Submission to the COAG EC on binding rate of return amendments

PIAC supports the draft legislative amendments to make the AER’s rate of return determinations for network businesses binding. PIAC supports the AER having flexibility and using its discretion to analyse the relevant market data and methods in developing a rate of return process and having a more mechanistic application to each network revenue determination.

More broadly, PIAC encourages the AER to approach its tasks and role as an expert regulator rather than a legal regulator. In the context of the rate of return, this would entail the AER using its full discretion in whatever ways would assist it give primacy to the National Electricity Objective and National Gas Objective, particularly as it relates to price impacts on consumers over the longer term.

An accurate rate of return is one of the most important elements of the revenue allowance calculation for consumers – small differences make many millions of dollars difference annually to the revenues of networks and therefore the prices consumers pay for network services. Its importance is demonstrated by number of appeals by networks of the AER’s decisions where, before the abolition of Limited Merits Review in 2017, almost all appeals addressed the rate of return.

PIAC supports the proposed obligations in the National Electricity Law and National Gas Law for consumer engagement in developing and reviewing the rate of return instrument. In particular, PIAC supports the obligation to establish a consumer reference group (CRG) and have regard to any advice, recommendations or submissions made by the group. However, in order for the CRG to be effective, it must also be appropriately resourced. As such, PIAC would welcome this support being formally recognised as part of the amendment package and the AER’s budget being adjusted to reflect this.