The Australian Energy Regulator SA electricity distribution determination 2015–2020 Framework and approach 20 November 2013

TOPICS Welcome SA distribution price review process SA framework and approach (F&A) Going forward 2

SA DISTRIBUTION PRICE REVIEW We are responsible for regulating the revenues SA Power Networks may earn. We conduct a revenue review every five years We are commencing the SA review process for 2015–2020 The review will be conducted under new Rules and guidelines for the economic regulation of network service providers 3

TIMELINES Preliminary positions F&A December 2013 F&A published 30 April 2014 SA Power Networks submits regulatory proposal 31 October 2014 Submissions on regulatory proposal close January/February 2015 AER publishes preliminary determination April 2015 Revised regulatory proposal submitted June 2015 Submissions on revised regulatory proposal close 1 July 2015 AER publishes final determination 31 October

SA F&A | WHAT IS IT? The F&A considers: ◦ Services we will regulate ( classification ) ◦ How we will determine prices for regulated services ( control mechanism ) ◦ Application of incentive schemes ◦ Other matters : Better Regulation outcomes and jurisdictional specific items 5

Process to determine whether and how to regulate services No Regulation Direct Control Negotiate/ Arbitrate Form of Regulation Standard Control Alternative Control Revenue Cap Price Cap Hybrid Control Setting Methodology Not prescribed Form of Price Control REGULATORY FRAMEWORK 6

SA F&A | Service classification Service classification sets the form of regulation SA Power Networks can propose alternative classifications if circumstances change Services provided by SA Power Networks: ◦ standard network services ◦ connection services ◦ metering services ◦ public lighting services ◦ non-standard network services 7

SA F&A | Control mechanisms F&A decision on control mechanisms is binding Standard control services ◦ Currently weighted average price cap ◦ Likely change to revenue cap Alternative control services ◦ Currently weighted average price cap ◦ Likely change to individual service price cap 8

SA F&A | Incentive schemes Efficiency benefit sharing scheme ◦ Incentive to reduce operating expenditure ◦ Mechanism for sharing the benefits of efficiency gains with consumers ◦ Continue to apply in Service target performance incentive scheme ◦ Financial incentives to maintain and improve service performance ◦ Ensure financial efficiencies do not come at expense of service levels ◦ Continue to apply in

SA F&A | Incentive schemes Demand management incentive scheme ◦ Incentives to pursue innovative non-network solutions ◦ Continue to apply in Capital expenditure sharing scheme ◦ New scheme for ◦ Provides incentives for efficient capital expenditure ◦ Complements new ex post review of capex efficiency 10

SA F&A | Other matters Forecasting methodology ◦ Application of the expenditure forecast assessment guideline ◦ SAPN forecasting methodology submitted by 30 November 2013 Depreciation ◦ Whether depreciation will be calculated with reference to forecast or actual capex Constraint on small customer fixed charges ◦ $10 constraint on annual change in fixed supply charge ◦ Seek submissions on whether this should continue or be amended 11

SA F&A | GOING FORWARD Capture key issues to consider in our preliminary positions paper Meeting 1 (today) Discuss issues raised in our preliminary positions paper, prior to the deadline for written submissions Meeting 2 (week beginning 20 January 2014) Discuss how we are considering submissions received and the likely direction of the final F&A Meeting 3 (week beginning 17 March 2014) 12

QUESTIONS? 13