1

Consumer Challenge Panel 6

response to AER draft decision on TNSPs

December 2014

2

CCP subpanel 6

• TransGrid, TasNetworks transmission and DirectLink

• Comprises Hugh Grant and Ruth Lavery (contact through Lynley Jorgensen at AER)

• Our views will not always coincide• In general we are in agreement

3

In general we are in agreement:

• TransGrid’s revenue proposal was excessive• Rate of return (risk free rate) accounts for a

great deal of the allowed revenue reduction• AER has gone some way to re-dressing high

capital and operating expenditure allowances in previous periods

• There is room for further reductions

4

• The AER has applied its guidelines– 2 years of consultation

• Recognise that the AER has not applied its own benchmarking– Insufficient observations

5

Customer Consultation

• Reiterate the views of the CCP in advice of 8 September 2014

• AER is rightly not specific about what customer consultation should be undertaken

• TransGrid must consult to effectively elicit the sort of information that can be used to justify expenditures that are explicit to its own business

6

Rate of Return and Gamma

• Equity beta• Market Risk Premium• Cost of debt

• Gamma

• Applied guidelines but still room to move

7

TransGrid’s response

• “The reality is that these proposed cuts may come at the cost of some of our existing programs such as innovation to expand the demand management market, replacement projects and consumer engagement. Weighing up which initiatives provide the most benefit to consumers is a tough decision and something that we will be [sic] attendees to help us with at the December Engagement Workshop.”