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Independent Pricing and Regulatory Tribunal of NSW

Report on Capital Contributions in the NSW Electricity Market

September 2001

Report on Capital Contributions in the NSW Electricity Market

Prepared for

Independent Pricing and Regulatory Tribunal of NSW

Prepared byMeritec Limited47 George Street, NewmarketPO Box 4241, AucklandNew Zealand43 641 95

September 2001

September 2001 Report on Capital Contributions in the NSW Electricity Market

Table of Contents

1.0 Appointment and Terms of Reference 1

1.1 Clarification of Terms of Reference 2

1.2 Confirmation of Appointment 4

1.3 Project Team 4

2.0 Questionnaire and Verification of Data 4

2.1 Confirmation of Connection Activities 4

2.2 Costing of “Standard” Connections 4

2.3 Projected Numbers of Connections 5

2.4 Review of Data 5

2.5 Conclusions Regarding Standard Costs 6

2.6 Conclusions Regarding Connection Activities and CostAccounting Methods 7

2.7 Meeting with DNSPs 8

3.0 Cost of Network Augmentation 8

3.1 Sensitivity Tests 9

4.0 Adjustment for NPV of Future Revenues 10

5.0 Financial Impact on DNSPs 11

6.0 Capital Contribution Policy 12

6.1 Separating Capital Works – Those Required for SpecificCustomers 13

6.2 Other Issues 14

7.0 Conclusions 14

7.1 Direct Costs of Connection 15

7.2 Network Capacity Augmentation Costs 15

7.3 Present Value of Future Revenue Streams 16

7.4 DNSP Contributions 16

7.5 Exceptions 17

7.6 Other Conclusions 18

September 2001 Report on Capital Contributions in the NSW Electricity Market

Appendix 1Abridged Terms of Reference

Appendix 2Questionnaire

Appendix 3Incremental Cost Model

September 2001 Report on Capital Contributions in the NSW Electricity Market 1

1.0 Appointment and Terms of Reference

On 5 March 2001, the Independent Pricing and Regulatory Tribunal of New South Wales(the Tribunal) invited Meritec Limited of Auckland New Zealand, previously known asWorley International Limited, to assist the Tribunal with the development of a capitalcontributions framework to apply to New South Wales electricity distribution networkservice providers (DNSPs). An abridged copy of the Terms of Reference is attached asAppendix 1.

The consultant was to model the impact of a potential new capital contributionsframework which accompanied the Terms of Reference, using a number of versions of acapital contributions policy. The Tribunal proposed to use the information provided bythe modelling to develop a policy that would lead to in a fair outcome for customers andDNSPs.

An important role of the consultancy was to help develop a set of values for thedistributor contribution (an amount that the DNSP pays to new connecting customers tooffset their connection costs), should the Tribunal choose to incorporate one into its newcapital contributions framework.

In analysing the financial impact of capital contributions, the Tribunal required theconsultant to:

1. Build a model capable of analysing the impact of possible new capital contributionsframeworks on DNSPs and customers. The model was to allow for the re-workingof various policy variables, as set out below:

(a) Variables affected by customer connection works in each local distributionarea

(b) Allocation of costs between customers and the DNSP under the existingcapital contributions framework and potential new capital contributionsframework for a sample of customer connection projects that typify“standard” customers

(c) Analysis of the types and volumes of customer connection projects thatgenerally take place within each DNSP’s local distribution area.

2. Provide information that would assist the Tribunal in determining the level of adistributor contribution, should the Tribunal choose to incorporate one into its newframework. This was to involve:

(a) Estimating the net present valu e of an average customer connection for aset of tariff categories


b) Building a degree of functionality into the model so that it was capable ofshowing the impact of various sets of distributor contributions on DNSPsand customers.

Amongst other things, the Tribunal sought to model the impact of capital contributionspolicy on customers and DNSPs by showing the effect (relative to the status quo) of anew capital contributions policy on (a) a set of “standard” customers and (b) the capitalexpenditure requirements of DNSPs. “Standard” customers were to include (but werenot limited to): a small urban customer, a small rural customer, a small businesscustomer, a high rise development, a winery/irrigator, an underground residentialdevelopment and an internet service provider. The sample was also to encompass theimpact of the new capital contributions frameworks for various types of projects, forexample, projects involving an extension, an augmentation and/or a reimbursement to apreviously connecting customer (for example, a small rural customer requiring anextension).

The model was to permit the Tribunal to vary certain aspects of the capital contributionsframework, namely:

(a) whether customers or DNSPs are responsible for funding shared networ k extensions(b) whether customers or DNSPs are responsible for funding dominant load

augmentations(c) whether or not there is a reimbursement scheme(d) whether or not there is a distributor contribution (and using various levels of the

distributor contribution), and(e) various combinations of these.

The model is for the use of the Tribunal’s staff.

The Tribunal also sought certain information underlying the model relating to thecomposition of customer connection projects; i.e. what proportion of customerconnection projects are standard connection projects requiring no extension, and whatproportion of connecting customers are likely to be dominant load.

Finally, the consultant was to calculate the average net present value of a customerconnection across certain tariff classes for each DNSP.

1.1 Clarification of Terms of Reference

These Terms of Reference were clarified in the Tribunal’s letter of 14 March and insubsequent correspondence, the main points being as follows:


i ) The Tribunal confirmed that it was exploring various options for the treatment ofcapital contributions and wished to test the impact of possible policy frameworks.

i i ) A considerable amount of work had already gone into the process to date and theobjective of the Services was therefore to examine the likely policy impacts infinancial terms and in terms of equity amongst the parties, rather than review thepolicies as a whole.

i i i ) The Tribunal placed considerable importance on ensuring that the information usedin the analysis, and the information supplied by the DNSPs, was accurate. Wewere asked to give this aspect careful attention, noting that the Tribunal hadfinancial models of each of the DNSPs for regulatory purposes and that, given theadditional line items relating to capital contributions, it would be possible for themodelling to be completed by the Tribunal itself in-house.

iv) The Tribunal’s overall objective was to introduce the new policy in time for it tomake an impact during the present regulatory period (through to June 2004). Thelikely timing of the Services and the further steps that the Tribunal would need totake to introduce the new policy and bring it into effect were discussed in thatcontext.

v) It was recognised that, in carrying out the work, the consultant would highlight anyareas relating to the proposed policies that in its opinion required furtherconsideration. This would ensure the integrity of the Services and provide IPARTwith all the information required to reach its final decision.

