International regulatory approaches to rate of return - Final working paper - 16 December 2020

On Wednesday 16 December 2020 the AER published our final working paper on International regulatory approaches to rate of return. Our preferred options in the final paper are:

• To maintain the current frequency for reviewing the instrument (every four years) and the current implementation of the instrument (from the next reset for each network/pipeline).
• Not to implement an annual update to the risk free rate
• Not to adjust the overall rate of return for expected outperformance on incentive schemes.

The final paper also identifies areas for future work, such as on the merits of cross checks and financeability tests in informing the 2022 Instrument; and evidence for a different allowed rate of return between gas pipelines and electricity networks.

This final paper marks the end of the working paper process for this topic, and there will not be an immediate round of stakeholder submissions. However, there will be further consultation on these issues at later stages of the 2022 review.