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The Australian Energy Market Commission (AEMC) has released its 2014 Residential Electricity Price Trends report. The report forecasts retail electricity prices for each Australian state and territory out to financial year 2016/17. Frontier (Australia) was engaged by the AEMC to conduct wholesale market modelling as well as assisting in building the tariff models for each jurisdiction.

Retail electricity prices are forecast to decline in real terms in most eastern states. This trend is mainly driven by suppressed wholesale electricity prices and the expected decline in network charges.

Frontier’s modelling shows that wholesale electricity prices in eastern states will remain low for the forecast period due to continuing decline in electricity demand. The removal of the carbon price also led to a one-off drop in electricity prices at the beginning of the financial year 2014/15.

In its recent draft determination, the Australian Energy Regulator (AER) has proposed a large reduction in allowed revenues for network businesses in New South Wales and Australian Capital Territory from financial year 2015/16. The AER has not yet announced its draft determination regarding Queensland and South Australia. Lower network charges will also contribute to lower final retail bills paid by customers.

The electricity market in Western Australia operates differently from the eastern states. Retail electricity prices in Western Australia are predicted to rise in financial years 2015/16 and 2016/17, which mainly reflects the budgetary outlook of the Western Australian government.

Frontier regularly advises clients on energy issues spanning wholesale, network, retail and regulation.
For more information, please contact Marita O’Keeffe on or phone +61 3 9620 4488.

Specialist financial economists Professor Stephen Gray and Dr Jason Hall from SFG Consulting Pty Ltd joined Frontier (Australia) as executive directors as of Monday 3 November 2014.

The addition of Stephen and Jason significantly boosts Frontier’s capacity to provide specialised financial consulting services in the areas of cost of capital, valuations, corporate finance, and financial economics.

“We’ve worked with Stephen and Jason for many years and they are a natural fit into Frontier Economics. Their skills and experience are highly regarded around the region.” said Danny Price, managing director of Frontier (Australia). “This means our clients can access an expanded range of economic advice, with our strong sectoral knowledge in the broader areas of financial economics, litigation support, competition, public policy and regulatory advice.”

“Frontier's reputation for quality, independent economic thought made it an easy decision for us. We’ve always enjoyed working with Danny, Philip and the rest of the team.” said Stephen Gray.

Stephen and Jason will advise clients from a new Frontier office in Brisbane, which gives us a renewed presence in that location.

In addition, Andrew Harpham, a long-standing member of Frontier's energy team, joins the board of Frontier Economics Pty Ltd. This follows the appointment of James Allan, also a long-time Frontier employee, as an executive director in November 2013.

Dr Philip Williams continues as chairman. We look forward to this exciting new stage in our development.

For more information, please contact Marita O’Keeffe on or phone +61 3 9620 4488.

With A Postscript On The Negotiated Outcome

This note was originally prepared to support a presentation made by Brian Parmenter of Frontier (Australia) at Norton Rose on 15 June 2010. On 2 July 2010, the new Prime Minister, Julia Gillard, announced substantial changes to the Resources Super Profits Tax (RSPT) proposed by her predecessor, Kevin Rudd, rechristening it the Minerals Resource Rent Tax. We have opted to leave the main part of the note in its original form; it explains how rent taxes work and identifies the key deficiencies of the RSPT. We have added a postscript that addresses the recently announced changes.DOWNLOAD FULL PUBLICATION

The Australian Energy Regulator (AER) today released its draft decisions on the revenue proposals submitted by ACT and NSW distribution and transmission businesses, for the period commencing on 1 July 2015.

The draft decisions apply to:

The transmission and distribution businesses share the delivery of energy to consumers across these two states. In the draft decisions, the AER has proposed lower allowed revenues to the businesses (33% to 35% lower than the proposals of the distribution businesses, and 23% to 24% lower than the proposals of the transmission businesses). The AER anticipates that these reductions will result in lower prices for consumers.

In arriving at these draft decisions, which are the first of their kind under the new National Electricity and Gas Rules, the AER has used cost benchmarking for the first time to determine cost allowances. The distribution and transmission businesses now have a short time to respond to the draft decision before the AER makes final determinations in April and May 2015. Regulated networks in other states will be watching the outcomes closely.

Frontier Economics (Australia) regularly advises clients in the energy sector, including the AER and energy businesses.

For more information, please contact Marita O’Keeffe on or phone +61 3 9620 4488.