The Secretariat briefly outlined the impact of the previous determination in 1996 oncapital contributions, shared and sole use, and the difficulties that had arisen as a result.

We discussed a number of other points but, in summary, it was concluded that theTribunal was looking for a readily understandable formula, preferably one that could bepresented in a table, thus increasing the likelihood of acceptance of the final policy.

A side-issue related to the possibil ity of re-introducing a reimbursement scheme and, inthat context, we offered to research information on the operation of similar schemes inother countries.

We have assumed that charges for monopoly work, as defined in Determination No 10,fall outside the scope of the charges discussed in this report.


1.2 Confirmation of Appointment

Meritec’s appointment was confirmed on 18 April 2001.

1.3 Project Team

The work was undertaken for Meritec by the following team:

Team Leader: Mr Jeffrey WilsonPower Planner: Mr Michael WhaleyDistribution Engineer: Mr David EdwardsFinancial Analyst: Mr Bernard Ivory.

2.0 Questionnaire and Verification of Data

Information needed for the work was sought from the DNSPs in a questionnaire, draftedin consultation with the Tribunal during May and issued on 14 May 2001. A copy of thequestionnaire is attached as Appendix 2. The questionnaire comprised three sections:confirmation of connection activities; costing of “standard” connections; and a requestfor information on the numbers of connections made annually. Five responses werereceived during June. Of these, only three gave substantive data. The informationsupplied varied in its assumptions, costs and presentation.

2.1 Confirmation of Connection Activities

Three respondents provided an answer to the range of connection activity types. Theactivities that they said were missing from the list related to large capacity distributionsubstations. Only one response showed additional data and this related to field workand contractor use.

2.2 Costing of “Standard” Connections

Full cost details were not given by any respondent but one DNSP did provide a list ofitems and quantities. Nor was any information provided about the method of costderivation or use. Three of the DNSPs that gave more substantive data providedinformation that permitted the identification of variables involved such as somecable/conductor sizes, lengths and capacities. However, without any values stated, theinfluence of these items was not clearly apparent.

Some assumptions were stated and others were discernible from the description of thecosting data. However the lack of detail prevented a complete assessment to determinesignificant differences between the DNSPs.


Only one worked example of the cost compilation was given but even this had somedetail omitted. As a lone item, no comparison could be made. It should be noted that theworked example was the only information received from the particular DNSP.

Table 1 of the questionnaire, requesting a detailed breakdown of costs, was completedby three respondents and the fourth substantive respondent compiled its own tablewhich did not include any of the components requested.

2.3 Projected Numbers of Connections

Only one DNSP supplied the data requested for the numbers of connections expected tobe made annually. Several answers stated that the statistics were not available.

2.4 Review of Data

Examples of reasonable data received illustrated that an understanding of the requestswas possible. However, differing assumptions made it difficult to assess their impact.GST was included for many but not all of the costs.

Table 1 summarises the responses, indicating the range of total costs, the range ofmaterials costs and, for comparison, indicative connection costs for the New Zealandindustry. New Zealand costs are included for comparison because of the similar natureof the reticulation and because of the significant industry restructuring that has takenplace in that country.

The table reveals significant variations in the costs indicated by the respondents. Theseare as narrow as a ratio of 1:1.2 and as wide as 1:35. Insufficient detail is available todetermine how these divergences have arisen although it should be noted thatconnection types 5,6 and 7 are open to wider interpretation as loading provisions andhence the capacity of asset required could vary. Generally, service lengths, sizes andtransformer sizes were appropriate and similar where these were given.

It was evident from the responses that the component costs for administration,engineering and travel vary with the particular DNSP’s practice.


Table 1: Costs quoted by DNSPs for different connection types 1

2.5 Conclusions Regarding Standard Costs

The information provided was not sufficiently consistent to establish standard costs, evenfor options characterised by only minor variations in technical parameters. Further detailwould be necessary so that specific conditions could be ascertained and the causes ofthe extensive divergence in the quoted costs resolved.

With the difference of urban and rural conditions, the magnitude of commercialconnections and industrial loads as well as security of supply measures that may benecessary, a standard cost, if determined, could only be considered indicative. However,the results for connections types 1 to 4 indicate that standard costs could be derivedwith further investigation.

The cost of other types of connection could be standardised to some extent but policywith regard to administration and design would need co-ordination. A base case couldbe established for each of options 5 – 12 with multipliers to be applied to take into

1 Type 11 was the same as Type 10.

Connection

Type Range Average NZ$ A$ Range Average

1. Res o/h 1 ph 285 - 530 405 260 208 170 - 309 240

2. Res u/g 1 ph 230 - 1036 698 400 320 120 - 454 232

3. Res o/h 3 ph 463 - 935 612 470 376 94 - 714 346

4. Res u/g 3 ph 230 - 1164 808 700 560 129 - 687 317

5. Res sub. 80 lot 103,836 - 445,836 255,679 233,680 186,944 37,567 - 142,201 102,176

6. Com o/h 3 ph 1,471 - 8,891 3,528 510 408 570 - 5360 2,192

7. Com u/g 3 ph 2,253 - 11,321 4,933 800 640 440 - 6,524 2,634

8. Ind 500 kVA 36,100 - 87,019 59,955 24,300 19,440 20,378 - 44,980 35,058

9. Rural 8,308 - 18,720 11,908 4,660 3,728 3,587 - 4,410 4,054

10. Rural with HV 80,318 - 278,370 174,384 203,260 162,608 29,869 - 88,960 60,925fdr extn

12. Rural 3 ph 26,751 - 320,250 142,956 205,540 164,432 14,262 - 112,600 67,204with HV fdr extn

Total Cost A$ Materials Cost A$Typical Cost in NZ


account travel, labour costs, purchasing power, financial policies etc where these arerelevant, as is done in network asset valuations made under the Treasury’s Guidelines.

Table 2 summarises shows the lowest, highest and average responses for typicalconnection types. For the Tribunal’s present purposes, indicative costs that we wouldconsider reasonable are also shown. All figures are in dollars per connection.

