Consumer Challenge Panel 6
response to AER draft decision on
TNSPs
December 2014
1
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
2
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
3
• The AER has applied its guidelines
– 2 years of consultation
• Recognise that the AER has not applied its
own benchmarking
– Insufficient observations
4
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
5
Rate of Return and Gamma
• Equity beta
• Market Risk Premium
• Cost of debt
• Gamma
• Applied guidelines but still room to move
6
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.”
7