AER issues draft determination on Aurora Energy

The Australian Energy Regulator has today released a draft determination on Aurora Energy’s regulatory proposal for the Tasmanian electricity distribution network for the period 1 July 2012 to 30 June 2017.

The AER has not agreed with Aurora’s forecast of costs for this period, and as a result has reduced the allowed revenue for Aurora. The AER’s draft determination would result in no average increase to a typical residential electricity bill.

Aurora’s proposed increases in revenue would have resulted in an average annual 2.1 per cent increase in a typical residential bill. These increases in revenue were based on Aurora’s forecasts of its operating and capital costs including a rate of return.

The most significant driver of the difference between Aurora and the AER’s position is the allowance for the rate of return.

“Current market conditions have led the AER to estimate a lower risk free rate than estimated by Aurora at the time it submitted its proposal,” AER Chairman Andrew Reeves said.

“The AER has also adopted different values for the cost of equity and the cost of debt. This has also contributed to a lower rate of return.”

The AER will update the estimates of financial parameters when it makes its final determination.

The AER also has lower expectations of operating and capital costs over the five year forecast period. Aurora proposed forecast capital and operating expenditure at similar levels to its current expenditure. The AER considered that this was more than what is necessary under the legislative requirements.

Aurora can now provide a revised regulatory proposal responding to the AER’s draft determination. Other stakeholders also have the opportunity to provide submissions in response to the AER’s draft determination. The AER will make a final determination on Aurora’s regulatory proposal in April 2012.

The AER will hold a pre-determination conference on its draft determination in Hobart on 13 December. Registration inquiries can be directed to aerinquiryaer [dot] gov [dot] au (aerinquiry[at]aer[dot]gov[dot]au).