Connection Type LowestResponse

HighestResponse

AverageResponse

IndicativeCost

Urban residential overhead 290 530 410 260Urban residential underground 230 1,040 700 400Urban res. 3-phase overhead 460 940 610 470Urban res. 3-phase underground 230 1,160 810 700Urban res. subdivision (per house) 1,300 5,570 3,196 2,920Urban commercial 1,470 8,890 3,530 VariableRural single phase 8,310 18,720 11,910 Variable

Table 2: Summarised costs and indicative figures

Industrial connections, large capacity connections and connections to remote points ofthe network would need to be examined individually. 2

2.6 Conclusions Regarding Connection Activities and CostAccounting Methods

A secondary objective of the questionnaire was to probe the methods of cost accountingused by DNSPs and thus determine whether the items being charged against newconnections are appropriate. In this context, our view is that only the costs of thoseactivities specifically needed for new connections should be charged. Their cost shouldinclude the direct cost component plus overheads but overheads should be included onlyto the extent that they are increased as a result of the connection activity. In otherwords, an “avoided cost” approach should be taken.

We therefore asked for a detailed breakdown of costs by connection activity and, in eachcase, by their administrative, engineering, materials, labour and overhead componentsseparately. The DNSPs gave only l imited information in response.

The categories under which we asked for information were not necessarily tariffcategories. This was deliberate as we were seeking information on cost structures. Thequestions were thus structured around avoidable costs for "connections" and their

2 Later in this report, we define exceptions such as these.


related "activities". Our intention, in requesting information on activity costs, was thatthey would be likely to be more revealing in terms of answering the following questions:

i ) What are the avoided costs if a particular "connection" is not made?i i ) What are the avoided costs if a DNSP does not undertake a particular connection

"activity"?i i i ) What are the avoided costs if a DNSP does not make connections at all?

Respondents did not present their information this way. This left a doubt in our mindsabout the cost accounting methods used, particularly in relation to administrative andoverhead costs.

2.7 Meeting with DNSPs

It is appropriate to add here that, after submission of their responses to thequestionnaire, the DNSPs requested a meeting with us to discuss the work, its objectives,and our conclusions. The meeting was held on 10 July. We outlined the nature of ourtask, listened to their representations, and took them into account in reaching ourconclusions. 3

3.0 Cost of Network Augmentation

So far in this report, we have discussed the direct costs of connection. In addition,network augmentation costs arise as a result of new connections and the accompanyingdemand growth from these and existing customers. To determine these costs, weadapted used our long-run marginal costing model WI-LRMC to model the incrementalcost of capacity augmentation needed to meet incremental demand increases, howsoevercaused. The model determines the net present value (NPV) of the incremental cost ofaugmentation to meet demand and maintain an agreed state of network performance aswell as meeting general reliability and safety improvement needs. It considers a 10-yeartime slice of the DNSP’s investment and growth programme. Its key inputs are:

• DNSP profiles and data• Projections of load growth arising from increases in the number of connections and

from increases in specific consumption per consumer• Corresponding projections of growth-related capital expenditure• Parameters describing the nature of different types of load, particularly in relation to

their impact on peak demand and consequential network capacity requirements• The interest (discount) rate and other factors.

3 Energy Australia and Australian Inland Energy drew our attention to submissions made to IPART in

respect of customer connection changes.


The discount rate assumed was 7%, equivalent to the DNSP’s average WACC in realterms. Inflation was assumed to be 2.75% p.a. but this assumption was not used in thecalculations as all costs were entered in constant year 2001 prices.

The model generated the NPV of the cost of meeting incremental demand increases. Italso calculated the net cost of augmentation less the present value of future revenuestreams. GST and other taxes were excluded.

The base case scenario modelled was the sum of all DNSPs. The resulting equivalentannual network augmentation costs for a range of different connection types are shownin Table 3. Details of the assumptions made are given in Appendix 3.

Connection Type Indicative Network Augmentation Cost ($ p.a.)Urban residential overhead 89Urban residential underground 89Urban res. 3-phase overhead 134Urban res. 3-phase underground 134Urban res. Subdivision (per house) 111Commercial and industrial VariableRural single phase 89 – 347

Table 3: Indicative network augmentation costs

DNSPs could be modelled separately but the range of figures indicated abovedemonstrates the range of outputs that would be derived from a separate model of each.Also, costs can vary significantly with locality, the present level of network sparecapacity, time of use, etc.

3.1 Sensitivity Tests

Sensitivity tests could be carried out to test the impact of changes in the variousparameters in the model in order to test different locations, load types and local effects.An attempt to do this would show immediately that insufficient information is availableto model local conditions accurately. In some areas, it is likely that there is sufficientcapacity available to avoid the need for augmentation for several years. This would bereflected in a lower NPV of investment costs in those areas. In other areas, this will notbe the case. Table 4 summarises the main factors involved in modelling local effects:


FactorUrban

domesticconnections

Urbancommercialconnections

Industrialconnections

Ruralconnections

Growth in demand from

increase in connections or

in specific consumption

Generally a

cumulative

effect

Adds to

demand.

Impact varies

May precipitate

reinforcement

May precipitate

reconstruction

Localised capex needs Generally

limited

Generally

limited

May be high May be high

Load factor 4 Low Higher Highest Lowest

Peak time coincidence High Lower Variable Variable

Power factor Reasonable Lower May be

corrected

Likely to be

bad

Seasonal variation in load Low Low May be high May be high

Peak load losses Higher Lower Lowest Highest

Cost of connection Variable Variable May be high May be high

Table 4: Summary of main factors involved in local area studies

We doubt if the DNSPs have information of the type needed available for all or manylocalities and it would require a comprehensive programme of network studies to deriveit. We did not pursue this because the base case model already demonstrates the rangeof outputs to be expected.

4.0 Adjustment for NPV of Future Revenues

Assuming a distribution use-of-system revenue of 2.5 cents per kWh sold, the netpresent value of the incremental future revenue streams for various connections areshown in Table 5 together with the resulting NPV of revenue after deduction of networkaugmentation costs. 5

4 The lower the load factor, the higher the impact on capex needs.5 Distribution use-of-system (DUOS) revenues may be higher than the 2.5 cents assumed. If so, the net

NPV figures will be higher. For example a DUOS revenue of 4 cents per kWh sold would give netNPVs in the rage $1,380 - $2,076 except for the rural case where the net NPV would become($1,000). Distribution use-of-system costs typically account for around 30 - 35% of revenues in the


Connection Type NPV of Future RevenueStream

($)

NPV of Revenues lessAugmentation Costs ($)

Urban residential overhead 1,515 475Urban residential underground 1,515 475Urban res. 3-phase overhead 2,272 712Urban res. 3-phase underground 2,272 712Urban res. Subdivision (per house) 1,894 594Commercial and industrial Variable VariableRural single phase 1,894 (2,146)

Table 5: Net present values

On the basis of the assumptions made, all connections are profitable except rural ones.Rural connections may also be profitable but clearly the economies of rural supply areless favourable. These results confirm our expectations.

