The ATO has provided advice to the AER that all taxpaying energy networks paid less tax than provided for in the tax allowance component of their allowed revenue. In the face of this advice, a review of tax allowances is necessary to assess whether the outcomes of regulatory decisions in fact meet the test for consumer confidence in the framework. This assessment will require the collection of information and co-operation from the energy network businesses.

The AER should obtain the full taxation details of taxpaying energy networks to rebuild consumer confidence in the regulatory process and price outcomes.

We consider that consistent with the rest of the regime it is important that the providers have an incentive to manage tax costs efficiently and that consumers should benefit from these efficiencies. Further work is needed to refine the concept of the ‘benchmark efficient entity’ in regard to the calculation of tax allowance and to determine the appropriate level of incentive sharing with consumers.

Our concern is that a tax pass through approach may remove incentives for further efficiencies. Further analysis is needed before we can be clear on which approach best meets the long-term interests of consumers.

We encourage the AER to move swiftly to introduce the information requests and rule changes required to allow consumers to share the benefits of the network providers existing tax minimisation strategies and to apply any changes to the April 2019 revenue determination decisions.

The full submission can be read here.