SP AusNet Electricity Transmission Determination - Submission of new information

On 28 February 2007, SP AusNet submitted its revenue proposal and proposed negotiating framework and pricing methodology to the AER.

In March 2007, NERA Economic Consulting released a preliminary report which identifies a potential bias in Treasury Indexed Bonds as a proxy for the real risk-free rate. On the 31 May 2007 SP AusNet submitted to the AER a letter on remedying the use of biased raw yields on Commonwealth Government Securities (CGS) as a proxy for the risk free rate, attaching NERA's preliminary report. SP AusNet indicated in that letter that a supplementary report from NERA would follow on the absolute bias in CGS. SP AusNet submitted NERA's second report to the AER on Thursday, 14 June 2007. After reviewing NERA's second report, SP AusNet considers there to be a compelling case that continued use of CGS yields to estimate the risk free rate without recognition of the relative and absolute bias would result in a significant underestimate of the allowed cost of capital. SP AusNet supports NERA's recommendation for correcting the bias when estimating the real risk free rate and submits that the AER adopt such an approach.

The following documents, attached to this notice, will be made available to interested parties on the AER's website.

  • Letter from SP AusNet to the AER, Bias in CGS markets as a proxy for real risk-free rate, 31 May 2007
  • NERA Economic Consulting, Bias in Indexed CGS Yields as a Proxy for the CAPM Risk Free Rate, March 2007
  • Letter from SP AusNet to the AER, NERA Report on absolute bias and revised WACC proposal, 14 June 2007
  • NERA Economic Consulting, Absolute Bias in (Nominal) Commonwealth Government Securities, 7 June 2007

Due to the late submission of this information, the AER regrets that the time available for public consultation on this issue prior to the release of the AER's Draft Decision is limited. Interested parties are invited to provide written submissions on these documents to the AER by close of business Friday 3 August 2007.

Submissions can be sent electronically to aerinquiry@aer.gov.au.

Alternatively, submissions can be sent to:

Mr Chris Pattas
General Manager-Network Regulation (South)
Australian Energy Regulator
GPO Box 520
Melbourne VIC 3001

Issued date: 
15 June 2007
AER reference: 
AC 053/07
Maria Djopa 03 9290 1436