Áreas del Desarrollo Cognitivo

In this section we present two back–up DNSP output and input specifications. The first of these is presented in table 9.

Table 9: Back–up DNSP specification #1

Quantity Value Price

Outputs Customers (No)

Smoothed non–coincident peak demand (MVA) Throughput (GWh) Interruptions (Customer mins)

Revenue * Cost share Revenue * Cost share

Revenue * Cost share

–1 * Customer mins * VCR per minute Value / Customers Value / MVA Value / GWh –1 * VCR per customer minute1 Inputs Nominal opex / Weighted

average price index

Opex (for network services group adjusted to remove accounting items not reflecting input use that year)

Weighted average of ABS EGWW WPI and five ABS producer price indexes

Nominal RAB straight–line depreciation / ABS EGWW CGPI

AUC (Return of & on capital) AUC / Constant price RAB depreciation

1

VCR per customer minute will vary by DNSP depending on the DNSP’s energy deliveries.

Abbreviations: EGWW – Electricity, gas, water and waste sector; WPI – Wages price index; CGPI – Capital goods price index; AUC – annual user cost of capital

The output specification in table 9 is similar to the recommended DNSP output specification except that the system capacity variable is replaced by smoothed non–coincident peak demand which is used as a proxy for the system capacity required. This change would be one way of addressing any concerns regarding the system capacity variable’s failure to distinguish potential excess capacity. Smoothing is required to remove the volatility associated with actual peak demand in response to variability in annual climatic and other conditions. However, the smoothing of actual non–coincident maximum demand necessary for it to be used as a proxy for system capacity introduces a degree of non–uniqueness as a range of smoothing methods could be used, all producing somewhat different results. And even a smoothed series may not adequately recognise constraints on a DNSP’s ability to adjust its system capacity given the long–lived nature of its capital inputs and its capital intensity.

The first back–up specification does not include any length dimension in the system capacity proxy and so it will be necessary to include customer density or, alternatively, the route length proxy for service area as a priority operating environment factor. Conversely, given that a measure of peak demand is now included as well as an output along with customer

numbers, we would not recommend including the peak density variable as an operating environment factor.

Turning to the input side, the opex specification is the same in this specification as in the recommended specification but we include a different measure of capital input. The capital input specification involves deflating the nominal straight–line depreciation used in building blocks RAB calculations by the ABS EGWW Net capital stock Capital goods price index to derive a capital input quantity proxy. The capital annual user cost is taken to be the overall return on capital and return of capital, calculated in a way which approximates the corresponding building blocks calculations, the same as in the recommended specification. The price of the capital input is then derived by deflating the annual user cost by the constant price straight–line RAB depreciation.

This approach has some similarities to the recommended capital input specification in that it approximates one hoss shay physical depreciation and hence reflects individual component carrying capacities. It has the advantage of using existing regulatory data but assumes consistency of depreciation treatment in regulatory data over time and across NSPs and may not capture actual asset lives. It is also dependent on the accuracy and consistency of initial capital base values and is dependent on the ABS EGWW CGPI accurately capturing capital prices paid by NSPs. For these reasons it is ranked behind the recommended physical measures proxy.

Table 10: Back–up DNSP specification #2

Quantity Value Price

Outputs Residential Customers (No)

Commercial Customers (No) Sml Industrial Customers (No) Lge Industrial Customers (No) Interruptions (Customer mins)

Revenue * Cost share Revenue * Cost share Revenue * Cost share Revenue * Cost share

–1 * Customer mins * VCR per customer minute

Value / Res Customers Value / Comm Customers Value / Sml Ind Customers Value / Lge Ind Customers –1 * VCR per customer minute1

Inputs Nominal opex / Weighted

average price index

Opex (for network services group adjusted to remove accounting items not reflecting input use that year)

Weighted average of ABS EGWW AWOTE and five ABS producer price indexes

Nominal depreciated RAB / ABS EGWW CGPI

Revenue minus opex (Revenue minus opex) / Constant price depreciated RAB

1

VCR per customer minute will vary by DNSP depending on the DNSP’s energy deliveries.

Abbreviations: EGWW – Electricity, gas, water and waste sector; AWOTE – Average weekly ordinary time earnings; CGPI – Capital goods price index

The second back–up specification is presented in table 10. Given that system capacity and peak demand both have some potential limitations as outputs, the output specification in table 10 includes customer numbers disaggregated by customer type (residential, commercial, small industrial and large industrial) and reliability as outputs. Together these variables could measure the DNSP’s success in providing adequate capacity to meet customer needs. Such a specification has the disadvantage of not providing either a direct or indirect proxy for required system capacity. We hence anticipate it would be necessary to use both customer and energy density operating environment factors with this specification.

The input specification listed in table 10 differs from the recommended input specification in two ways. Firstly, the opex specification uses AWOTE to reflect labour input prices rather than the WPI. As noted above, both AWOTE and the WPI have advantages and disadvantages. Either can defensibly be used, provided that index is then used consistently across the building blocks framework. The second difference is that the capital input specification listed in table 10 involves deflating the nominal depreciated RAB by the ABS EGWW Net capital stock CGPI to derive a capital input quantity proxy. The endogenous approach to forming the cost of capital inputs is also used in this instance which involves allocating the difference between revenue and opex as the cost of capital inputs. The price of the capital input is then derived by dividing the difference between revenue and opex by the constant price depreciated RAB.

This approach has the advantage of being relatively easy to implement and of using existing regulatory data. However, it is unlikely to reflect the carrying capacity of the component assets as it assumes ongoing reductions in asset carrying capacity each year. It also assumes consistency of treatment of depreciation and other RAB components in regulatory data over time and across NSPs and may not capture actual asset lives. It is also dependent on the accuracy and consistency of initial capital base values and is dependent on the ABS EGWW CGPI accurately capturing capital prices paid by NSPs. For these reasons it is ranked behind the recommended physical measures proxy.

The endogenous approach to measuring the cost of capital inputs also has the disadvantage of not being consistent, except by accident, with the financial capital maintenance principle used in buildings blocks calculations. It is, however, worth testing the sensitivity of results to the use of the simpler endogenous approach to the recommended but more data intensive exogenous approach.