Consumer, small business, and social sector groups say energy networks are profiting unreasonably from a complex regulatory process known as the Rate of Return Instrument (RORI) at the expense of households and small businesses.
The RORI is a binding regulatory rule made every four years by the Australian Energy Regulator (AER). It sets the mathematical formulas and parameters used to calculate the allowed rate of return—essentially the profit and interest rate—that regulated electricity and gas network businesses can recover from consumers for their capital investments.
In a joint letter and submissions to the Australian Energy Regulator (AER), the groups argue that while investment in energy networks is crucial for reliable and accessible power, costs must be recovered at the lowest level necessary, and that the current proposal doesn’t achieve this.
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“We have long believed the Rate of Return Instrument has been set too high and that consumers pay an unnecessary premium. While the Australian Energy Regulator’s draft goes some of the way to fixing the problem, it must go further. Every cent matters right now to people in Australia,” Energy Consumers Australia CEO Brendan French said.
“More than a billion dollars of consumers’ hard-earned money is being poured down the energy network drain. That’s money that can and should be back in Australians’ pockets for other essentials.
“The Rate of Return Instrument is one of the single biggest decisions that will impact on the energy bills of households and small businesses. The Australian Energy Regulator needs to put consumers first and not let energy networks needlessly profit from this complex regulatory process.”
“The current proposal addresses some of the billion-dollar premium, but there’s still hundreds of millions on the table. Our joint letter to the Australian Energy Regulator makes a simple request—maximise every cent possible back to households and small businesses facing cost-of-living pressures.”
The national industry body representing Australia’s electricity transmission and distribution and gas distribution networks, Energy Networks Australia (ENA), says the joint statement from consumer and community groups on the RORI doesn’t address the critical findings from a legislatively mandated Independent Panel report.
ENA says the Independent Panel found that parts of the decision were not supported by the evidence; differ from the AER’s previous approach; and lacked a clear explanation for departing from market evidence or past approaches.
ENA CEO Dominique van den Berg says, “These aren’t minor technical points. It goes to whether the AER’s draft decision is properly evidence-based, which matters for everyone, including the households and businesses the outcomes of this instrument are meant to serve.
“Energy Networks Australia is calling on the AER to work through the Panel’s findings carefully and revisit the key drivers of its decision, including the cost of debt and equity, before it finalises its determination in December.”
“Globally, the cost of financing major transition enabling investments is rising along with interest rates—and equity and debt providers need to have confidence in the predictability and stability of settings and approaches to enable consumers to benefit from the increasing set of services the energy grid delivers.
“A sustainable rate of return approach drawing on global data supports the investment needed to keep energy reliable and affordable over the long term. It also ensures that costs are not deferred in a way that ends up placing a greater burden on future customers.”
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“A properly evidenced Rate of Return Instrument isn’t a trade-off against affordability. It’s the foundation for a stable, investable energy system that keeps the lights on and prices as low as possible over the long term.”
The Australian Energy Regulator is expected to make its final decision on the Rate of Return Instrument in December.