Positive NPVs, as were obtained, raise the question of whether connection chargesshould be levied at all (except in rural cases, special or large loads) in the absence of ademonstrated need for customer capital contributions as a supplementary source off inance.

Additionally, if the theoretical approach of charging customers a share of augmentationcosts less the NPV of their future revenue streams were to be adopted, one might askwhy the amount should not be allowed to be negative – that is, DNSPs would paycustomers to connect. We are not recommending this as a policy option. However, theimplications of this suggestion highlight a weakness in the argument for use of thiseconomic approach when determining connection charges. The weakness is underscoredby the fact that, in countries where a market exists for the purchase of retail custom,customers are being bought and sold at values in the range indicated above.

5.0 Financial Impact on DNSPs

One of the objectives of the terms of reference was to determine the financial impact onDNSPs of alternative capital contributions policies. The financial impact on DNSPs ofaugmentation costs, on average, can be seen from results presented in the twopreceding sections by multiplying the cost per connection by projected connection

electricity distribution industry, the remainder being made up of bulk energy charges and transmissiongrid charges.


numbers, once these are confirmed by the DNSPs. 6 The impact on individual consumerscan be seen directly. 7

Likewise, the impact on DNSPs of basing a policy on net revenues can be seen bymultiplying the average net revenues determined in Section 4 by projected connectionnumbers. Recovery of augmentation costs from customers through connection charges,should that approach be adopted, should be matched by a commensurate reduction ingeneral charges in order to avoid double recovery of the costs. This should be allowedfor in the impact assessment.

6.0 Capital Contribution Policy

Before proceeding to discuss our conclusions in the context of the Tribunal’s policyalternatives, we summarise briefly the present position regarding capital contributionsand the recent work undertaken on policy review.

The Tribunal’s earlier interim report on electricity pricing (October 1994) concluded that:(a) the regulation of capital contributions should be separate from the regulation ofgeneral charges; (b) connection costs specific to a new customer should be recoveredfrom that customer and these works should be contestable.Present policy is set out in the Tribunal’s Determination No 10 of 1996. The backgroundinformation set out in Section 3 of Determination No 10 summarises the main principlesapplied and the steps that had been taken up to the time of the Determination. Its keyprinciples and conclusions were as follows:

• Capital contributions can serve two related functions: (a) they can provide pricingsignals to ensure that appropriate investment decisions are made; and (b) they canfund assets required to provide for the needs of new customers.

• The distributors do not use a common methodology to determine capitalcontributions. Their differences in approach to calculating capital contributionsresult from differences in: (a) the extent to which connection and upgrading costsare recovered through general prices or through capital contributions; and (b) theshare of the new assets to be paid by new customers.

6 As indicated in Section 2, the DNSPs did not provide this information. We therefore had to make

assumptions about future connection numbers in our modelling.7 See in particular Table 5 in Section 4. Note that Table 3 in Section 3 presents annual costs not NPVs.


6.1 Separating Capital Works – Those Required forSpecific Customers

Determination No 10 recognised that conceptually, capital contributions could cover theincremental costs of establishing supply as well as the additional costs of maintainingthe same quality of supply to existing customers. 8 It went on to observe that it can bedifficult to separate capital works into those provided for specific customers and thosewhich cover future growth expectations and general reliability and safety improvementneeds. 9 Wisely, the Determination concluded that (a) it is appropriate for a newcustomer to bear the direct costs of connection to the existing network which are specificto that customer; and (b) except in very rare circumstances, investments in the sharednetwork should be recovered through the general charge. We agree wholeheartedly withthat conclusion.

The Determination correctly defined the connection point as "the point on the networkwhere the use of assets changes from a shared basis to assets fully dedicated to thecustomer". This is a pragmatic definition, easy to interpret in a physical sense andreadily understandable by customers. Unfortunately, the Determination created adifficulty for itself by going on to say that “connection costs are the cost of works forassets fully dedicated to the customer, up to the nearest point on the network capable ofsupporting the customer’s load (e.g. for a typical residential customer, these wouldinclude the meter and the wire from the residence to the mains in the street). 10 11 Wedo not favour that approach as for several reasons. Firstly, this point in the network isvery hard to define. From a regulatory standpoint, it thus leaves the door open to a widerange of interpretations. Secondly and importantly, it pre-supposes that it is only newconnections that require the augmentation of network capacity. The fact is that allincrements of load, however caused, contribute to the need for augmentation. Thesupposition that only new connections require the augmentation is incorrect. 12

8 See page 3 of the determination.9 The Tribunal appeared to recognise that this was an understatement. At best, the process is arbitrary

and at worst impossible in regard to network augmentation costs.1 0 . Note that this definition of the connection point differs from that given in the glossary of terms on

page 30 of the Tribunal's report, although it is in agreement with the definition of connection costson page 30. In the determination itself, on page 3, the customer is required to fund the connectioncosts. This effectively overrides the definition of connection point on page 30. These clauses shouldbe re-worded in any subsequent determination.

1 1 Another definition given on page 30 of the Tribunal's report is as follows: Connection charge:Charge paid by customers to help meet the cost of connecting the customer to the network e.g. aresidential customer may pay the cost of the meter and wiring from the house to the mains in thestreet.

1 2 Some customers have loads that are shrinking. If the addition of load requires a payment, it might belogical to conclude that a reduction in load necessitates a refund.


6.2 Other Issues

Although the principles espoused in the Determination are in our view sound, theirimplementation is understood to have led to various difficulties which the Tribunal isnow attempting to resolve through policy modifications, possibly including the payment,by customers, of the cost of necessary network augmentation, offset by the net presentvalue of the future revenue stream arising from the connection.

There are other issues relevant to the matter including the desirability or otherwise of re-introducing a reimbursement policy. Without a reimbursement policy, the treatment ofconnection charges is complicated by the unfair differences that arise between joint andseparate applications. Although the concept of joint v. separate applications wasincluded in order to get away from reimbursement schemes, it is likely in our view that ithas created more problems than it solved.

The “dominant load” concept appears to have been introduced in an attempt to getaround these problems although it does not appear to have solved them and is, itself,arbitrary.

Another issue is the need for a full appreciation of the magnitude of the supplementaryrevenue stream that can emanate from connection charges and the consequentialopportunity for over-charging customers.

