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AEMC Forum Network Regulation Rule Change Proposal 23 November 2011 Major Energy Users

AEMC Forum Network Regulation Rule Change Proposal 23 November 2011 Major Energy Users Presentation by Milo Foster, VP Family Care, South Asia, Kimberly Clark Australia. About the Major Energy Users, Inc. The MEU provides a consumer view on energy issues

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AEMC Forum Network Regulation Rule Change Proposal 23 November 2011 Major Energy Users

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  1. AEMC Forum Network Regulation Rule Change Proposal 23 November 2011 Major Energy Users Presentation by Milo Foster, VP Family Care, South Asia, Kimberly Clark Australia

  2. About the Major Energy Users, Inc • The MEU provides a consumer view on energy issues • It has a wide representative base • It focuses on cost, quality reliability and long term sustainability of energy supplies • A key factor is that it represents those in regional areas • It represents those operating in both spot and retail markets

  3. The origins of the MEU concern • The new rules in 2006, 2007 and 2008 • The impact of the NSW network revenue reset in 2009 • The PPISG report • The Garnaut Update #8 • Parry Duffy report • IPART report • The AER decision

  4. The key elements of concern • The propose/respond model • The WACC • The bottom up assessment of opex and capex • Reliability vs cost • Pricing policies, cost reflectivity and cross subsidies • Appeals processes • A balance is needed

  5. Points the MEU made to AER The MEU has provided the AER with its views Optimisation of redundant and under-utilised assets as in the Electricity Code Different WACCs for different classes of risk and cost Fully depreciated assets are retained if used and useful The asset base should be optimised by clearing redundant assets but retaining used and useful depreciated assets

  6. Specifically about capex The capex a firm can obtain each year is limited This limitation controls what projects will occur Ex post prudency of capex Would the RIT still hold based on actual costs? If a project budget over-runs, other projects are stopped If an urgent project is needed, then other projects are deferred

  7. Summary The MEU supports the AER in the rule changes There are aspects where the AER does not go far enough Better controls are needed on the asset base and capex to reflect competitive drivers The WACC needs to reflect reality, not to extract rents The Energy Laws require the regulation to deliver efficient outcomes, not be a method to allow the regulated firms to be excessively profitable

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