Keeping gas from burning

It is important for the ACCC to achieve a balance between natural gas pipeline owners receiving a fair return that will encourage new investment in the industry and ensuring the cost of the gas is not prohibitive.

Lately some in the industry have claimed that the returns established are too low to encourage new investment. However, recent ACCC decisions clearly show that these concerns are unfounded. Since 1998, decisions have provided for returns on equity of 13 per cent to 15.4 per cent.

Also, the regulatory schemes provide incentives for pipeline owners to achieve higher returns than the regulated cost of equity. For example, if a service provider is able to develop the market beyond its current forecast volumes and/or is able to achieve lower than forecast operating costs, it may be able to retain these benefits and achieve a higher rate of return than that determined by the regulator.

While a regulated business will always seek higher returns, and the concerns expressed by the pipeline industry are to be expected, such infrastructure is very profitable.

The returns available compare most favourably with other investment options. The average return on equity in the domestic share market over the past 10 years was 11.3 per cent, and 10.4 per cent for Australian superannuation fund over the last 3 years.

The ACCC decisions provide a solid base for future investment in gas transmission infrastructure and a secure future for the energy industry.

Professor Allan Fels is chairman of the Australian Competition and Consumer Commission

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