AER invites submissions on its preliminary position on the regulatory treatment of inflation

The Australian Energy Regulator (AER) has today released a preliminary position paper on its industry wide review of the regulatory treatment of inflation and invites submissions.

This review covers a wide spectrum of issues with stakeholders presenting a diverse series of positions.

In broad terms, we reviewed the best method to estimate expected inflation and whether the regulatory framework delivers appropriate compensation for inflation.

Energy Consumers Australia, the Consumer Challenge Panel and network service providers from both electricity and gas industries provided significant insights to this review via the many engagement opportunities we provided.

The preliminary position maintains the current position on the regulatory treatment of inflation. We therefore do not propose any amendment to our post-tax revenue model (PTRM) and roll forward model (RFM).

The AER will hold a workshop for interested stakeholders before submissions close. We recognise that the decisions we make and the actions we take in performing our regulatory roles and other activities affect a wide range of individuals, businesses and organisations. After reviewing submissions and hearing all stakeholders, we will assess further evidence and material submitted before releasing our final position in December 2017.

We encourage stakeholders to carefully consider our preliminary position paper and to continue to actively participate in this review.

Background

Recently, the method for estimating expected inflation in our regulatory determinations has been the subject of debate. Expected inflation is an important parameter for modelling future revenues in both electricity and gas regulatory determinations.

Our method for estimating expected inflation is set out in the Post-Tax Revenue Model. The National Electricity Rules require us to use the method that is set out on the current version of the model. To fully consider the inflation-related issues that have been raised with us, we instituted an industry-wide consultation and review, which includes both gas and electricity network industry regulation.

The first step of this consultation and review was to seek written submissions on our discussion paper on the regulatory treatment of inflation. The discussion paper explored the treatment of inflation in our determination of revenue and prices for electricity and gas network services. Since then, we held a public workshop on the discussion paper, a technical workshop and one-on-one technical sessions to enhance stakeholder understanding of our regulatory models and pricing mechanism.

Invitation for submissions

Submissions close, close of business Monday, 6 November 2017.

Submissions should be emailed to rateofreturnaer [dot] gov [dot] au (rateofreturn[at]aer[dot]gov[dot]au) or alternatively submissions can be posted to:

Canberra ACT 2601

The AER prefers that all submissions be sent in an electronic format (Microsoft Word) and are publicly available, to facilitate an informed, transparent and robust consultation process. Accordingly, submissions will be treated as public documents and posted on the AER's website, unless prior arrangements are made with the AER to treat the submission, or portions of it, as confidential. Those wishing to submit confidential information are requested to:

• clearly identify the information that is the subject of the confidentiality claim; and
• provide a non-confidential version of the submission