Profitability measures for electricity and gas network businesses

  • Accepting submissions
Status: 
Date initiated: 
8 November 2017
Effective date: 
20 December 2019
Contact: 
AER General inquiries AERInquiry@aer.gov.au
AER reference: 
61378

Overview

We have been undertaking a review into measures of profitability that can be applied to the electricity and gas network businesses that we regulate. In 2018 we published a draft position paper and return on assets data for the electricity distribution and transmission networks we regulate. However, due to other priorities we had to delay the review. We are now able to recommence the review and intend to publish the final position paper on the profitability measures in December 2019.

The stakeholder working group will be re-established to provide its views on key issues raised in submissions on the draft position paper and on information requirements to calculate the profitability measures based on regulatory accounting information. 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 will be undertaken after the final position paper has been published.

Invitation for submissions

We are seeking views on the advice we sought from PricewaterhouseCoopers (PwC) on approaches to allocate interest and tax expenses from corporate groups to network service providers (NSPs) for determining the return on equity (regulatory) profitability measure.

PwC's advice will be used to inform our views on how these allocations could be made for our review into the types of profitability measures that could be applied to the NSPs we regulate. To further inform this discussion, we are seeking stakeholders' views on PwC's advice and the associated data that would be required to make these allocations. In forming a final position on the return on equity (regulatory) measure for our review, we will have regard to submissions from stakeholders and discuss our views on PwC's advice with the stakeholder working group.

Interested parties are invited to make submissions by 22 August 2019. Submissions should be emailed to networkperformancereporting@aer.gov.au.

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.