Consultation paper Rate of return guidelines - Australian Energy ...

Similarly, any changes in methodologies should ensure this principle holds over the life of the
investment. Ensuring the NPV=0 condition is upheld is in the long term interest of consumers, and
therefore satisfies the national gas and electricity objectives.
The ERA's consultation paper proposed that it is desirable for rate of return methods to lead to
consistent regulatory decisions across industries, service providers and time. Similarly, the AER
proposed that methods be ‘supportive of broader regulatory aims’ and be ‘consistently applied across
industries, service providers, regulators and time’. 5
The desirability of achieving the specific aims of incentive regulation may be linked back to the
efficiency requirements of Rules. For example, the revenue and pricing principles refer explicitly to the
need to provide effective incentives to promote economic efficiency. 6
A service provider should be provided with effective incentives in order to promote economic
efficiency with respect to the regulated services that it provides. The economic efficiency that should
be promoted in respect of electricity includes
• Efficient investment in a distribution or transmission system
• The efficient provision of electricity network services
• The efficient use of the distribution system or transmission system. 7
Accordingly, the revenue and pricing principles (RPPs) are an important framework issue for
assessing how the national electricity and gas objective and the rate of return objective interrelate.
Everything we do in assessing the rate of return must be consistent with the national electricity and
gas objective. This will more likely be achieved where we ensure that our decisions are consistent
with the broad incentive regulation approach and good regulatory practice.
For example, it is important that the regulatory framework delivers incentives on the service providers
that are comparable to the incentives faced by firms in the boarder economy, whether regulated or
not.. Inconsistent incentives could lead to distortions between industries, which would diminish the
achievement of economic efficiency.. To do otherwise would put at risk the long term interest of
customers with respect to the security and reliability of electricity and gas supplies.
The ENA considers that transparency in the regulator’s decision making is important. 8 We consider
that transparency is consistent with sound regulatory practices.
The ENA also was concerned that earlier attempt to define regulatory transparency ‘was ambiguous
and could be interpreted as a suggestion that regulatory powers might be exercised for extraneous
purposes’, and that therefore this should be excluded. 9 We consider that the desirability of consistent
approaches to regulation across industry is tied explicitly to the efficiency requirements of the national
gas and electricity law and rules.
5
6
7
8
9
Australian Energy Regulator 2012, Better Regulation: Rate of Return Guidelines: Issues Paper, December 2012,
www.aer.gov.au/node/18859, p. 11.
NEL, Section 7A; for NGL, see section 24.
NEL, Section 7A. Similar provisions are included for the NGL, see section 24.
Energy Networks Association (ENA) submission to AER Rate of Return Guidelines – Issues Paper, February 2013,, p.
23. www.aer.gov. au (ENA submission to AER, February 2013).
ENA submission to AER, February 2013, pp. 11–12.
Better Regulation – Rate of return guidelines – Consultation Paper – May 2013 10