Submission to the Australian Energy Regulator (AER) on the 2026 Draft Rate of Return Instrument Post Draft Decision Discussion Paper

Our joint submission with the Australian Council for Social Service (ACOSS) to the Australian Energy Regulator (AER)'s Post Draft Decision Discussion Paper makes our position clear: the Rate of Return Instrument (RORI), and its associated parameters, should be set at the minimum level necessary to attract prudent and efficient investment in networks. The AER must do more to ensure the 2026 RORI achieves this objective in the coming years.

Our key recommendations include:

• The new analysis supports a further reduction in equity beta. We consider the AER's additional analysis strengthens the case for reducing equity beta and provides a stronger evidentiary basis than the Draft Decision. Equity beta should be no higher than 0.5.
• The market risk premium (MRP) remains upwardly biased. The AER should give primary weight to the weighted-average historical excess returns metric when determining the MRP. On this basis, the MRP should be no higher than 6.0%.
• The AER must do more to ensure consumers will not overpay. The AER's discussion paper responds extensively to the Independent Panel's recommendations regarding the equity beta and market risk premium (MRP). However, it provides far less consideration of the Panel's recommendation that the AER demonstrate that the RORI will result in prices being no higher than necessary to support efficient investment.
• The AER must immediately commence a review of the regulatory treatment of inflation. A key driver of network financial outperformance has been the way higher-than-forecast inflation flows through the regulatory framework. Given the potential for continued inflation volatility, the AER should commence an immediate review to determine whether the current approach remains fit for purpose.

Read more in our submission.