Assets

Regulatory Overview

Regulatory Overview

The Asset Companies in which Spark Infrastructure holds a 49% interest operate in a well-established and transparent regulatory process with resets occurring every five years.

The regulation operates according to a “Building block” system which contains a range of in-built protections including the annual adjustment of revenues and the Regulated Asset Base (RAB) to compensate for movements in inflation.

The regulatory environment has been the subject of a number of reviews from late 2011 to late 2013 which began with the rule change process undertaken by the Australian Energy Markets Commission (AEMC). The AEMC sets the National Electricity Rules (NER), which are then administered by the Australian Energy Regulator (AER) in the setting of price determinations every five years for SA Power Networks and CitiPower and Powercor.

Under the AEMCs revised rules the regulatory regime will remain incentive based with opportunities for out-performance against regulatory allowances. Revenues and RAB continue to be inflation protected pass-throughs for operating and debt costs.

Australian Energy Regulator website – www.aer.gov.au

The regulatory system encourages out-performance against benchmarks subject to maintenance of reliability and efficiency standards and they include:

Benchmarking

The AER’s inaugural Benchmarking Report which compares the efficiency of all the networks within its jurisdiction, confirmed SA Power Networks and CitiPower and Powercor among the most efficient networks of their kind in Australia.

Efficiency carry-over mechanism

Electricity distribution businesses are rewarded for efficiency gains achieved and penalised for losses against operating expenditure forecasts, which are carried over into the next regulatory period.

Service target performance incentive schemes

These incentive schemes provide financial rewards and penalties for Electricity distribution businesses to maintain and improve service performance.

Demand management incentive scheme

These schemes provide incentives to seek out and implement efficient and innovative non-network solutions in response to growing demand and network constraints.

SA Power Networks, Powercor and CitiPower have consistently out-performed against regulatory benchmarks and are incentivised to do so by the regulatory system.

AER Benchmarketing Report 2014