AusNet Electricity Services Pty Ltd Electricity Distribution Price Review 2016-20 Revised Regulatory Proposal Submitted: 6 January 2016 AusNet Services Table of Contents Overview ....................................................................................................................................................... ii Introduction .................................................................................................................................................................... ii Key Features of the Revised Proposal ........................................................................................................................ ii Responding to Stakeholder Concerns ........................................................................................................................ iv Reading Guide ............................................................................................................................................................. v Chapter 1: Demand and Energy ............................................................................................................. 1-2 1.1 Introduction ............................................................................................................................................... 1-2 1.2 Customer Number Forecasts .................................................................................................................. 1-3 1.3 Maximum Demand Forecasts ................................................................................................................. 1-5 1.4 Energy Consumption Forecasts ........................................................................................................... 1-14 Chapter 2: Revenue ................................................................................................................................. 2-2 2.1 Introduction ............................................................................................................................................... 2-2 2.2 Shared Assets .......................................................................................................................................... 2-4 2.3 Revised Revenue Proposal ..................................................................................................................... 2-8 Chapter 3: Capital Expenditure .............................................................................................................. 3-2 3.1 Introduction ............................................................................................................................................... 3-2 3.2 Overview ................................................................................................................................................... 3-4 3.3 Augmentation Expenditure (Augex) ........................................................................................................ 3-6 3.4 Replacement Expenditure (Repex) ....................................................................................................... 3-11 3.5 Contingent Projects ................................................................................................................................ 3-21 3.6 Connections............................................................................................................................................ 3-28 3.7 Non-network ........................................................................................................................................... 3-32 3.8 Capitalised Overheads .......................................................................................................................... 3-36 3.9 Price Escalation ...................................................................................................................................... 3-39 3.10 Total Capital Expenditure Requirement ................................................................................................ 3-41 Chapter 4: Operating and Maintenance Expenditure .......................................................................... 4-2 4.1 Introduction ............................................................................................................................................... 4-2 4.2 Base Year ................................................................................................................................................. 4-3 4.3 Rate of Change ........................................................................................................................................ 4-9 4.4 Step Changes ......................................................................................................................................... 4-23 4.5 Self-Insurance ........................................................................................................................................ 4-33 4.6 GSL Payments ....................................................................................................................................... 4-36 4.7 Costs from ICT Distribution Systems Upgraded Under AMI ............................................................... 4-37 4.8 Total Opex Forecast ................................................................................................................. 4-38 REVISED REGULATORY PROPOSAL 2016-20 6 JANUARY 2016 AusNet Services Chapter 5: Incentive Schemes ............................................................................................................... 5-2 5.1 Introduction ............................................................................................................................................... 5-2 5.2 Service Target Performance Incentive Scheme .................................................................................... 5-3 5.3 Efficiency Benefit Sharing Scheme ......................................................................................................... 5-7 5.4 Capital Expenditure Sharing Scheme ................................................................................................... 5-11 5.5 F-Factor Scheme ................................................................................................................................... 5-11 5.6 Demand Management Incentive Scheme ............................................................................................ 5-11 Chapter 6: Cost Pass Through ............................................................................................................................. 6-2 6.1 Introduction ............................................................................................................................................... 6-2 6.2 Insurance Cap Event ............................................................................................................................... 6-3 6.3 Natural Disaster Event ............................................................................................................................. 6-3 6.4 Terrorism Event ........................................................................................................................................ 6-3 6.5 Power of Choice Event ............................................................................................................................ 6-3 6.6 Retailer Insolvency Event ........................................................................................................................ 6-6 6.7 Insurer Credit Risk Event ......................................................................................................................... 6-7 6.8 Application of Pass Through Provisions to Alternative Control Services .............................................. 6-8 Chapter 7: Rate of Return and the Value of Imputation Credits ......................................................... 7-2 7.1 Overview ................................................................................................................................................... 7-2 7.2 Background .............................................................................................................................................. 7-8 7.3 Return on Debt ....................................................................................................................................... 7-18 7.4 Return on Equity..................................................................................................................................... 7-37 7.5 Gamma ................................................................................................................................................... 7-78 7.6 Forecast Inflation .................................................................................................................................... 7-96 7.7 Interrelationships .................................................................................................................................. 7-102 7.8 Conclusion ............................................................................................................................................ 7-105 7.9 Supporting Documentation ............................................................................................................... 7-108 Chapter 8: Opening Regulatory Asset Base ........................................................................................