Rate of return guideline

  • Accepting submissions
Type: 
Sector: 
Status: 
Category: 
Date initiated: 
10 December 2012
Effective date: 
17 December 2013
Contact: 
General Inquiriesrateofreturn@aer.gov.au
Overview:

As part of the Better Regulation reform program, the AER released its rate of return guideline on 17 December 2013. The rate of return guideline sets out how we determine the return that electricity and gas network businesses can earn on their investments.

Implementation of guideline

On 7 April 2014, the AER released an issues paper on implementing the approach for estimating the return on debt outlined in its rate of return guideline. This issues paper seeks submissions on which third party data service provider we should use to estimate the return on debt. It also discusses potential implementation issues specific to the data series published by the Reserve Bank of Australia.

Invitation for submissions

Interested parties are invited to make written submissions to the AER regarding this issues paper by the close of business, 19 May 2014.

Submissions should be sent electronically to: rateofreturn@aer.gov.au.

We will consider and respond to submissions on this issues paper in the context of our upcoming regulatory determinations. The first such determinations are those for the NSW and ACT electricity distribution networks, and the NSW and Tasmanian electricity transmission networks.

We prefer that all submissions be sent in an electronic format in Microsoft Word (or another text readable document form) and publicly available, to facilitate an informed, transparent and robust consultation process. Accordingly, submissions will be treated as public documents and posted on our website, unless prior arrangements are made with us to treat the submission, or portions of it, as confidential. Those wishing to submit confidential information are requested to:

  • clearly identify the information that is the subject of the confidentiality claim; and
  • provide a non-confidential version of the submission.

Milestones

Initiation

10 December 2012

Issues paper (1) - Better regulation

On 10 December 2012, the AER released an issues paper with more information on the guidelines and our plans for the consultation processes for each work stream.

AER Better regulation issues paper - December 2012 (2 formats available)
AER

Stakeholder forum (3) - Better regulation work program and the consultation process

On 18 December 2012, the AER held a videoconference forum to discuss our work program and the consultation process that we are planning. 

Issues paper (1) - Rate of return guidelines

On 18 December 2012, the AER released its issues paper on the rate of return guidelines.

Stakeholder forum (3) - Rate of return guidelines

Submissions (20) - to AER rate of return guidelines issues paper

Submissions closed 15 February 2013.

Queensland Treasury Corporation
Ergon Energy
Ergon Energy
ActewAGL
Citipower
Powercor
SA Power Networks
ENERGEX
Grattan Institute
Energy Users Association of Australia (EUAA)
Jemena
Jemena
Envestra
Major Energy Users Inc
Energy Networks Association
SP AusNet
NSW DNSPs
NSW DNSPs
United Energy
Multinet Gas
Public Interest Advocacy Centre
APIA
UnitingCare Australia

Stakeholder forum (6) - Subgroups 1 & 2, workshop no. 1

On 25 and 26 February 2013, the AER held two workshops with stakeholders on rate of return matters pertaining to the cost of equity and the cost of debt. To assist organisations or individuals who did not attend the meetings, we have attached a high level summary of the discussions held, and separately the actions items that followed.

Project administration - Revised target date for rate of return consultation paper

We had originally planned for the next step to be the publication of a consultation paper at the end of March. However, we have now formed the view that a better approach would be to revise the target date to the end of April to enable us to progress some agreed action items from the workshop. This includes additional discussions with our stakeholders on the principles that should underpin the rate of return guidelines.

The revised target date will enable us to have full regard to the extensive material we have received, in addition to the extra consultation we are now planning, prior to publishing our next consultation paper.

This revision does not affect the publication of the draft guideline that will still occur on 9 August. If you have any questions or comments about this process please e-mail rateofreturn@aer.gov.au.

Consultation paper (1) - Rate of return guidelines

On 10 May 2013, the AER released the consultation paper on Rate of return guidelines for consultation as a part of the Better Regulation reform program 2013.

The Rate of return guidelines will set out how we intend to apply the new rules framework to set rates of return for network business that meet the long term interest of consumers. This will involve setting out high level regulatory criteria that will guide our assessment of methodologies, financial models, market data and other evidence to determine returns on equity and debt that make up the overall rate of return.

AER

Late submissions (29) - to the rate of return consultation paper

In consideration of the length of the ENA’s submission on our rate of return consultation paper, and delay in receiving it, we requested the ENA to provide a concise consumer-friendly summary of their submission.

