AER releases final decision on rate of return for regulated energy networks

The Australian Energy Regulator (AER) has today released its latest Rate of Return Instrument and explanatory statement (the Instrument).

The rate of return is part of the revenue that networks recover from customers. The AER sets the rate of return to cover the cost an efficient network would incur to raise its capital in the financial markets.

A rate of return should be high enough to encourage network owners to build networks needed to supply electricity and gas, but not so high that consumers are paying too much. The rate of return the AER sets moves up and down with interest rates which generally reflect the current state of the economy.

This instrument referred to as the 2022 Instrument is largely consistent with the 2018 Instrument but updated to reflect the latest data and market conditions. The Instrument sets out the approach by which we will estimate the rate of return and comprises the return on debt and the return on equity, as well as the value of imputation credits.

The AER does not set the rate of return with a specific network or project in mind, instead, we set a benchmark across the sector. This provides incentives for networks to raise their capital at the lowest cost possible.

The 2022 Instrument will bind all regulatory determinations from now until it is revised in 4 years.

Issued date: 
24 February 2023
AER reference: 
AC 11/23
General enquiries - Rate of return