7.0 Conclusions

The Tribunal’s December 1999 report on the regulation of NSW electricity distributionnetworks rightly recognised that the issue of customer capital contributions iscontentious. It is also a difficult issue to resolve because the calculation of connectioncosts is complex and to some extent subjective.

Without regulation, customer connection charges can be a significant supplementaryrevenue stream that bypasses the revenue price cap at the expense of customers. Fromanother viewpoint, a regulatory desire to limit connection charges may be difficult toreconcile with the desire to send economic price signals, especially where newconnection costs are high.

In the majority of cases, either reliance on contestibility or a regulated, fixed connectioncharge may be the most appropriate solution but, as always, it is the exceptions that arethe problem. To the extent that it is possible, we propose simple definitions to limitthem.


Having reviewed all relevant matters and the information obtained, and in the light ofour own estimates, our main conclusions for the Tribunal’s present purposes are asfol lows:

7.1 Direct Costs of Connection

1. Under all policy options, it is intended that customers should continue to pay forall direct connection costs from and including their point of connection.

2. Definition of the point of connection or “Connection Point” is important. In orderto assist the ready understanding of any new policy, the definition should beexpressed in physical not economic terms and the point should be kept as close tothe customer as possible. We suggest the following definition: “The ConnectionPoint is defined as that point on the network where the use of assets changesfrom a shared basis to assets fully dedicated to the customer. 1 3 1 4

3. Since the direct costs of connection are contestable, there would appear to be noneed to set regulated prices for them.

4. We note, however, the wide range of direct connection costs being reported bythe DNSPs. This implies a lack of effective contestibility. If this is the case, aregulated charge may be appropriate. In case this approach is adopted, we haveindicated in Section 2 the level of costs that we would consider appropriate forcertain standard connections. It is not possible to give indicative costs for alltypes of connection because of the wide range of factors involved. In particular,the cost of large, special, remote or rural connections would be very difficult tostandardise and should be treated case by case. 1 5

7.2 Network Capacity Augmentation Costs

5. The existing policy excludes recovery of network augmentation costs 16 throughconnection charges, except in very rare cases. We endorse this policy, subject to7.5 below.

6. Also, because it is conceptually difficult to link augmentation costs with specificconnections, and because augmentation costs are driven by growth of existing

1 3 Although this is the present definition of connection point, it is NOT the definition that applies at

present to connection charges. It should be both. See Section 6.1.1 4 This definition could be illustrated by examples such as the following: (a) multi-tenanted buildings or

facilities such as residential apartment blocks or shopping malls would be assumed to take a singleconnection from the DNSP, as would retirement villages; (b) The purchasers of lots in subdivisionswould be assumed to take their own independent connections from the DNSP. In the case of (a) theconnection point would be the connection point to the building or facility; in the case of (b), theconnection points would be multiple.

1 5 The Terms of Reference asked for indicative costs to be provided for certain types of connection,including regular residential, winery, internet connection, etc. We have instead defined ourconnection types in terms of the physical network attributes involved.

1 6 . These costs include growth-related capex and safety and reliability improvement works but excludecapex for the replacement of assets on the ground of expired life alone (replacement capex).


customers’ loads as well as by new connections, it is our recommendation thatthey be recovered through the general revenue stream and not throughconnection charges. This is appropriate theoretically, maintains a simpleregulatory framework and avoids the possibility of double recovery.

7. Indicative network augmentation costs for certain common connection types,developed for the Tribunal’s information, were summarised in Section 3 of thereport. They will vary significantly with locality and other factors, highlighting thedifficulty of incorporating them into connection charges should that approach stillbe contemplated (we do not recommend it).

8. Recovery of inefficient costs would place an unfair burden on customers andestablish poor incentives for DNSPs. Therefore, should augmentation costs formpart of the Tribunal’s connection charge determination (again, we do notrecommend it), further work should be carried out to determine their optimality.This would involve a detailed study of growth patterns, present and projectednetwork and asset utilisation, capital expenditure programmes, reliability andnetwork performance. This may lead to changes in the figures indicated in thisreport.

7.3 Present Value of Future Revenue Streams

9. The NPV of the future revenue streams of various connection types was presentedin Section 4. On the basis of the assumptions made, all connections areprofitable except rural ones. Rural connections may also be profitable but clearlythe economies of rural supply are less favourable.

10. Positive NPVs, as were obtained, raise the question of whether connectioncharges should be levied at all (except in rural cases, special or large loads) in theabsence of a demonstrated need for customer capital contributions as asupplementary source of finance.

11. Additionally, if the theoretical approach of charging customers a share ofaugmentation costs less the NPV of their future revenue streams were to beadopted, one might ask why the amount should not be allowed to be negative –that is, DNSPs would pay customers to connect. We are not recommending this asa policy option but its implications highlight a weakness in the argument for useof this economic approach when determining connection charges. The weaknessis underscored by the fact that in countries where a market exists for the sale ofretail custom, customers are being bought and sold at values in the rangeindicated above.

7.4 DNSP Contributions

12. An important role of the consultancy was to help develop a set of values for thedistributor contribution (an amount that the DNSP pays to new connectingcustomers to offset their connection costs), should the Tribunal choose to


incorporate one into its new capital contributions framework. Since direct costsunder all proposed policies are to be funded by the customer, the amount that aDNSP should contribute can relate only to the future value of the revenue streamsgenerated, less the cost of network augmentation. As already indicated, the formergenerally exceeds the latter, except in rural areas. In other words, under this policyoption, DNSPs should generally pay customers to connect.

7.5 Exceptions

13. Assuming that contestibility in respect of direct connection costs is adequate, orthat a regulated charge is applied to certain standard types of connection, andthat the main exceptions in respect of Section 7.2 are identified, the question iswhat are the main exceptions. Our recommendation is that they should compriseonly remote, rural, large or special loads.

14. Rural and remote connections could be defined as those proposed for lines with anafter - diversity maximum demand of less than 300 kVA per kilometre of l ine. 1 7 18

15. Large or special loads could be defined as those not normally included in a DNSP'sprescribed design criteria for particular development patterns. This would includesome loads in urban areas and also significant rural extensions to the network.These loads could be at LV or MV, would be in excess of design loads defined inthe DNSP's planning criteria, likely to affect the quality of supply of existing orpotential adjacent customers and would need particular design characteristics to beincorporated. The quality of supply criteria alluded to are voltage regulation,fluctuating voltage and harmonic content. 1 9

16. Customers who fall within the bounds of these exceptions would need to negotiatesatisfactory terms for connection with their DNSP. The negotiation would be onlyin respect of agreeing terms for sharing or contributing to the cost of networkaugmentation costs, not direct connection costs which would be paid by thecustomer under all policy alternatives.

