Guidelines on Electricity Tariff Determination 81 GP/ST/No.2/2016(Pin.2022) under IBR for Peninsular Malaysia
Guidelines on Electricity Tariff Determination 82 GP/ST/No.2/2016(Pin.2022) under IBR for Peninsular Malaysia
17.5 For the avoidance of doubt, for any specific projects or programmes that are excluded from the capital expenditure ECS, both the actual capital expenditure and allowed capital expenditure relating to those projects or programmes will be excluded from the calculation of the capital expenditure ECS adjustment.
17.6 The reasons for excluding specific projects or programmes from the capital expenditure ECS may include but are not limited to:
(a) the primary driver of the project or programmes is an obligation imposed by government or by the Commission.
(b) there is a strong relationship between the level of expenditure on the project or programme and the level of achievement of an outcome (such as volume-deployments of an item of technology), such that underspend alone cannot be assumed to be an indicator of efficiency.
17.7 Where the Commission determines that specific projects or programmes of allowed capital expenditure be excluded from the capital expenditure ECS, the Commission may nevertheless define an alternative incentive scheme to apply to that project or programme.
17.8 The capital expenditure ECS will apply to each RBE as follows:
(a) If the RBEβs total actual capital expenditure across the relevant period is materially lower than its total allowed capital expenditure across the relevant period, then the capital expenditure ECS adjustment shares the underspend between the RBE and electricity customers. This sharing is intended to provide an incentive to the RBE for efficiency improvements in capital expenditure while, at the same time, recognising that some savings may be due to circumstances outside of the RBEβs control (for example, a large customer deferring a connection) which do not result from efficiency improvements. Because it is generally difficult to attribute a saving to one cause or another, the adjustment shares any underspends based on a percentage that is pre-determined by the Commission.
Guidelines on Electricity Tariff Determination 83 GP/ST/No.2/2016(Pin.2022) under IBR for Peninsular Malaysia
(b) If the RBEβs total actual capital expenditure across the relevant period is greater than total allowed capital expenditure across the relevant period, there will be no sharing between the RBE and electricity customers. For the avoidance of doubt, the capital expenditure ECS adjustment will equal zero unless the RBEβs total actual capital expenditure across the relevant period is materially lower than its total allowed capital expenditure across the relevant period.
(c) The relevant period over which actual capital expenditure and allowed capital expenditure will be compared is from the last year of the previous Regulatory Period through to, and including, the penultimate year of the current Regulatory Period. The last year of the current Regulatory Period is excluded from the comparison because audited values of actual capital expenditure will not be known at the time of determining the Annual Revenue Requirement.
17.9 Total actual capital expenditure across the relevant period will be considered to be materially lower than total allowed capital expenditure across the relevant period if the difference exceeds the greater of:
(a) 1% of total Annual Revenue Requirement across the relevant period; or
(b) 5% of average annual actual capital expenditure across the relevant period.
17.10 The Commission may adjust the values of capital expenditure underspend used in the calculation of the capital expenditure ECS adjustment to ensure that the benefits of an RBE deferring capital expenditure from one period to the next are shared with customers. Any such adjustment will only be applied if total allowed capital expenditure in the next period is materially higher than it would have been had the capital expenditure not been deferred.
Guidelines on Electricity Tariff Determination 84 GP/ST/No.2/2016(Pin.2022) under IBR for Peninsular Malaysia
Sharing factor for capital expenditure ECS
17.11 At the time of determining the Annual Revenue Requirement the Commission will determine a capital expenditure sharing factor that will be applied to capital expenditure underspends incurred during the next relevant period.
17.12 The capital expenditure sharing factor will be expressed as a percentage and will represent the share of the capital expenditure underspend that will be returned to customers through the capital expenditure ECS adjustment, with the balance (ie. 100% minus the capital expenditure sharing factor) retained by the RBE.
17.13 The Commission will set the capital expenditure sharing factor such that the incentive power faced by the RBE to improve capital expenditure efficiency is broadly similar to the incentive power faced by the RBE to improve operating expenditure efficiency under the operating expenditure ECS.
17.14 Unless otherwise determined by the Commission, the capital expenditure sharing factor will be at the ratio of 70%:30%, which means that 70% of the capital expenditure underspend will be returned to customers and 30%
will be retained RBE through the capital expenditure ECS adjustment.
Calculation of the capital expenditure ECS adjustment
17.15 The capital expenditure ECS adjustment will be calculated as follows:
(a) For the last year of the previous Regulatory Period and for each year of the current (soon to be completed) Regulatory Period, excluding the last year of the current Regulatory period, the capital expenditure underspend will be calculated as the difference between actual capital expenditure and allowed capital expenditure, less any deferral adjustment.
