AER re-examination of the determinations on debt for the NSW and ACT electricity distributors and for NSW gas distributor Jemena Gas Networks

The Australian Energy Regulator (AER) today released a position paper inviting submissions on how it proposes to remake its remitted debt decisions for the NSW and ACT electricity distributors and for NSW gas distributor Jemena Gas Networks (JGN), following a Full Federal Court decision on the matter in May 2017.

The remittal decisions may affect the return on capital for electricity distributors Endeavour Energy, Essential Energy, Ausgrid and ActewAGL for their 2014-19 regulatory control periods and for gas distributor JGN for its 2015-20 access arrangement period.

The AER’s original decisions in April 2015 for the electricity distributors and in June 2015 for JGN proposed to apply a full transition from the on the day approach to the trailing average approach for estimating the cost of debt. The difference in the return on capital (as a result of the alternate debt estimation methodologies related to the transition) sought by the businesses relative to the AER’s final decisions was around $1.2 billion. This is based on calculations at the time of the initial Australian Competition Tribunal hearing in late 2015.

During the time the appeal processes were underway, all of the electricity distributors submitted their annual pricing proposals consistent with our final decisions for the 2015–16 regulatory year, which we approved. For JGN the prices for the 2015-16 year were also set in accordance with our final determination.

Invitation for submissions

Interested parties are invited to make submissions on the position paper by 10 February 2018. The process for making submissions is set out in the positions paper.

Background

On 30 April 2015, the AER made final decisions on the determinations for the NSW and ACT electricity distributors for their 2014-19 regulatory control periods. On 3 June 2015, the AER made a final decision for JGN for its 2015-20 regulatory control period. As part of these decisions, we did not accept each of the distributors’ proposed estimates and methodology for estimating their trailing average cost of debt. Instead, we substituted our alternative trailing average cost of debt estimate based on our estimation methodology.  This included a full transition from the on-the-day approach to estimating the cost of debt which we had used in previous regulatory determinations to a new trailing average methodology based cost of debt estimate.

On 17 July 2015, the distributors sought merits review of our final decisions, including our decisions for debt transition, by the Australian Competition Tribunal (the Tribunal). The Public Interest Advocacy Centre also applied for review of our NSW final decisions. Additionally, the Commonwealth Minister for the Environment and Energy intervened.

On 26 February 2016, the Australian Competition Tribunal ordered the remittal of our final decisions for the NSW and ACT electricity distributors (Ausgrid, Endeavour Energy, Essential Energy and ActewAGL) for the 2014-19 regulatory control period and for JGN for the 2015-20 access arrangement period, with directions to remake our decisions on debt in relation to the introduction of the trailing average approach.

On 24 March 2016, we applied to the Full Federal Court (the Court) for judicial review of the Tribunal's decisions on operating expenditure, return on debt and the value of imputation credits.

On 24 May 2017, in its judicial review of the Tribunal's decision, the Court affirmed the Tribunal’s positions on operating expenditure and return on debt, but not the value of imputation credits.

Issued date: 
21 December 2017
AER reference: 
AC 191/17
Contact: 
Mr Warwick Anderson, General Manager - Network regulation 02 6243 1240 AERInquiry@aer.gov.au