Note This attachment forms 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 – 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’s revised proposal. We are satisfied that this amount reasonably reflects the capex criteria. Powercor's revised proposal forecast of $672 million for repex is 7 percent lower than the $722 million in its initial proposal. Table 1 summarises Powercor's proposals and our alternative amounts for repex at each stage of the assessment period. 1: Final decision on Powercor's total forecast repex ($2015, million) 2016 2017 2018 2019 2020 Total Initial regulatory proposal 131 129 145 151 166 722 AER preliminary decision 111 109 122 127 140 609 Revised regulatory proposal 120 126 134 142 151 672 AER final decision 109 114 121 128 137 609 Total difference b/w final and revised -12 -12 -13 -13 -14 -64 Percentage difference b/w final and revised (%) -10 -10 -9 -10 -9 -10 Source: AER analysis. Note: Numbers may not add up due to rounding. Powercor’s revised proposal In its revised proposal Powercor accepted the following parts of our preliminary decision: assessed using the repex model for all modelled asset categories except for the overhead conductors group, and one asset category in switchgear un-modelled repex for pole top structures, SCADA and "other". The issues Powercor raised in revised proposal that it did not accept from our preliminary decision were: Powercor considered its proactive overhead conductor replacement program warranted a forecast higher than the business as usual amount predicted by the repex model. Powercor was of the view that there was a modelling error relating to the switchgear category, high voltage (HV) fuses and surge protectors. It submitted its correction to the repex model increasing its forecast by approximately $9 million. Powercor submitted its forecast for the overhead conductor categories in the repex model included:
accounting for economic conditions such as income and electricity prices projections of customer numbers by tariff class, and post adjustments for block loads and embedded generation. Powercor’s revised regulatory proposal sets out that the following aspects of its maximum demand forecast were updated from the initial proposal: Powercor engaged CIE to update its top-down forecast for actual 2014–15 summer demand. The CIE used the same GSP and retail electricity price as AEMO’s 2015 state-wide demand forecasts information on demand drivers economic consultant, Oakley Greenwood updated forecasts of the impact of disruptive technologies such as electric vehicles and battery storage on maximum demand information on block loads Powercor’s internal bottom-up forecast for more recent demand data and local information, and reconciliation of the top-down and bottom-up forecasts. Powercor engaged the Cambridge Economic Policy Associates (CEPA) to assess both its and AEMO’s connection point forecasts against the requirements of the NER and the AER’s forecasting principles. The CEPA considered Powercor’s demand forecast meets the requirements of the NER better than AEMO’s forecast. Demand analysis Our step in examining Powercor's forecast of maximum demand is to look at whether the forecast is consistent with, or explained by, long term demand trends and changes in the electricity markets. As set out below, we consider that Powercor’s revised demand forecast is consistent with the underlying historical demand trend since 2006. We have examined Powercor’s actual demand trend using weather adjusted historical demand. Weather adjustment of actual demand data removes the effect of random weather factors on observed electricity demand. Using AEMO’s actual weather adjusted demand data for Powercor, it can be seen that the actual underlying demand trend has been growing fairly consistently over the past 10 years and has only mildly flattened out in recent years. This trend can be seen in Figure 6.11. Powercor’s revised forecasts include strong growth over 2016–20, but they are generally consistent with the underlying historical demand trends. While growth in rooftop solar and energy efficiency has contributed to reduced electricity drawn from the grid, this has not significantly dampened maximum demand growth on Powercor’s network. Powercor attributes forecasts of strong demand growth to forecasts of faster demand growth in specific areas of its network. This is driven by forecast population growth in