(i) For the avoidance of doubt, the capital expenditure underspend may be positive or negative in any given year.
Guidelines on Electricity Tariff Determination 85 GP/ST/No.2/2016(Pin.2022) under IBR for Peninsular Malaysia
(ii) The deferral adjustment will equal the increase in allowed capital expenditure in the next period arising due to deferrals in the current period, after adjusting for the time value of money at the applicable Weighted Average Cost of Capital.
(b) For the last year of the previous Regulatory Period and for each year of the current Regulatory Period, the earned underspend benefit will be calculated as the difference between the total Annual Revenue Requirement earned from using allowed capital expenditure and the total Annual Revenue Requirement that would have been earned had actual capital expenditure been used in the calculation instead.
(i) For the avoidance of doubt, the components of the Annual Revenue Requirement that will change if using allowed capital expenditure rather than actual capital expenditure include return on capital, depreciation, and the Tax and Zakat allowance.
(ii) For the avoidance of doubt, the earned underspend benefit may be positive (if actual capital expenditure was lower than allowed capital expenditure) or negative (if actual capital expenditure was higher than allowed capital expenditure) in any given year.
(c) The total shared underspend, which is a total value rather than an annual value, will be calculated as the sum of:
(i) The capital expenditure underspend, multiplied by one minus the applicable capital expenditure sharing factors, summed across the period and adjusted for the time value of money at the applicable Weighted Average Cost of Capital.
(ii) The earned underspend benefit, summed across the period and adjusted for the time value of money at the applicable Weighted Average Cost of Capital, multiplied by minus one.
Guidelines on Electricity Tariff Determination 86 GP/ST/No.2/2016(Pin.2022) under IBR for Peninsular Malaysia
(d) For each year of the next Regulatory Period, the capital expenditure ECS adjustment will be calculated as the total shared underspend converted to an annual amount, taking account of time value of money at the Weighted Average Cost of Capital for the next Regulatory Period.
(e) In calculating the capital expenditure ECS adjustment, the Commission will by default allow recovery within the next Regulatory Period. Where this would result in an unacceptable impact on customer tariffs that cannot be rectified by other means, the Commission may adjust it to spread the recovery of the total shared underspend across multiple Regulatory Periods.
17.16 The above description of the calculation of the capital expenditure ECS adjustment will be applied according to the following formula:
πΈπΆππ, =ππππ , π΄πππΉ, Where:
'Pβ is the next Regulatory Period 'P-1β is the current Regulatory Period
βtβ is the year of the next Regulatory Period βPβ
βTSUSe,P-1β is the total shared underspend for RBE βeβ in the current Regulatory Period
βP-1β (expressed in RM)
βANNFe,Pβ is the annuity factor for RBE βeβ in the next Regulatory Period βPβ (expressed as a factor)
17.17 The total shared underspend, which is a component of the capital expenditure ECS adjustment, will be calculated according to the following formula:
ππππ , = πΆπππ, Γ 1 β πΆπππΉ, β πΈπππ΅ ,
Γ (1 + ππ΄πΆπΆ , )( )
Guidelines on Electricity Tariff Determination 87 GP/ST/No.2/2016(Pin.2022) under IBR for Peninsular Malaysia
Where:
βnβ is the year of the current Regulatory Period βP-1β
βn-1β is the last year of the previous Regulatory Period βP-2β
βNβ is the total number of years in the current Regulatory Period βP-1β
βCXUSe,nβ is the capital expenditure underspend for RBE βeβ in year βnβ (expressed in RM)
βCXSFe,nβ is the capital expenditure sharing factor for RBE βeβ in year βnβ (expressed as a percentage)
βEUSBe,nβ is the earned underspend benefit for RBE βeβ in year βnβ (expressed in RM)
βWACCe,nβ is the Weighted Average Cost of Capital for RBE βeβ in year βnβ (expressed as a percentage)
17.18 The capital expenditure underspend, which is a component of the total shared underspend, will be calculated according to the following formula:
If π < N (not the last year of the current Regulatory Period) then:
πΆπππ , = πΆππΈπ , β ππΆππΈπ , β π·πΉπ π΄ , Where:
βDFRAe,nβ is the deferral adjustment for RBE βeβ in year βnβ (expressed in RM) If π = N (the last year of the current Regulatory Period) then:
πΆπππ, = 0
17.19 The annuity factor, which is a component of the capital expenditure ECS adjustment, will be calculated according to the following formula:
π΄πππΉ, =1 β (1 + ππ΄πΆπΆ , ) ππ΄πΆπΆ , Where:
βTβ is the total number of years in the next Regulatory Period βPβ
END OF SECTION
Guidelines on Electricity Tariff Determination 88 GP/ST/No.2/2016(Pin.2022) under IBR for Peninsular Malaysia