AEMC: Rate of Return Guidelines

Cost of Capital

Sep 04
AEMC: Rate of Return Guidelines

In June 2016, the Australian Energy Regulator (AER) submitted a rule change request to the Australian Energy Market Commission (AEMC) asking for the scheduled (3-year) review of the Rate of Return Guidelines to be deferred by two years.

The Rate of Return Guidelines were first published on 17 December 2013 and outline how the AER estimates the rate of return in its regulatory determinations and access arrangements.  The National Electricity Rules and National Gas Rules allow for a review of the guidelines every three years such that the next review would provide updated guidelines by 17 December 2016.

The AER is proposing the deferral as key elements of the current guidelines are ‘under contention’ by the Australian Competition Tribunal.  The AER suggests that this process is likely to result in a change of approach to the rate of return calculation which are not expected to be resolved by the December 2016 guideline review deadline.  Consequently, the AER is seeking a 2-year extension to the guideline review to deliver an updated set of guidelines by 17 December 2018.  After this the guideline reviews are intended to revert to the 3-yearly cycle.

The AEMC are seeking feedback on the proposed rule change with the publication of a consultation paper on 18 August 2016.  It is proposing transitional provisions will be required as six service providers will be engaged in their regulatory determinations around the 17 December 2018 when the deferred guidelines will be published.  Simply the 2013 Rate of Return Guidelines will apply to the 2018 regulatory determination events.

The timetable for the rate of return review is as follows:

  • 18 Aug – the rule change process begins;
  • 1 Sep – any objections to be received to expediting the rule change process;
  • 15 Sep – submissions on the consultation paper close; and
  • 13 Oct – the AEMC publishes its decision on the proposed rule change.