17. Connection terms for large or special loads can presumably be handled withthrough the cost-reflected network pricing (CRNP) mechanism, provided its rangeof applicability is defined in a suitable way.

18. Alternatively, the conditions set out on page 4 of Determination No 10 could beretained as follows: “Except in rare circumstances, augmentation costs are to beborne by the distributor. In those rare circumstances, distributors will be required

1 7 ADMDs on rural lines are often in the range 10-50 kVA per km, although they may be much higher if

large loads are present. By comparison, the ADMD on urban lines is often in the range 300 to 600kVA per km.

1 8 Rural loads have other discerning characteristics. For example, they are frequently characterised byvoltage regulation constraints whilst urban circuits are more often limited by current carryingcapacity. This point might be added to the definition as an illustration.

1 9 If a current limit is to be stated, it could be defined as: (a) >100A for a single-phase LV connection;(b) >200A/ph for a three-phase LV connection; (c) <25A for a single-phase 11kV connection; and (d)>200A/ph for a three-phase 11kV connection.


to seek the Tribunal’s endorsement of the proposed charges, as being consistentwith the methodology, in that: (a) the costs are specific to an individual customer;(b) the costs are large in relation to the overall capital works programme of thedistributor; and (c) the project can be shown to be persistently uneconomic. Allthree conditions must be met.” A drawback of this clause is that, in practice, itrules out virtually all cases. That may not be equitable.

19. Since the treatment of uneconomic customers is the key issue which needs to beprovided for, it follows that the determination will need to recognise the need forsound judgement to be applied. It also follows that, to be practical, DNSPs willneed to be given latitude in this area. The question then boils down to whetherthe determination should start from one position or the other – whether it shouldstay as it is as summarised in 17 above or be changed to match the proposedstructure. We favour the latter.

7.6 Other Conclusions

20. Whichever policy is adopted, our recommendation is that the Tribunal shouldconsider the re-introduction of a reimbursement scheme. It would appear to bemore equitable than continuation of the present joint and separate connectioncharge framework with its accompanying inequalities. The structure and cost ofoperation of the scheme would need to be matched to the volume of transactionsforeseen. 20

21. The risk of potential customers either not taking up their requested demand, ortaking up a demand in excess of it, could be addressed through the connectionagreement or a guarantee scheme, as is done at present. It has not, therefore,influenced our recommendations.

2 0 Earlier schemes, operated from the 1950s onwards, may give guidance on the structure of a suitable

reimbursement scheme. However, it should be noted that they were designed to handle the highvolume of rural electrification work being undertaken at the time. By comparison, the number ofcases now to be dealt with will be much smaller. Any scheme introduced should take account of theforeseen smaller scale of activity.

Appendix 1Abridged Terms of Reference

Septembter 2001 Report on Capital Contributions - Abridged Terms of Reference 1

Capital Contributions in the NSW Electricity Market

Abridged Terms of Reference

The Independent Pricing and Regulatory Tribunal of New South Wales (the Tribunal) is developing acapital contributions framework to apply to New South Wales electricity distribution network serviceproviders (DNSPs). The consultant is to assist the Tribunal in this work and is to:

• build a model capable of analysing the impact of possible new capital contributionsframeworks on DNSPs and customers

• provide information that will assist the Tribunal in determining the level of a distributorcontribution, should the Tribunal choose to incorporate one into its new framework.

Background

The Tribunal is working to develop a capital contributions framework. Thus far, however, analysis ofthe financial and equitable impact of any new capital contributions policy in the NSW electricitymarket has been limited. This consultancy will be an input to the Tribunal’s decision-makingprocess.

The Tribunal is considering a revised capital contributions framework but at this stage, the Tribunalhas not made a decision regarding its approach. The consultant is to model the impact of thepossible revised framework, using a number of versions of a capital contributions policy. TheTribunal will use the information provided by the successful tenderer to develop a policy that resultsin a fair outcome for customers and DNSPs.

An important role of the consultancy is to help develop a set of values for the distributorcontribution (an amount that the DNSP pays to new connecting customers to offset their connectioncosts), should the Tribunal choose to incorporate one into its new capital contributions framework.

Terms of Reference

In analysing the financial impact of capital contributions, the Tribunal requires the consultant to:

1. Build a model capable of analysing the impact of possible new capital contributionsframeworks on DNSPs and customers. The model should allow for the re-working of certainpolicy variables, as set out below. This will involve:

(a) working with DNSPs to obtain the necessary information, and develop an understandingof customer connections works in each local distribution area

(b) comparing the allocation of costs between customers and the DNSP under the existingcapital contributions framework (as set out in Determination 10 of 1996) and potential


new capital contributions framework for a sample of customer connection projects thattypify “standard” customers

(c) analysing the types and volumes of customer connection projects that generally takeplace within each DNSP’s local distribution area

(d) using the information acquired in stages (a)-(c) to develop a model that can estimate theimpact of different capital contributions frameworks.

2. Provide information that will assist the Tribunal in determining the level of a distributorcontribution, should the Tribunal choose to incorporate one into its new framework. This willinvolve:(a) estimating the net present value of an average customer connection project for a set of

tariff categories(b) building a functionality into the model so that it is capable of showing the impact of

various sets of distributor contributions on DNSPs and customers.

Scope of the Model

The Tribunal seeks to model the impact of capital contributions policy on customers and DNSP. Themodel should do this by showing the effect (relative to the status quo) of a new capital contributionspolicy on (a) a set of “standard” customers and (b) the capital expenditure requirements of DNSPs.

“Standard” customers should include (but is not limited to): a small urban customer, a small ruralcustomer, a small business customer, a high rise development, a winery/irrigator, an undergroundresidential development and an internet service provider. The sample should also encompass theimpact of the new capital contributions frameworks for various types of projects, for example,projects involving an extension, an augmentation and/or a reimbursement to a previously connectingcustomer (for example, a small rural customer requiring an extension).

The model should permit the Tribunal to vary certain aspects of the capital contributions framework,namely:

(a) whether customers or DNSPs are responsible for funding shared network extensions

(b) whether customers or DNSPs are responsible for funding dominant load augmentations

(c) whether or not there is a reimbursement scheme and(d) whether or not there is a distributor contribution (and using various levels of the distributor contribution).

