HV feeders expenditure and revised demand forecasts Ausgrid's augex forecast of $251.9 million ($2013–14) for HV feeders makes up 52.5 per cent of its total augex forecast. A significant proportion of this forecast comprises its 11kV capacity plan of $202.3 million ($2013–14). This is 41.3 per cent of Ausgrid's total augex forecast for the 2014–2019 period. Table A.3 summarises the components of this augex forecast. Table A3 Ausgrid augex forecast for 11kV network (million, $2013-14) 2014-15 2015-16 2016-17 2017-18 2018-19 Total Total 11kV Capacity Plan 45,813 31,795 38,157 44,554 42,014 202,334 Capacity Augmentation 4,331 24,672 29,337 36,287 33,241 127,869 11kV DND Model Results 4,222 24,913 30,338 36,313 33,960 129,747 Major Projects Synergies -854 -883 -1,569 -515 -1,261 -5,082 Project Specific DM -84 -415 -502 -598 -560 -2,160 CBD Capacity 1,048 1,057 1,070 1,086 1,103 5,364 Other Works 2,201 747 2,034 1,088 1,596 7,666 Fault Level 1,100 1,124 579 2,803 Voltage Regulation 550 374 455 544 508 2,432 Substation Connections 550 373 455 544 509 2,432 Works in 32,478 26 32,503
We also note that the offset in expenditure due to demand management ($2.160 million) is likely significantly understated given the previous success of Ausgrid's demand management activities in deferring the requirement for capex. This is discussed in section A.7. Table A.5 shows that applying the 31.45 per cent demand adjustment reduces the expenditure forecast on the 11kV capacity plan to $140.347 million ($2013–14). This is a reduction of $61.986 million ($2013–14) compared to Ausgrid's proposal of $202.334 million ($2013–14). Table A5 Demand adjustment to Ausgrid's 11kV capacity plan (million, $2013–14) 2014-15 2015-16 2016-17 2017-18 2018-19 Total Total 11kV Capacity Plan 31,924 21,913 26,653 30,713 29,143 140,347 Capacity Augmentation 2,970 16,913 20,111 24,874 22,787 87,654 11kV DND Model Results 2,894 17,078 20,797 24,893 23,280 88,941 Major Projects Synergies -585 -605 -1,076 -353 -864 -3,484 Project Specific DM -58 -284 -344 -410 -384 -1,480 CBD Capacity 718 725 733 744 756 3,677 Other Works 2,027 630 1,891 917 1,436 6,900 Fault Level 1,100 0 1,124 0 579 2,803 Voltage Regulation 550 374 455 544 508 2,432 Substation Connections 377 256 312 373 349 1,666 Works in Progress 22,264 0 18 0 0 22,281 Support costs 4,664 4,371 4,634 4,922 4,920 23,511 Planning, Forecasting and 3,614 3,685 3,781 3,898 3,960 18,938
Unit cost Using a replacement unit cost based on an average benchmark results in an estimate of $1.38bn for the six modelled asset groups (using forecast unit cost). This is lower than the outcome achieved using Ausgrid's forecast unit costs. We consider that the benchmarked average unit cost is a useful comparison with the cost of other service providers in the NEM and have included these values it in the reasonable range. We have decided to exclude the outcomes of both the first quartile and the lowest unit cost unit price benchmarking. Using the lowest observed unit cost or a unit cost one quartile below the mean results in a much lower estimate of repex for Ausgrid. At the lowest unit cost, or the frontier, we are relying on a single observation, whereas the average benchmark is based on all observations from the NEM (after controlling for outliers, as discussed in appendix F). We consider the average benchmark, which is based on multiple observations, is more reliable of the average cost of replacement in the NEM. Table A17 Benchmarked model outcome – Unit costs Replacement life Unit cost Model outcome Calibrated Forecast $1,429.8 Calibrated Benchmark average $1,355.5 Calibrated Benchmark first quartile $979.1 Calibrated Benchmark lowest $681.8 NSP benchmark average (calibrated) Forecast $1,427.9 NSP benchmark average (calibrated) Benchmark average $1,017.4 NSP benchmark average (calibrated) Benchmark first quartile $796.2 NSP benchmark average (calibrated) Benchmark lowest $654.1 Source: AER analysis. The reasonable range The discussion above established the inputs that we consider provide a reasonable estimate of repex for Ausgrid. Based on our predictive modelling, we are of the view that Ausgrid’s efficient repex for those
11kV Overhead -0.9 2.3 0.1 0.2 0.1 11kV Underground -0.73 1.52 0.24 0.61 0.51 Land - Rural 4.2 4.1 5.2 3.5 -1.6 Land – Suburban & Industrial 4.2 4.1 5.2 3.5 -1.6 Land CBD 12.0 6.3 18.3 4.0 -1.8 Communication Cable - - - - - Communication Equip - - - - - Metering - - - - - Street Lighting - - - - - Other - - - - - Non-System: IT Software 1.7 1.7 1.7 1.7 1.7 Non-System: IT Hardware -0.5 -0.5 -0.5 -0.5 -0.5 Non-System: IT Facilities Management 0.6 0.6 0.6 0.6 0.6 Source: Ausgrid, Revenue proposal, Attachment 5.16 - Overview of the cost escalation methodology, p. 9.11. Ausgrid estimated real materials cost increases to increase its capex costs by $4.3 million ($ June 2014). Assessment approach We assessed Ausgrid's proposed real material cost escalators for the purpose of assessing its proposed total capex forecast against the National Electricity Rules (NER) requirements. We must accept Ausgrid's capex forecast if we are satisfied it reasonably reflects the capex criteria. Relevantly, we must be satisfied