The Australian Competition and Consumer Commission has issued its Post-Tax Revenue Model for utility industries, Acting ACCC Chairman, Mr Rod Shogren, announced today.
"The model has been designed to show how post-tax revenue modelling is used by the ACCC when regulating a range of Australian utilities. It illustrates the process that the ACCC uses when determining revenue requirements as part of its regulatory decisions. Service providers and other interested parties can examine and manipulate the model to get a clear understanding of the ACCC's approach.
"At times, the issues and methods of revenue modelling can be complicated. The process is not easy to explain in the descriptions provided in decision documents. At the same time, the legitimate business sensitivities of infrastructure owners and operators generally preclude the release of the actual models of revenue requirements.
"The Post-Tax Revenue Model bridges this gap. It will allow service providers and interested parties to better understand how regulatory decisions were made and give greater insight into future decisions. The release of the model illustrates the ACCC's continuing commitment to a transparent and open regulatory process."
Mr Shogren said that the ACCC had made a number of decisions on regulated businesses using the techniques illustrated by the Post-Tax Revenue Model.
"The level of the regulatory rate of return is often a contentious aspect of an access decision. It impacts both on the ex ante return expected by infrastructure owners and operators and on the tariffs paid by users. Australian infrastructure owners have generally argued that regulatory rates of return allowed in Australia are too low and will stifle investment.
"While the ACCC was confident that its methodology reflects regulatory best practice and properly balances the interests of owners and users, it commissioned NERA to provide an assessment of how regulatory rates of return for energy businesses in Australia compared with those approved by North America and the United Kingdom energy regulators. NERA concluded that there is little evidence that Australian regulators are offering lower investment incentives than in those countries. It also noted that a simple comparison of declared rates of return across jurisdictions might understate the level of returns allowed in Australia.
"Returns in decisions made by the ACCC relating to energy businesses range from 11.2 per cent to 15.4 per cent. This compares very favourably with returns available on the domestic share market. The average return on equity from investing in the share market over the past 10 years was 11.3 per cent, and the average return on Australian superannuation funds over the past three years was 10.4 per cent.
"The returns are also higher than those available to comparable energy businesses overseas. Recent regulatory decisions in the United States, the UK and Canada have provided post-tax nominal returns to equity of between nine per cent and 12 per cent.
"It is clear that investments in gas and electricity transmission in Australia are yielding very favourable returns.
"Despite this, the ACCC is aware of the persistent lobbying by industry to increase returns. It has been suggested that recent regulatory decisions spell bad news for new investment in Australia's energy infrastructure. This is simply not the case.
"In contrast to industry claims, a Reuters report completed in July 2001 found that investment proposals totalling $9 billion are on the drawing board for gas transmission pipelines. A $400 million pipeline linking Longford in Victoria and Bell Bay in Tasmania is under way and there are proposals to build second pipelines to Melbourne, Adelaide and Brisbane. There are two proposals for a pipeline linking Darwin with Moomba in South Australia.
"In the telecommunications sector, Telstra currently invests over $4 billion each year, and investment has grown at an average annual rate of over 8 per cent from 1994-1995 to 1999-2000. Investment amounting to $600 million has been completed at regulated airports over the past three years.
"Arguments suggesting that regulation is 'chilling' investment are clearly motivated by a desire to earn the sort of pre-regulation returns enjoyed by regulated firms. They also provide a very good indicator that regulation of natural monopoly infrastructure in Australia is having the effect that was always intended: replacing monopoly prices with prices that are cost-reflective and fair, but at the same time allowing the regulated business to earn a commercial rate of return."