(NEO). Our rate of return and Powercor's proposed rate of return are set out in the following Table 6. 6 Final decision on Powercor's rate of return (% nominal) AER previous Powercor AER final Allowed return decision revised proposal decision (2016) over 2016–20 (2016) regulatory period Return on equity 10.28 9.89% 7.0 Constant (7.0%) (nominal Return on debt 8.97 7.76 5.51 Updated annually (nominal pre–tax) Gearing 60 60 60 Constant (60%) Nominal vanilla 9.49 8.61 6.11 Updated annually WACC for return on debt Expected inflation 2.57 2.50 2.32 Constant (2.32%) Source: AER analysis; Powercor, Revised regulatory proposal 2016 to 2020, 6 January 2016; AER, Powercor Australia Ltd distribution determination 2011–2015: Pursuant to Orders of the Australian Competition Tribunal in Application by United Energy Distribution Pty Limited (No 2) [2012] ACompT 8, October 2012, p. 28. Our return on equity estimate is 7.0 per cent. Consistent with the Guideline, the return on equity remains constant over the regulatory control period. Our return on equity point estimate and the parameter inputs are set out in Table 7. Powercor proposed departing from the approach in the Guideline. We are not satisfied that doing so would result in an outcome that better achieves the allowed rate of return objective. We do not agree with Powercor that our method applied in the preliminary decision will result in a return on equity which is inconsistent with the allowed rate of return objective. Our return on equity preliminary decision and this final decision is largely consistent with the views in the Guideline. Table 7 Final decision on Powercor's return on equity (nominal) AER previous Powercor revised AER decision decision (2011–15) proposal (2016–20) (2016–20) Nominal risk free rate 5.08% 2.75%* 2.48%** (return on equity only) Equity risk premium 5.20% 7.17% 4.55% MRP 6.50% 7.88% 6.50% Equity beta 0.8 0.91 0.7
(NEO). Our rate of return and Powercor's proposed rate of return are set out in the following Table 6. 6 Final decision on Powercor's rate of return (% nominal) AER previous decision Powercor revised proposal (2016) AER final decision (2016) Allowed return over 2016–20 regulatory period Return on equity (nominal 10.28 9.89% 7.0 Constant (7.0%) Return on debt (nominal pre–tax) 8.97 7.76 5.51 Updated annually Gearing 60 60 60 Constant (60%) Nominal vanilla WACC 9.49 8.61 6.11 Updated annually for return on debt Expected inflation 2.57 2.50 2.32 Constant (2.32%) Source: AER analysis; Powercor, Revised regulatory proposal 2016 to 2020, 6 January 2016; AER, Powercor Australia Ltd distribution determination 2011–2015: Pursuant to Orders of the Australian Competition Tribunal in Application by United Energy Distribution Pty Limited (No 2) [2012] ACompT 8, October 2012, p. 28. Our return on equity estimate is 7.0 per cent. Consistent with the Guideline, the return on equity remains constant over the regulatory control period. Our return on equity point estimate and the parameter inputs are set out in Table 7. Powercor proposed departing from the approach in the Guideline. We are not satisfied that doing so would result in an outcome that better achieves the allowed rate of return objective. We do not agree with Powercor that our method applied in the preliminary decision will result in a return on equity which is inconsistent with the allowed rate of return objective. Our return on equity preliminary decision and this final decision is largely consistent with the views in the Guideline. Table 7 Final decision on Powercor's return on equity (nominal) AER previous decision (2011–15) Powercor revised proposal (2016–20) AER decision (2016–20) Nominal risk free rate (return on equity only) 5.08% 2.75%* 2.48%** Equity risk premium 5.20% 7.17% 4.55% MRP 6.50% 7.88% 6.50% Equity beta 0.8 0.91 0.7
AER%20-%20Final%20decision%20Powercor%20distribution%20determination%20-%20Overview%20-%20May%202016.DOCX