The Australian Energy Regulator will shortly begin a full review of the rates of return that should apply to energy network businesses, AER Chairman, Mr Steve Edwell, told a Macquarie Utilities Conference in Melbourne today.
The review is required by the new national electricity rules. It will be carried out during 2008, with a final report due by March 2009.
A regulated firm's rate of return, also known as the weighted average cost of capital (or WACC) is set by the regulator and is one of the most significant components of a regulated business' revenues and prices, which in turn has a sizeable impact on transmission and distribution costs paid by consumers.
"With the AER now assuming the role of national regulator of electricity utilities operating in the national electricity market, this will be the first time it has been possible to conduct a review of the rate of return across the whole sector, for transmission and distribution," Mr Edwell said. "The AER will conduct these reviews at five year intervals and its decisions will be of direct relevance to all revenue and price reviews that are carried out in each five year period following a review.
"Conducting these WACC reviews on a five year basis also provides businesses with more upfront certainty on the regulator's views on what the rate of return should be. It also avoids the need for these issues to be considered afresh at each price or revenue review for each business, as has been the case previously."
The AER's decision on the WACC will apply most directly to electricity network businesses in transmission and distribution, but the AER expects its findings will also be of relevance to its consideration of gas businesses access arrangements, at least in providing a reference point for further consideration. The AER intends to release an issues paper to seek the views of interested parties on key issues associated with the determination of a regulated rate of return by mid year. This will inform the AER's draft position which is expected to be released later in 2008 and a final decision by March 2009. Further information on the AER's processes and timing as well as the key issues to be considered will be provided when its issues paper is released.