The model should permit the Tribunal to analyse the impacts of a capital contributions frameworkcomprising any combination of the above characteristics. As the model will be used by the Tribunal’sstaff after the consultancy is finished, is important that it is user-friendly.The Tribunal also seeks access to certain information underlying the model relating to thecomposition of customer connection projects; i.e. what proportion of customer connection projectsare standard connection projects requiring no extension, and what proportion of connectingcustomers are likely to be dominant load?


Finally, the consultant will also be required to calculate the average net present value of a customerconnection across certain tariff classes for each DNSP.

Appendix 2Questionnaire

September 2001 Report on Capital Contributions - Questionnaire 1

Name of DNSP ……………………….………………… …………… Date …………………

Name & position of officer completing questionnaire ………………………..…..….………..

Email ………………………………… Phone ………….….……. Fax …..……………..…...

Independent Pricing and Regulatory Tribunal of NSW (IPART)

Capital Contributions Project (Electricity)

Meritec Limited, Engineering and Management Consultants (previously known as Worley) haveprepared this questionnaire in consultation with IPART. Distribution network service providers(DNSPs) are asked to complete and return it, preferably by email, to Mr Jeffrey Wilson at Meritecat the address given below by 5pm on Friday 25th May 2001.

The purpose of the questionnaire is to confirm the nature of connection "activities", then to obtaineach DNSP's analysis of the costs that it incurs in making each of twelve "standard" connections.The objective is to examine the make-up of the DNSP’s costs, not the necessity of chargingcustomers for connections.

A supplementary questionnaire will be issued if further information or clarification is needed.Also, it is possible that a workshop may be held in Sydney during the course of the project but itsobjective and timing are yet to be decided.

Confidentiality

The information received will be used by IPART and Meritec only in conjunction with this project.Publication of information in or through Meritec's report to IPART or IPART's subsequentpublication of policy papers or determinations, if any, will be in accordance with IPART's policiesfor the disclosure or non-disclosure of information and applicable law.

Queries

If you have any queries, please contact Mr Craig Nalder at IPART or Mr Jeffrey Wilson at Meritecat the following address:

Email: [email protected] Dial: +64 9 379 1225Mobile: +64 21 645 521Fax: +64 9 379 1230Mail and Couriers: 47 George Street, Newmarket

P O Box 4241, Auckland.

Questionnaire


1.0 Confirmation of Connection Activities

DNSPs are requested to confirm that the following list correctly shows the activities undertaken bythe DNSP when a new customer is connected to the network. Please indicate, in the spaceprovided, the nature of any missing activities that you consider form part of the process,indicating, also, which of the five categories any additional activities belong to.

It is acknowledged that certain activities would not be undertaken for some categories ofconnection. For example, a site visit during the preliminary phase is generally not needed forresidential connections in urban areas. In other cases, certain activities will be undertaken ingreater depth. For example, design activities will be greater for large industrial loads, especiallywhere special customer requirements apply, such as a request for a higher-than-normal level ofsecurity of supply.

If, in order to cost the activities in Part 2 of this questionnaire, you feel that an activity needs to bebroken down into its component parts, please provide any additional detail that you considernecessary when completing Part 2. However, please ensure that the overall breakdown of theinformation that you present is in the format requested.

The activities are:

i . Administration : processing the application including: receiving and answering customerenquiry relating to the prospective new connection; receiving and handling the application;invoicing and receipt of payment.

i i . Engineering : examination and design including: examining the application and networkrecords; categorisation of the application in terms of load magnitude and location;determination of number of phases of supply (single phase or three phase); design ifstandard design not suitable; scheduling of the work; determination of tariff category;consultation with prospective customer or customer's representative if necessary;recording of completion. A site visit and preparation of a cost estimate may be required incomplex or unusual cases.

i i i . Issue of Materials: including purchasing, stores and materials issuing.

iv. Connection: connection installed (labour and plant costs). DNSP’s connection team orprivate connection contractor advised and given the necessary documentation; connectionteam or connection contractor visits, checks that it is suitable to connect, then installsmeter and fuse and livens the supply.

v. Travel : time and mileage for site visit(s) by: engineering staff for planning purposes; fieldstaff or contractors for installation of the connection, meter and fuse and livening of thesupply.

Answers:

The list of activities is complete. Yes o No o

If not, please give details of the additional activities that your DNSP undertakes, indicating, foreach, which of the five categories it belongs to. Attach a schedule if there is not space for youranswer.Note: please do NOT add any activities of a regulatory type such as the accreditation of electricalcontractors, checking of electrical contractors’ designs, inspection of customer’s electricalinstallations prior to livening or the like.


2.0 Costing of "Standard" Connections

Please provide a detailed breakdown of the total cost (as defined below) of each of the following"standard" connections:

1). Residential supply, single-phase, 60A, urban area, overhead reticulation, connection pointavailable close to the boundary of the property.

2). Residential supply, single-phase, 60A, urban area, underground reticulation, connectionpoint available close to the boundary of the property.

3). Residential supply, three-phase, 60A, urban area, overhead reticulation, connection pointavailable close to the boundary of the property.

4). Residential supply, three-phase, 60A, urban area, underground reticulation, connectionpoint available close to the boundary of the property.

5). Urban residential subdivision with 80 lots, underground reticulation, three-phase supplyavailable to each lot.

6). Commercial supply, three-phase, urban area, overhead reticulation, connection pointavailable close to the boundary of the property.

7). Commercial supply, three-phase, urban area, underground reticulation, connection pointavailable close to the boundary of the property.

8). Industrial supply at 11kV, 500kVA capacity, three-phase, overhead reticulation, dedicateddistribution transformer, LV connections and metering, power factor connection equipmentsupplied by the customer.

9). Rural supply, single-phase, 60A, overhead reticulation, connection point available on theroad, 11kV service line and distribution transformer needed, LV metering.

10). Rural supply, single-phase, 60A, overhead reticulation, no connection point available onthe road, 11kV feeder needs to be extended 10 km, distribution transformer needed,supply expected to be persistently uneconomic.

11). Rural supply, single-phase, 60A, overhead reticulation, no connection point available onthe road, 11kV feeder needs to be extended 10 km, distribution transformer needed,supply expected to become economic through the addition of further connections withinfive years.

12). As in 11 but three-phase with a required installed transformer capacity of 50 kVA.

Note that this is not intended to be a complete list of all connection types but only arepresentative sample, sufficient to judge the impact of different customer contribution policiesthat might be adopted by IPART.

If you have an important type of connection not listed above, you may add it as a 13th or 14th type,provided you first give full details for all twelve nominated types. Information provided in respectof extra types shall be equally as detailed as that provided for the twelve listed types.

