F-Factor Scheme
In the wake of the Black Saturday bushfires of 2009 the Department of Primary Industries began work on a financial incentive scheme to encourage improvements in the management of electricity distribution assets, with the aim of reducing the number of fires started by those assets.
The F-Factor Scheme is intended to operate in a similar way to the existing reliability focussed performance incentives on the network monopoly distribution businesses which are administered by the Australian Energy Regulator (e.g. the Service Target Performance Incentive Scheme which applies to network interruptions and reliability).
Under existing price control arrangements, expenditure allowances are provided to the distribution networks as part of a 5 year revenue determination process – these allowances include funding for bushfire mitigation expenditure. However, under this approach there is a risk that customers will pay more for these allowances but will not actually receive a higher level of service. The f-factor (and the related reliability incentive schemes) has been introduced to balance the incentive for network monopoly businesses to reduce service levels and increase profitability, by rewarding (penalising) the electricity distribution businesses for improved (decreased) service in the area of fire mitigation. In practice the incentive will operate by linking annual changes in an electricity distributor's regulated revenue to the number of fires started by its electricity distribution assets each year.
The scheme has been implemented by an Order in Council, which came into effect on 23 June 2011. The Australian Energy Regulator will develop a benchmark targets for the scheme by the end of the year and it is due to take effect from January 2012.
A consultation paper regarding the operation of the scheme was published in early 2011. The consultation paper, submissions received and the Department's responses to issues raised are available below.
Submissions to this consultation paper closed in February 2011. View the responses received below:
DPI has prepared its response to submissions received to the F-Factor Consultation Paper.
