Replacement expenditure modelling assumptions review

PIAC responded the Australian Energy Regulator’s (AER) consultation on its review of replacement expenditure (repex) modelling assumptions.

PIAC gives general support for the use of the AER’s repex model and benchmarking of network businesses, as we consider them useful tools for assessing network business’ repex proposals, and for comparing performance between and within businesses.

We highlight concerns that the deterministic use of the repex model and benchmarking more broadly renders them less useful and is potentially problematic.

As such we welcome this review in highlighting and seeking to continue to improve the way that the repex model is designed and used. We also encourage both the AER and network businesses to continue discussing preliminary repex modelling findings both during the preproposal stage and the revenue determination process.

We also give support for setting defined maximum and minimum expected asset replacement lives to improve forecasting accuracy of the repex model. In determining how to set such maximum and minimum lives, we consider the AER should retain discretion to select the most appropriate method for the case at hand.