Revenue Smoothed revenue from the decision Smoothed revenue from the indicative final decisiona including debt convergence. Smoothed revenue from the indicative final decision a including debt convergence Smoothed revenue from the indicative a decision including debt convergence Costs All from revised proposal except for hybrid tax calculation. All costs from revised proposal except for: hybrid tax calculation debt convergence Based on revised proposal except for: hybrid tax calculation debt convergence 10 % per annum reductions between forecast opex costs and benchmark efficient opex allowance Based on revised proposal except for: hybrid tax calculation debt convergence 20 % per annum reductions between forecast opex costs and benchmark efficient opex allowance Comment Worst case scenario. Importantly, this scenario excludes the effects of debt convergence. Excluding debt convergence artificially worsens the outcomes. More favourable to Ausgrid than Scenario 1. This scenario is more closely reflective of the decision circumstances than scenario 1. More favourable to Ausgrid than Scenario 2. This scenario reflects partial efficiency savings by Ausgrid to reduce the difference between its proposed opex costs and our final decision opex determination. More favourable to Ausgrid than Scenario 3. This scenario reflects faster opex efficiency savings than scenario 2. In combination, scenarios 3 and 4 illustrate the sensitivity of the outcome to the ability to make efficiency savings. (a) At the time this analysis was provided to RSM Bird Cameron, decision inputs were not completely finalised. However, they are closely reflective of the final decision inputs. Results of the scenarios We summarise RSM Bird Cameron's conclusions in respect of each scenario in Table 202, below. RSM Bird Cameron's report identifies two key metrics: operating cash flows excluding regulatory depreciation, and cash flows after accounting for Ausgrid's proposed capex program. It presents these post-capex cash flows prior to and after external equity raised, and both of those subtotals including and excluding regulatory depreciation. Overall, Ausgrid performs favourably on both key indicators under all four scenarios. Table 202 Summary of RSM Bird Cameron Conclusions Scenario Conclusions 1 Ausgrid generates positive operating cash excluding the regulatory depreciation allowance. It generates positive cash flows prior to external equity raising if it uses portions of its regulatory depreciation allowance.
expenses are above the opex allowance in the final decision. Therefore, we have modelled additional scenarios where the service provider is able to reduce the difference between: its revised proposal opex and our final decision on the opex that would be faced by the benchmark efficient entity. In scenario 3, we assume Ausgrid reduces the difference between its proposed opex and our (indicative) final decision by 10 per cent per year. This means it would reach our opex target in 10 years. In scenario 4, we assume Ausgrid reduces the difference between its proposed opex and our (indicative) final decision by 20 per cent per year. This means it would reach our opex target in 5 years. We have not attempted to determine which of scenarios 2–4 is the most plausible, but have used the results to assess the sensitivity of the conclusions to whether the service provider can improve its opex efficiency. Table 204 Opex efficiency gains ($ million, 2013–14) Item 2014–15 2015–16 2016–17 2017–18 2018–19 1 AER indicative final decisiona 358.1 363.0 369.6 363.6 368.9 2 Ausgrid revised proposal 490.2 513.2 497.1 493.9 492.3 3 Difference between and efficient baselineb 132.1 150.1 127.4 130.4 123.4 4 Difference with 50% efficiency gains (10% p.a.)c 118.9 120.1 89.2 78.2 61.7 5 Difference with 100% efficiency gains (20% p.a.)d 105.7 90.1 51.0 26.1 0.0 6 Opex costs with 50% efficiency gainse 477.0 483.2 458.8 441.8 430.6 7 Opex with 100% efficiency gainsf 463.8 453.1 420.6 389.6 368.9 (a) At the time this analysis was provided to RSM Bird Cameron, decision inputs were not completely finalised. However, they are closely reflective of the final decision inputs. (b) This is equal to item 2 less item 1