Mr PEDERICK (Hammond) (17:27): I rise to support the Statutes Amendment (National Energy Laws) (Binding Rate of Return Instrument) Bill 2018. I note that on 14 July 2017 the COAG Energy Council agreed to implement a binding rate of return instrument for the rate of return on capital of the Australian Energy Regulator (AER) and the Western Australia Economic Regulation Authority (WAERA) regulatory determinations for regulated electricity and gas network businesses. This was a matter that emerged from the COAG Energy Council review into the effectiveness of the limited merits review framework by which network businesses could challenge decisions of the regulator.
The Statutes Amendment (National Energy Laws) (Binding Rate of Return Instrument) Bill 2018 implements a binding rate of return instrument in the National Electricity Law, National Gas Law and subordinate instruments. The rate of return is the forecast of the cost of funds a network business requires to attract investment in the network. The cost of capital is a significant determinant of network charges paid by consumers and businesses. The binding instrument will provide a single industry-wide process conducted every four years by each regulator to determine the binding rate of return methodologies that will be applied to individual electricity and gas network businesses at the time of their regulatory determinations.
The AER regulates the revenue that may be earned from electricity network distribution and transmission businesses and gas distribution pipeline businesses during a regulatory period, generally over five years. The largest of the revenue components is the return on capital, which may account for up to two-thirds of the business's revenue. The return on capital is calculated by applying the rate of return to the value of the network pipeline service provider's regulatory asset base.
The rate of return is the forecast of the cost of funds a network business requires to attract investment in the network. Currently, the regulator's existing guidelines are non-binding, allowing a different approach to rate of return. Gamma is the value of imputation credits used in calculating corporate income tax costs to be adopted by the AER and the West Australian ERA when determining the revenue allowance for each individual business. This has been a matter that has been challenged by network businesses in court, often with the impact of increasing the cost to consumers.
This move to a binding rate of return investment will improve the transparency and certainty of the regulator's decisions, reduce the regulatory burden for all stakeholders and provide a more robust process for the development of the rate of return. With those few brief comments, I support the bill.
Debate adjourned on motion of Dr Harvey.