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

4.3 Summary of stakeholder submissions
Submissions on the definition of the benchmark efficient entity and on how risk should be factored into
the rate of return were received from network service providers, industry associations, and consumer
groups.
There was a broad agreement that the conceptual definition of a benchmark efficient entity should be
retained and be distinct from the practical implementation. Industry associations and network service
providers mostly argued that the AER should only depart from the conceptual benchmark when
required to achieve statistically robust estimates. However, one service provider argued that the
conceptual benchmark should be relaxed in order to admit market evidence. 80
The ENA proposed the following definition of the benchmark efficient entity:
A ‘pure-play’ regulated electricity or gas network business operating within Australia without parental
ownership providing the same scale and scope of standard control / reference services to the same
customer base at the current time. 81
The ENA's definition was endorsed by network service providers and by the APIA. Specifically,
service providers considered there to be a need for the benchmark efficient entity to reflect the
particular situation of each network. Network service providers and industry associations also argued
that "without parent ownership" should be retained in the definition. 82
Network service providers stated that considerations of private and public ownership should not
influence the rate of return. In contrast, one consumer group argued that it is a material consideration.
It particularly stressed that consumers should benefit from the lower financing costs that are incurred
by government-owned businesses. 83
In terms of risk, size of the RAB was identified as a consideration by network service providers and
industry associations. It was considered particularly relevant for the return on debt, in terms of
influencing businesses' efficient debt practices. Service providers also requested that the AER
consider risk-management as an element of efficient debt-raising practice. However, one network
service provider stated that the benchmark definition should not attempt to cover every debt funding
arrangement that the businesses may undertake. 84
Several stakeholders commented that the AER should consider non-regulated companies as part of
the practical implementation of the benchmark. The practices of non-regulated companies were seen
to indicate efficient debt management, and non-regulated companies that undertake substantial
capital expenditure were considered useful comparators for estimating the equity beta.
In terms of assessing risks, submissions recognised the need to assess whether a risk factor is
material and measureable. In addition to size, one submission identified customer base and location
as other relevant considerations for the rate of return. 85 Additionally, one network service provider
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United Energy / Multinet, Rate of return guidelines response to issues paper, February 2013, p.12.
ENA, Response to the AER rate of return guidelines - issues paper, February 2013, p.15
QTC, Submission on rate of return guidelines issues paper, 15 February 2013, p.8; CitiPower, Powercor and SA Power
Networks, Submission on rate of return guidelines issues paper, 15 February 2013, p.7.
MEU, Rate of return guidelines comments on the issues paper, February 2013, p.11.
United Energy / Multinet, Rate of return guidelines response to issues paper, February 2013, p.18.
APIA, Response to issues paper, 20 February 2013, p.29 and schedule 3 p.6
Better Regulation – Rate of return guidelines – Consultation Paper – May 2013 36