AER Discussion Paper on Allocations of interest and tax expenses for the calculation of return on equity (regulatory) profitability measure - July 2019

On 11 July 2019, we published a discussion paper on the advice we sought from PricewaterhouseCoopers (PwC) on approaches to allocate interest and tax expenses from corporate groups to network service providers (NSPs) for determining the return on equity (regulatory) profitability measure.

PwC's advice was sought as part of our review into measures of profitability that can be applied to the electricity and gas NSPs that we regulate. We will publish our final position paper for our review in December 2019.

To form our final position for this review, we are working through issues raised in response to our draft position paper with a working group of consumer and industry representatives. One issue to be addressed is the proposed return on equity (regulatory) profitability measure and how allocations of interest and tax expenses to the NSPs from their corporate groups could be done for the purpose of determining the NSPs regulatory net profit after tax (NPAT) and subsequently the return on equity (regulatory) measure.

To inform our views on how the allocations could be made, we sought advice from PwC. We published this advice and sought input from stakeholders on how we should make these allocations. In forming our final position, we will also discuss our views on PwC's advice with the profitability measures review working group.