Once Bitten Twice Shy

Why Retrospective Action Undermines Incentive Regulation

A recent judgment by the Australian Competition Tribunal leaves it open to the Australian Energy Regulator (AER) to consider whether it would be in the long-term interests of consumers of electricity for it to make adjustments to the revenues that networks may earn in future to account for supposed windfall gains in the past. This bulletin from Frontier (Australia) explains why the long-term interests of consumers would be served best by preserving the incentives that networks face to pursue efficiencies, and by restraint on the AER’s part.

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