VENCorp Revenue Proposal1 July 2008 to 30 June 2014

Initial Public Forum Presentation

Overview of presentation

• VENCorp’s roles and functions• Approach to transmission planning• Revenue setting arrangements in the NER• Key elements of revenue proposal

Who we are

• Statutory, not-for-profit, independent transmission network service provider

• In electricity we are responsible for:– Providing network services;

– Transmission network planning and investment;

– Managing connections to the transmission network;

– Emergency Management

TransGrid (NSW)

Powerlink (QLD)

VENCorp andSP AusNet (VIC)

ESIPC and ElectraNet (SA)

Transend(TAS)

Not for Profit Entity

For Profit Entity

Network planning

Investment

Asset Ownership

Network planning

Investment

Asset Ownership

Network planning

Investment

Asset Ownership

Investment

Asset OwnershipAsset Ownership

Network planning

Investment

Network planning

Source: Firecone

VENCorp’s functions

Comparison of TNSP functions across the NEM

Service provision and financial flowsTransmission Use of

System ServicesNetwork Services

services

payments

Contestable contracts

Non-Contestable contracts

Prescribed Services Transmission Customers

Direct Connect Customers

Rowville Transmission Facility

VENCorp approach to planning

• Based on requirements in the National Electricity Rules, VENCorp’s Transmission Licence and the Victorian Electricity System Code.

• Captured in three documents– Electricity Planning Criteria– Regulatory Test– Connection Augmentation Guidelines

Electricity Planning Criteria

• Investments decisions based on market benefits limb of the AER’s regulatory test and considers:– Probability-weighted impact on supply reliability– Value that customers place on reliability– Cost of additional capacity

• Decision to invest– benefits > costs – proceed with investment– benefits < costs – do not proceed with investment

Connection Augmentation Guidelines

• Where an augmentation is required to comply with a NER specified access standard– the connection applicant will be required to fund that

augmentation • Where an augmentation is required to increase

the power transfer capability of the network – VENCorp will consider applying the regulatory test– If the augmentation does not satisfy the regulatory test

the connection applicant can elect to fund that augmentation

Overview of Chapter 9

• Chapter 6A outlines the economic regulation of transmission services.

• Part A of Chapter 9 sets out the jurisdictional derogations that apply to Victoria and VENCorp in particular

• Clauses 9.8.4B to 9.8.4F modify Chapter 6A with respect to the transmission revenue regulatory regime for the Victorian Transmission Network.

VENCorp’s revenue setting regime

• The transmission revenue regulatory regime that applies to VENCorp must comply with the following principles:

– the amount of VENCorp’s maximum allowable aggregate revenue for a relevant regulatory period must not exceed VENCorp’s statutory electricity transmission-related costs; and

– VENCorp's maximum allowable aggregate revenue must be determined on a full cost recovery but no operating surplus basis.

Terminology in the revenue proposal

• Committed Augmentations – identical to historic capex

• Planned Augmentations– identical to forecast capex

• Operating and Planning Expenditure– similar to opex

• Prescribed Services– Recovering costs of other TNSPs (SP AusNet,

Murraylink)

Committed augmentations

• $150 million worth of committed augmentations commissioned during regulatory period

• Derived from– Contestable Projects (e.g Rowville and Moorabool

Transformers)– Non-Contestable Projects (e.g. interface works)– Projects not rolled into SP AusNet’s asset base

Planned Augmentations• Forecasting around $350 million (real) over six year period driven by

– Increase in regulatory period (from 5 to 6 years)– Cost estimates based on upper end of reasonable range– Increase in load growth– Location of new generation and potential new interconnection upgrades to

meet load growth

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2008/09 2009/10 2010/11 2011/12 2012/13 2013/14

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Amendments to planned augmentation program

Revenue Proposal Submitted

March 2007 September 2007June 2007

Annual PlanningReport Released

December 2006September 2006June 2006

Annual PlanningReport Released

Planned Augmentation Program Prepared

Planned Augmentation Program Amended

Draft Determination Released

Operating and planning expenditure

• Predominantly made up of– Labour costs– Consultancies– Corporate costs

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2008/09 2009/10 2010/11 2011/12 2012/13 2013/14

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Other matters

• Negotiating Framework• Pricing Methodology

– Will be submitted by 31 May 2007

Forecast Revenue Requirement

* - Total Revenue Requirement has been reduced by $1 million per annum to account for interest income earned by VENCorp**- The energy value is on a generator sent out basis.

$(millions) nominal excluding GST

2008/09 2009/10 2010/11 2011/12 2012/13 2013/14

Operational Expenditure 6.7 7.0 7.2 7.5 7.7 8.0

Planned Augmentation charges 0.2 1.7 6.8 15.8 31.8 43.0

Committed Augmentation charges 22.9 23.6 24.3 25.0 25.7 26.5

Total forecast expenditure for VENCorp 29.8 32.2 38.3 48.3 65.3 77.5

Prescribed Services charges 376 399.5 424.6 451.2 479.5 509.7

Total Revenue Requirement* 404.7 430.8 461.8 498.5 543.8 586.2

Energy (GWh)** 52,350 51,673 51,668 51,807 52,781 53,383

Victorian TUoS charges ($/MWh) 7.7 8.3 8.9 9.6 10.3 11.0

Relationship between the revenue cap and transmission charges

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Planned augmentation program Forecast MAAR

Relationship between the revenue cap and transmission charges

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Planned augmentation program Actual augmentation program

Forecast MAAR Actual MAAR requirements

Relationship between the revenue cap and transmission charges

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Planned augmentation program Actual augmentation program

Forecast MAAR Actual MAAR requirements

Questions?