Envestra
Energy Networks Association
Energy Networks Association
NERA Economic Consulting
NERA Economic Consulting
SFG Consulting
SFG Consulting
CEG Consulting
CEG Consulting
SFG Consulting
SFG Consulting
CEG Consulting
SFG Consulting
NERA Economic Consulting
NERA Economic Consulting
SFG Consulting
Incenta Economic Consulting
NERA Economic Consulting
Kanangra ratings advisory services
CEG Consulting
CEG Consulting
Price Waterhouse Coopers (PWC)
Price Waterhouse Coopers (PWC)
Price Waterhouse Coopers (PWC)
DUET Group (on behalf of Financial Investors Group)
Financial Investor Group
TransGrid
Citipower
Powercor and SA Power Networks
Goanna Energy Consulting Pty Ltd (for the Council of Small Business of Australia)

Draft decision

30 August 2013

Draft guideline (7) - Draft rate of return guideline

On 30 August 2013, the AER released its Draft rate of return guideline. This is accompanied by an Explanatory statement and Factsheet.

Stakeholder forum (2) - information session on draft rate of return guideline

Following the release of the draft guideline the AER held an information session on 30 August 2013, presented by AER Chairman, Andrew Reeves outlining the details of our draft guideline. We have published a copy of the presentation and answers to all questions asked during the session.

Submissions (39) - to AER draft rate of return guideline

30 August 2013 - 11 October 2013

Submissions closed on 11 October 2013. 

Trevor St Baker
ActewAGL
APA Group
Australian Pipeline Industry Association Ltd
Australian Pipeline Industry Association Ltd
CANEGROWERS
Citipower
Powercor
SA Power Networks
Council of Small Business Australia
Ethnic Communities' Council of NSW Inc
Energy Networks Association
NERA Economic Consulting
Strategic Finance Group (SFG Consulting)
NERA Economic Consulting
NERA Economic Consulting
Strategic Finance Group (SFG Consulting)
Hathaway Capital Research
Price Waterhouse Coopers (PWC)
Competition Economists Group (CEG)
Competition Economists Group (CEG)
Jones Day
Energex Limited
Ergon Energy
Ergon Energy
Energy Users Association of Australia (EUAA)
Jemena Limited
Major Energy Users Inc
AusGrid
Endeavour Energy
Essential Energy
Competition Economists Group (CEG)
NSW Treasury Corporation (TCorp)
Public Interest Advocacy Centre
Queensland Treasury Corporation
Queensland Treasury Corporation
SP AusNet
Spark Infrastructure
TransGrid
ESQUANT Statistical Consulting
Envestra
CommSec
Envestra

Stakeholder forum - draft rate of return guideline

The AER held a stakeholder forum on 1 October 2013 to discuss our draft rate of return guideline. The forum provided interested stakeholders with an opportunity to clarify aspects of the draft guideline and to present their views on the draft guideline. 

Issues paper (2) - AER issues paper on equity beta

On 11 October 2013, the AER released an issues paper on equity beta as part of its consultation for developing the rate of return guideline. 

The equity beta is an important component of the rate of return. This issues paper sets out our proposed approach to estimating the equity beta. Applying this approach, we propose to adopt an equity beta of 0.7, chosen from within a range of 0.4 to 0.7. In previous decisions, since our 2009 weighted average cost of capital (WACC) review, we have adopted an equity beta of 0.8.

Links to the key consultant reports referred to in this issues paper can be found within the paper. We have previously published these reports on our website. One of the key reports is available below, and the other key reports can be found above.

Late submissions (3) - to AER issues paper on equity beta

Financial Investor Group
APA Group
Goanna Energy Consulting Pty Ltd (for the Council of Small Business of Australia)

Final decision

17 December 2013

Guideline (7) - AER rate of return guideline

The AER released its final rate of return guideline, explanatory statement and accompanying factsheet.

AER
AER
AER
AER Rate of return guideline - December 2013 (2 formats available)
AER
Professor Michael McKenzie and Associate Professor Graham Partington
Associate Professor Martin Lally
Associate Professor Martin Lally

Implementation

7 April 2014

Issues paper (2) - Return on debt - choice of third party data service provider

On 7 April 2014, the AER released an issues paper seeking submissions on which third party data service provider it should use to estimate the return on debt.

Submissions - to AER Issues paper

7 April 2014 - 19 May 2014

Interested parties are invited to make written submissions to the AER regarding this issues paper by the close of business, 19 May 2014.