Inflation forecast changes supported
APGA has supported a proposal from the Australian Energy Regulator to change the way it forecasts inflation.
In a submission to the AER’s Draft position paper on the regulatory treatment of inflation, APGA says the proposed changes to inflation forecasting will increase predictability and therefore encourage investment.
“We are pleased to see the AER review the issue of forecast inflation,” the APGA submission says.
“A stable, predictable regulatory framework is vital to maintaining the attractiveness of the Australian energy sector as a destination for investment.”
APGA says the current approach taken by the AER in forecasting inflation is flawed in design as it systematically over- or under- compensates.
“In the current environment, these flaws are leading to it significantly under-compensating regulated gas pipelines and electricity networks,” the APGA submission says.
“If this under-compensation persists, then it will significantly undermine how regulated gas pipelines can support Australia’s transition to a decarbonised energy supply and deliver the outcomes that our customers want.”
The AER proposes a new approach to forecasting inflation that involves using:
- a shorter horizon – five instead of 10 years; and
- a glide path – where none existed previously.
APGA said that although there is room for further improvement, the proposed changes reflect a reasonable compromise that addresses key failings with the current approach