The Australian Energy Regulator’s (AER) draft Rate of Return Guideline balances system reliability with the need to address energy affordability by ensuring efficient network investment that will help keep energy prices down.
AER chair Paula Conboy said the AER’s draft decision on the Rate of Return Guideline reflected the outcome of a significant engagement and consultation process, and would provide the stable investment climate required to build and maintain Australia’s energy networks into the future.
“As the regulator our aim is not simply lower prices, it is ensuring the lowest efficient costs required to build and maintain safe and reliable networks. If the rate of return is too high, over-investment could follow and customers pay more than necessary. If it is too low insufficient investment may result, risking reliability.
“This draft guideline is the result of the most extensive consultation process yet undertaken by the AER. If implemented, this draft guideline could result in household customers’ bills decreasing by around $30 to $40 per year,” said Ms. Conboy.
The rate of return is a forecast of the cost of funds a network business requires to attract investment in its network and makes up approximately 50 per cent of a network business’ allowed revenue.
As part of its extensive consultation process, the AER has established an Independent Panel to review the draft guideline and report within 50 business days on whether it is supported by sound reasoning based on available information.
“Our process took submissions from all concerned stakeholders including affected companies, service providers, investors and consumers. Evidence sessions involved experts that concurrently analysed the available information and its impacts. All voices were heard.
“It is vital that we get this guideline right. Ultimately it is consumers that foot the bill for network costs and in an era of major concerns about energy affordability, this proposed change will have an impact on Australian businesses and households for years to come,” said Ms. Conboy.
The Independent Panel will report on this draft decision no later than 50 business days from today and its report will be published by the AER.
Further submissions will be welcomed after that report, with a final decision released in December 2018.