The Australian Competition Tribunal has handed down its decision on an appeal by ActewAGL Distribution (ActewAGL) against the AER's April 2010 access arrangement for the ACT, Queanbeyan and Palerang gas distribution network.
The Tribunal established a ground for review of the AER's approach in estimating the debt risk premium, when determining the cost of capital. The cost of capital is a major determinant of network tariffs. The Tribunal's decision increases the allowed total revenue of ActewAGL by around $5 million to $283.5 million. This additional revenue will be recovered from network users in future years through higher network tariffs. The effect of this decision is that the network component of an average residential customer's bill will increase on 1 July 2011 by 12 per cent, rather than the 9 per cent approved by the AER, plus CPI.
"The Tribunal noted the difficulty in identifying a sufficient number of long term bonds to determine the corporate debt rate used to estimate the cost of capital," AER chairman Andrew Reeves said. "A lack of data on corporate debt in the market has increasingly become an issue. The AER will review the Tribunal's decision and assess its implications for future regulatory decisions."
The Tribunal's decision increases ActewAGL's debt risk premium to 3.89 per cent from 3.35 per cent, resulting in the allowed cost of capital increasing to 10.04 per cent from 9.72 per cent.