For Western Australia’s regulated gas pipelines, the ERA determines an allowed rate of return on service providers’ projected capital bases as part of setting regulated revenues for an access arrangement.
The National Gas Law requires the ERA to produce a gas rate of return instrument setting out how the ERA and regulated entities will calculate the rate of return for the duration of the instrument.
The ERA published a gas rate of return instrument on 16 December 2022 that set out the ERA’s position at that time on determining the allowed rate of return on capital.
The ERA is required to review the gas instrument and replace it by the fourth anniversary of when the current instrument was published, which was by 18 December 2022.
2022 Final Gas Rate of Return Instrument and Explanatory Statement
In December 2022 the ERA published the 2022 Final Gas Rate of Return Instrument and accompanying Explanatory Statement.
The gas instrument sets out the ERA’s determination of the allowed rate of return on capital for regulated gas network service providers in Western Australia. The explanatory statement provides the ERA’s reasoning supporting its determination.
In undertaking its review, the ERA had to fulfil certain consultation requirements to develop the 2022 gas instrument. These included considering the advice, recommendations and/or submissions given by a Consumer Reference Group, stakeholders and Independent Panel.
Over the course of its review, the ERA undertook extensive consultation, detailed below, to ensure the gas instrument is fit for purpose. This consultation included an engagement document, discussion papers, focused consultation documents and a draft instrument. The ERA thanks stakeholders that have contributed throughout this review.
Report on the historic market risk premium estimator
The ERA has published a report by Pink Lake Analytics on the market risk premium. The report details the statistical considerations for using the arithmetic and geometric mean for an estimator of the historic market risk premium and reviews submissions that the ERA has received on this matter.
Public submissions received in response to the draft Gas Instrument and the Independent Panel report
The ERA invited interested parties to make submissions on the 2022 draft gas instrument and explanatory statement and the Independent Panel report.
Independent Panel Report
The ERA has published the Independent Panel’s Report on the ERA’s 2022 Draft Gas Rate of Return Instrument.
As part of the consultation process for the 2022 gas instrument review, the ERA engaged an Independent Panel to review its draft gas instrument. The Panel was to review the Draft Instrument to ensure that the ERA’s approach was supported by sound reasoning and was capable of achieving the national gas objective.
2022 Draft Gas Rate of Return Instrument and Explanatory Statement
The ERA has published the 2022 Draft Gas Rate of Return Instrument and accompanying Explanatory Statement for the 2022 Draft Gas Rate of Return Instrument. The draft gas instrument sets out the ERA’s draft position on determining the allowed rate of return on capital for regulated gas network service providers in Western Australia. The explanatory statement provides the ERA’s reasoning supporting the positions set out in the draft gas instrument.
The 2022 draft gas instrument and accompanying explanatory statement was subject to a review by the Independent Panel.
Report on the term for the cost of equity
The ERA has published a report by Dr Martin Lally on the term for the cost of equity. The report details the term for the allowed cost of equity and reviews submissions that the ERA has received on this matter.
Focused consultation
The ERA conducted a focused consultation for the 2022 gas instrument review in April and May 2022. The focused consultation addressed specific questions regarding equity beta and the market risk premium. The ERA published a discussion paper outlining these questions and relevant background to these questions on 4 April 2022. The ERA also conducted an online session with interested stakeholders on 27 April 2022, where the ERA presented its underlying analysis and asked questions. The ERA invited stakeholders to make written submissions for the focused consultation. Submissions closed 9 May 2022, at which time the focused consultation concluded.
Report on debt-raising and debt-hedging costs
The ERA has published a report by Chairmont Consulting (Chairmont) on debt-raising and debt-hedging costs, which are the administrative costs and other charges incurred by businesses when obtaining and hedging debt finance. The ERA invited interested parties to provide submissions on the Chairmont report.
Public submissions received in response to Discussion paper
The ERA invited interested parties to make submissions on the rate of return discussion paper.
Discussion paper
On 8 December 2021, the ERA published a discussion paper outlining its working views on the method for calculating the allowed rate of return on capital for service providers for the 2022 gas instrument.
Engagement process position paper
On 20 July 2021, the ERA published an engagement process position paper detailing its planned approach to fulfilling the consultation requirements for producing the 2022 gas instrument and inviting stakeholder submissions on this process.
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