Definition of “Cost”

For the purpose of completing this section of the questionnaire, the term “cost” is defined (andshall be interpreted) as follows:

- “Cost” means your estimate of the total cost attributable to a connection.

- Each of the twelve types of connection is to be costed in this manner, under the followingheadings, corresponding to the text in Item 1 of the questionnaire:

i . Administrationi i . Engineeringi i i . Issue of materials


iv. Connectionv. Travel.

- Under each heading, the cost is to be broken down into the following categories:

(a) Direct labour hours showing hours, rate, on-costs and their breakdown.

(b) Materials, showing items, rates, on-costs if any and their breakdown.

(c) Plant showing items, rates, on-costs if any and their breakdown.

(d) Overheads showing item, rate and breakdown.

- Please give full details of each component of the cost, including quantities and rates. Theestimated cost of each component may be derived either from the total recorded cost ofthe component over a given accounting period (taken from your audited accounts), dividedby the quantity of that component applied over the period; or from your estimate of the unitcost of the component. Please make it clear, in each case, which method has been used,and provide full details of the calculation.

- Where costs vary with parameters such as the magnitude of load to be connected, lengthof connection, remoteness from the DNSP’s depot or other similar factors, the method ofcalculation of cost is to be disclosed explicitly in your response, showing the dependenceof the cost on the factors concerned.

- Costs are to include the initial cost of the connection and not any ongoing costs after thelivening of supply.

- The cost of regulatory activities is to be excluded. These include but are not necessarilylimited to the following: the accreditation of electrical contractors, checking of electricalcontractors’ designs, inspection of customer’s electrical installations prior to livening andthe like.

- The cost of the customer’s own installation and designated service connection is to beexcluded. In the case of a residential or small commercial customer connection, forexample, these costs include the cost of a meter board and service main back to the polefuse (if overhead reticulation) or service pillar (if underground reticulation) on or near theboundary of the customer’s property. If in doubt, state your assumptions regarding thetermination point of the customer’s assets.

- Please give a worked example of each case to assist our interpretation of your data.

- Except where specifically noted otherwise, all applicable costs are to be included,irrespective of who pays for them or contributes to them at present or whether capitalcontributions are made.

- Please present your information in the form of the attached Table N°1. Since there willnot be sufficient space in the table itself for the information requested, please provide theinformation in schedules, cross-referenced to each position in the table.


3. Annual Numbers of Connections

Please complete Table No 2, giving your historical and projected numbers of connections of eachof the “standard” connection types listed above for each of the years requested.

Please present the information based on the DNSPs’ current boundaries.

Table No 2 – Annual Numbers of Connections

Connection Type YE 30 June 1999 2000 2001 Est 2002 Est 2003 Est. 2004 Est.Type 1Type 2Type 3Type 4Type 5Type 6Type 7Type 8Type 9Type 10Type 11Type 12

Thank you for your assistance.


Table Nº 1 – Presentation of Breakdown of Costs (Question No 2)

Name of DNSP _________________________________

Standard Connection Type Nº______ (Provide 12 separate tables)

Administration Engineering Materials Connection Travel

Direct Labour

Materials

Plant

Overheads

Appendix 3Incremental Cost Model

September 2001 Report on Capital Contributions - Incremental Cost Model 1

Incremental Cost ModelAn abridged version of Meritec's Long-Run Marginal Cost Model WI-LRMC v. 2A was used to

calculate the incremental cost of network augmentation and the adjustments needed to takeaccount of the net present value of future revenue streams. The model remains the intellectual

property of Meritec Ltd and is provided in its abridged form for the sole information and use of

IPART's Secretariat.

The model calculates the NPV of incremental capacity requirements (MW), capital investments

and non-capital costs over a 10-year time slice and allocates the costs to each level of thenetwork. Marginal ($/kW pa) costs are thus derived. Costs at each level are grossed up for

losses, converted to costs per kilowatt through the assumption of a load factor and applied to

different retail market segments through the application of coincidence factors and after -diversity maximum demands to give total demand - related costs per customer per annum.

The NPV of this cost stream is then calculated and compared with the NPV of the revenue

stream from each connection.

The following notes record the main assumptions made in the modelling work for this study.

1. The scenario tested was all DNSPs combined.

2. Input Data was obtained from IPART's report on the Regulation of NSW DistributionNetworks, December 1999, unless noted otherwise in this appendix. The data included

the following:

• Total energy delivered by each DNSP (from Attachment 2 of IPART's report). This

data was converted to year 2000/01 figures by increasing them at a cumulative rate

of 5% per annum.• Peak demand in MW (from Attachment 2) for the year 1997/1998, converted to year

2000/01 by the same adjustment.

• Customers for the year 1997/1998 (from Attachment 2), for the year 1997/1998,converted to year 2000/01 by the same adjustment.

• Total capital investment including renewals for the year 2001 (from Table 6.3). An

assessed percentage of each of those figures was allocated as growth-related capexplus reliability enhancement expenditure. The percentage allocated was taken from

our (Worley) review of capital expenditures, Table 11.4.

• Operating and maintenance costs for the year 2000/01 (from Table 8.2).• Annual transmission charges for the year 2000/01 (from Attachment 2).

3. A customer growth rate of 4% per annum from 2000/01 onwards was assumed along withan increase in specific consumption of 1.5% per annum.

4. Transmission system energy losses were assumed to be 2% and distribution energylosses 5% on average.

5. An annual load factor of 0.58 was calculated from the data above.

6. A discount rate of 7% was used for all present value calculations.


7. Capital expenditure was allocated to local transmission, sub-transmission, MV, LVnetworks and to other purposes in the following proportions: 3%, 40%, 36%, 13% and 8%

respectively.

8. Non-capital costs were allocated to local transmission, sub-transmission, MV, LV, other

and consumer services in the following proportions: 5%, 20%, 25%, 40%, 5% and 5%

respectively.

9. Local transmission and sub-transmission power losses were assumed to be 1.5% at peak

times.

10. Expenditure on distribution network augmentation was apportioned between MV and LV

lines in the ratio 70:30.11. Other characteristics of each type of load were assumed in accordance with the attached

table (taken from page 11 of the model).

12. The conclusions of the analysis were as presented in page 12 of the model, reproduced

below.


Documents

Independent Pricing and Regulatory Tribunal of NSW Report ...€¦ · capital contributions framework. In analysing the financial impact of capital contributions, the Tribunal required