares forecasts across the decision making process between the initial proposal and our final decision. Table Essential Energy augex forecasts comparisons ($2013–14, million) 2014-15 2015-16 2016-17 2017-18 2018-19 Total Initial augex forecast 169.1 154.8 143.7 140.3 136.7 744.6 AER draft decision 113.9 100.2 89.9 87.0 84.1 475.2 Revised Proposal 155.0 178.9 165.7 159.3 148.6 807.4 AER final forecast 133.4 155.5 141.1 133.7 122.6 686.3 Source: AER Analysis Our decision forecast amount reflects the following: We reduced Essential Energy's forecast capex for its high voltage (HV) network feeders by $43.8 million ($2013-14), or 15 per cent, based on forecast declines in network growth. We accept Essential Energy's revised proposal that localised or spatial demand growth rather than whole-of-system demand growth is the appropriate driver of Essential's HV feeders capex. However, we do not consider that Essential Energy's approach to forecasting its HV feeder capex adequately
Table B3 below shows the drivers of Essential Energy's HV feeders forecast as set out in the revised proposal. This shows that the vast majority of the forecast is not driven by thermal capacity constraints on the network (of which peak demand is the primary driver). Rather, 58 per cent of the forecast is driven by the expected consequences of spatial demand driven network growth (including voltage issues, fault levels, and quality of supply) and the other 42 per cent is driven by reliability, compliance-related and demand management capex. Table Drivers of Essential Energy's HV network augex HV network capex Proportion of Driver Growth (Voltage issues) 18% Voltage constraints based on voltage requirement to new customers. Driven by spatial growth. Growth (Thermal constraint) 12% Demand constraint when new connection is required. Driven by demand and spatial growth Growth levels) 12% Faults in asset protections based on spatial growth. Growth (Customer) 6% Additional work required at the time of new customer connections. Driven by customer numbers. Quality of supply 10% Voltage fluctuations based on customer complaints. Driven by spatial growth. Reliability 27% Program to maintain the number of poor performing feeders under the licence condition. Independent from spatial growth. Compliance 13% Compliance with safety requirements. Independent from spatial growth. Demand management 2% Proactive program aimed at reducing overall network demand. Source: Essential Energy revised proposal, pp. 11-12 Essential Energy's revised proposal states that the growth related augex forecast is calculated based on the average of the actual 2012–13 and 2013–14 growth capex. Essential states that this is likely to be at the lower end of the prudent and efficient level of augex because 2012–13 and 2013–14 experienced the lowest level of growth on its network. We consider that it is reasonable to calculate a forecast based on past capex if the underlying trend is expected to be similar in each period. In Essential Energy's approach, trending forward the capex in 2012–13 and 2013–14 assumes that the spatial growth of the network is expected to be similar in 2014–19 as it was in 2012–13 and 2013-14. However, for the reasons set out below, we consider that the