On 28 November 2017, we released our positions paper on the process for reviewing the rate of return guideline (Guideline). In particular, it describes how we will implement:
- The independent panel review of our draft guideline
- The concurrent expert evidence sessions
- The consumer reference group.
This builds on our consultation paper, released on 31 July 2017, and submissions from stakeholders received in response to that consultation paper.
In designing our process, we have had regard to the information set out in the COAG Energy Council Standing Council of Officials (SCO) bulletin regarding implementation of a binding guideline.
Rate of return
The AER determines the amount of revenue that electricity and gas network businesses can recover from customers for the use of their networks. A key component of this allowed revenue is the ‘rate of return’. This is a forecast of the cost of funds a network business requires to attract investment in its network.
It enables network businesses to obtain necessary funds from capital markets to fund capital investments and service the debt they incur in borrowing the funds. The return on capital makes up approximately 50 per cent of a network business’ allowed revenue. It therefore is a key driver of the amount of network charges that consumers pay.