Profitability measures for electricity and gas network businesses

Status: 
Date initiated: 
8 November 2017
Effective date: 
31 December 2018
Contact: 
AER General inquiries AERInquiry@aer.gov.au
AER reference: 
61378

Overview

We are currently undertaking a review into measures of profitability that can be applied to the electricity and gas network businesses that we regulate.

In response to feedback from stakeholders we have decided to progress the remainder of the review in three stages. These stages are:

  1. Publication of Return on Assets ratios for all electricity service providers (early September 2018).
  2. Publication of the final position paper on the profitability measures to be applied by the AER to network businesses and development of information requirements to collect the data required to calculate profitability measures based on regulatory accounting information (December 2018).
  3. Further assessment of the use of statutory accounting information to compare returns between regulated electricity and gas network businesses and businesses in the broader economy (April 2019).

A stakeholder working group has been formed to provide its views on key issues as we progress the review. It held its first meeting in August 2018 and provided its views on the Return on Assets ratios for electricity network businesses.

Meetings of the working group for the remainder of 2018 will focus on the information requirements to support the collection of data to calculate the profitability measures based on regulatory accounting information.

Background

The review of Profitability measures for electricity and gas network businesses aims to identify profitability measures and their associated data requirements to allow us to report and compare the returns of regulated service providers. Our primary purpose in reporting on the profitability of service providers is to provide transparency. Information on profits will assist stakeholders when engaging with network businesses and making submissions to our regulatory determinations and other regulatory processes. 

In 2017, McGrathNicol undertook a Scoping Study to identify relevant measures of profitability and the data requirements underpinning them. In November 2017 we published a Discussion Paper and the Scoping Study. The Discussion Paper summarised the findings of the Scoping Study, outlined the recommended profitability measures McGrathNicol had identified and set out the data requirements to calculate those measures. The Discussion Paper also raised a number of questions regarding the profitability measures and the data required to support them.

In April 2018, we published a draft Position Paper responding to issues raised in submissions on our Discussion Paper, providing our views on a number of profitability measures and indicating the measures we intend to report. Submissions on our draft Position Paper closed at the end of May 2018.

We held a public forum on our draft Position Paper in May 2018. The forum provided an opportunity for stakeholders to present their views on the draft Position Paper.

At the forum and in submissions on the draft position paper a number of stakeholders proposed that we take a staged approach to the remainder of the review and that a working group with consumer and industry representatives be formed to provide its views on key issues.