On 15 July the AER published three draft working papers on Overall rate of return, Equity and Debt. Our three working papers focus on key technical aspects of the rate of return and provide the AER’s preliminary positions and issues for further consideration, in particular:

• Overall rate of return draft working paper provides an overview of our rate of return framework, our decision-making process and our positions to date. It also explores a number of discrete topics that relate to the overall rate of return.
• Equity draft working paper explores a number of technical aspects of estimating the expected return on equity. In particular, we want to check that the approach we employ is robust in a range of market conditions.
• Debt draft working paper discusses the data that is available to allow us to set a return on debt that aligns with the debt costs that network businesses experience.

The AER hosted three online forums for stakeholders to ask questions of the AER and interact directly to hear each other’s perspective on the working papers. The forums were held on:

• 4 August 2021 – Overall rate of return draft working paper
• 9 August 2021 – Debt draft working paper
• 11 August 2021 – Equity draft working paper

The AER would like to thank those who presented at the forum, as well as those who were able to attend on the day to listen to the views of other stakeholders.

We invited interested parties to make submissions on our three draft working papers on Overall rate of return, Equity and Debt. Submissions closed on 3 September 2021.

Energy Networks Australia’s (ENA) submission to our three draft working papers on Overall rate of return, Equity and Debt included a discussion on the use of scenario testing as one of the cross checks of the overall rate of return and also proposed a calibrated Dividend Growth Model (DGM) as a method to address the concerns about DGMs expressed in the 2018 Rate of return instrument. The ENA has provided information on its scenario testing and the outputs from its calibrated DGM. We have published the ENA’s scenario testing model below which also contains outputs from its calibrated Dividend Growth Model.