The New Zealand Commerce Commission today released its final determination on one aspect of its approach to estimating the Weighted Average Cost of Capital (WACC) for regulated electricity lines and gas pipeline businesses in New Zealand.  When determining regulated prices for these businesses, the Commission needs to determine an appropriate return on capital.  Prior to this decision, the Commission did so by estimating a WACC range and applying the rate that corresponded to the 75th percentile of that range.

Following a recent judicial appeal, several consumer groups asked the Commission to urgently review its methodology.  The Major Electricity Users’ Group argued that the Commission should apply the midpoint of its estimated range rather than the 75th percentile.  In response to this request, the Commission commenced a nine-month review of its approach to this specific aspect of its WACC methodology.

The Commission concluded that:

The Commission took account of a wide range of evidence submitted by stakeholders, including modelling and analysis undertaken by Frontier (Australia), on behalf of Transpower New Zealand Ltd.  Frontier’s work examined the impact on consumer and overall societal welfare associated with applying different WACC percentiles when setting regulated prices.

Frontier regularly advises clients on cost of capital and network regulation issues. For more information, please contact or phone +61 3 9620 4488.

Frontier Economics (Australia) Chairman Philip Williams presented at the 12th Annual University of South Australia Competition and Consumer Workshop, held 10-11 October 2014.

Philip presented a session on the proposed changes to Section 46 of the Competition and Consumer Act 2010, put forward in the Draft Report of the Competition Policy Review. This proposes that s 46 be re-framed to prohibit a corporation that has a substantial degree of power in a market from engaging in conduct if the proposed conduct has the purpose, or would have or be likely to have the effect, of substantially lessening competition in that or any other market.

However, it proposes that this primary prohibition should not apply if the conduct in question:

Philip’s paper examines both the proposed primary prohibition and the defence in the light of the criteria adopted by the Review.

Frontier Economics regularly advises clients on a range of market power and other competition issues.

For more information, please contact Marita O’Keeffe on or phone +61 3 9620 4488.

The recently released Renewable Energy Target (RET) Review Expert Panel Report recommends two options for reducing the role of renewable energy in meeting Australia’s emissions reduction target. Both options involve reducing the subsidies to renewable generators. The Expert Panel acknowledges that these recommendations will make it harder for renewable generators to compete in the market for new investments, which would make the task of reducing emissions harder. The Panel estimated that Australia’s cumulative abatement task to 2020 would rise by between 39-58 MtCO2-e by 2020 under its recommended changes, all else being equal. However, scope of the review meant that the Panel did not go so far as analysing how likely it would be that Australia would still meet its 2020 emissions target if either of their recommendations were adopted.

This note from Frontier (Australia) analyses the implications of a modified RET on the likelihood that Australia would meet its emissions reduction target.DOWNLOAD FULL PUBLICATION

The Australian Competition and Consumer Commission (ACCC) today announced that it will not oppose the proposed acquisition of three Progressive Supa IGA supermarkets by Coles/Wesfarmers.

The supermarkets are located in Bunbury, Halls Head and Dianella. Although there were concerns that the acquisitions would remove differentiated offerings in the local areas, the ACCC took account of actual and potential competition in each of the areas and the recent poor performance of the stores under their current management.

Frontier (Australia) was retained by solicitors for Coles to advise on the effects of the proposed acquisitions on competition in local markets.

Frontier regularly advises clients on a range of competition issues.

For more information, please contact or phone +61 3 9620 4488.

Frontier (Australia) chairman Philip Williams presented at the Law Council of Australia 2014 Competition and Consumer Workshop, held on the 13th and 14th of September in Brisbane, Australia. Philip presented on the topic of barriers to entry. Although the idea of a barrier to entry is quite simple, identifying barriers to entry to a particular real-world market may require some subtle analysis. Philip suggested that there are four key points that can assist in this process. These are:

More detail of his arguments can be found in the full presentation.

Frontier (Australia) regularly advises companies and regulators on a range of competition issues.

For more information, please contact or phone +61 3 9620 4488.

The Australian Competition and Consumer Commission (ACCC) today discontinued its investigation into the acquisition of the Cinema Hyperplex in Loganholme, Brisbane. The Hyperplex was acquired by a 50:50 joint venture (JV) between Amalgamated Holdings Limited and Village Roadshow. They had not applied to the ACCC to clear the acquisition.

The ACCC started its review of the acquisition in September 2013. After a review lasting 12 months, the ACCC decided to discontinue its investigation.

Frontier (Australia) was retained by lawyers for the JV to advise on the effects on competition of the acquisition.

Frontier (Australia) regularly advises companies and regulators on a range of competition issues .

For more information, please contact or phone +61 3 9620 4488.