Special Reviews
Financeability Tests

Review of financeability test 2018

Status
Review completed
Start Date
Apr 2018
End Date
Nov 2018
What

We have released our Final Report on the review of the financeability test, which we generally use as part of our building block approach in price regulation decisions.

While stakeholder feedback confirmed that our 2013 financeability test has worked well, we have made changes to:

  • broaden the test by calculating financeability tests for both the benchmark and actual business
  • adjust the target ratios (benchmark values) we use to assess financeability
  • clarify the process to identify any financeability concerns, and
  • tailor the remedy for a financeability concern based on its source.

In response to stakeholder feedback, we have made changes to a few of our draft decisions. These include:

  • using the actual cost of debt of the business to calculate the metrics for the actual test, and
  • revising the target ratios for the benchmark test.

Our reasoning for making our final decisions and other minor amendments are discussed in our Final Report.

Later in the month, we will upload an updated Spreadsheet Model, which implements our final decisions.

Why

We use the financeability test to assess the impact of our pricing decisions on the financeability of regulated businesses. We last reviewed our financeability test in 2013, and made small changes in early 2015.

Overall, we consider our 2013 test worked well. However, we have made improvements that better address the objectives of the test.

Who

In general, we apply our financeability test when we use our building block approach to determine revenue and prices for regulated businesses. This includes the regulated water utilities and some businesses in other industries.

How

We consider that our 2018 test can be replicated by stakeholders, which contributes to the transparency of our regime for regulated businesses and other stakeholders. We also consider that our 2018 test supports efficient and prudent financing decisions by regulated businesses.

When

Our 2018 financeability test will apply to pricing decisions that take effect on or after 1 July 2019.

Key Contact
Anthony Rush
Email
02 9113 7790
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