By Hugh Grant on 6 December 2016
The report from Responsibility provides a great insight as to returns on regulated energy investments.
Whilst we are not validating the report's numbers we are confident that Australian regulated energy businesses are receiving profits well above those of a competitive market. Until recently, many such businesses were receiving a return on assets (ie interest payments) at a rate of around 10% p.a .indexed by CPI......and this was happening when interest rates in the Australian market were at or near record lows!
Also until recently the businesses have been (in our view) able to "game" the Australian Energy Regulator (AER) by cherry picking cost to challenge in the AER's periodic reviews. That is, it was all one way.
Unfortunately, as there is no competition, the only game in town the business has to beat is the AER. Whilst it is a tough gig being a regulator under these circumstance, the AER continues to strive to achieve cost reflective returns in what has become a game of "catch me if you can".
Trans Tasman Energy Group