Access arrangement final decision Envestra Ltd 2013–17 Part 2: Attachments

Revisions

1. Envestra Victoria

856. 
     The AER proposes the following revisions to make the access arrangement acceptable:
     
857. 
     Revision X.1: insertion of clause 11.
     
858. 
     Revision X.2: insertion of Table 8 .66.
     
859. 
     Revision X.3: deletion of clauses 13 to 17 of Envestra Victoria's access arrangement.
     
860. 
     11. For the avoidance of doubt, the forecast expenditure amounts that are used as the basis for measuring efficiencies are equal to the forecast operating cost for that year as shown in Table 8 .66, with the following exception:
     
     1. 
        the carryover of cost-related efficiency gains will be calculated in a manner that takes account of any change in the scale of the activities which form the basis of the determination of the original benchmarks. The opex benchmarks will be adjusted consistent with the way in which the benchmark was determined. That is, any adjustment will be made according to the following formula:
        

Adjustment = (forecast number of connections – actual number of connections) × approved opex per connection

Table 8.66 Forecast operating expenditure for incentive mechanism purposes ($'million, 2012)

	2011	2012	2013	2014	2015	2016
Controllable opex	53.98	54.96	58.04	59.80	61.01	61.90

Note: Excludes network management fee.

1. Envestra Albury

861. 
     The AER proposes the following revisions to make the access arrangement acceptable:
     
862. 
     Revision X.1: insertion of clause 11.
     
863. 
     Revision X.2: insertion of Table 8 .67.
     
864. 
     Revision X.3: deletion of clauses 13 to 17 of Envestra Victoria's access arrangement.
     
865. 
     11. For the avoidance of doubt, the forecast expenditure amounts that are used as the basis for measuring efficiencies are equal to the forecast operating cost for that year as shown in Table 8 .66, with the following exception:
     
     1. 
        the carryover of cost-related efficiency gains will be calculated in a manner that takes account of any change in the scale of the activities which form the basis of the determination of the original benchmarks. The opex benchmarks will be adjusted consistent with the way in which the benchmark was determined. That is, any adjustment will be made according to the following formula:
        

Adjustment = (forecast number of connections – actual number of connections) × approved opex per connection

Table 8.67 Forecast operating expenditure for incentive mechanism purposes ($'million, 2012)

	2011	2012	2013	2014	2015	2016
Controllable opex	1.93	1.97	2.01	2.02	2.05	2.07

Note: Excludes network management fee.

9Corporate income tax

866. 
     When determining the total revenue for Envestra’s Victorian and Albury distribution businesses, the AER must estimate Envestra’s cost of corporate income tax.⁸⁰⁸ Envestra has adopted the post-tax framework to derive its revenue requirement for the 2013–17 access arrangement period.⁸⁰⁹ Under the post-tax framework, a separate corporate income tax allowance is calculated as part of the building blocks assessment.
     

1. Final decision

867. 
     The AER does not approve Envestra’s revised proposed forecast corporate income tax allowances for the 2013–17 access arrangement period of:
     

• 
  $33.1 million⁸¹⁰ ($nominal) for Envestra Victoria
  
• 
  $1.9 million ($nominal) for Envestra Albury.
  

868. 
     This is because the AER's adjustments to other building block components have had a consequential effect on the forecast corporate income tax allowance. These are discussed in other attachments and include:
     

• 
  forecast capex (attachment 4)
  
• 
  forecast opex (attachment 7).
  

869. 
     These adjustments result in an estimated cost of corporate income tax allowance of:
     

• 
  $26.4 million ($nominal) for Envestra Victoria as shown in Table 6 .50. This is a reduction of $6.7 million ($nominal) or 20.3 per cent of the revised proposed corporate income tax allowance for Envestra Victoria
  
• 
  $1.6 million ($nominal) for Envestra Albury as shown in Table 6 .51. This is a reduction of $0.3 million ($nominal) or 15.1 per cent of the revised proposed corporate income tax allowance for Envestra Albury.
  

870. 
     Based on the approach to modelling the cash flows in the post-tax revenue model (PTRM), the AER has derived effective tax rates of 22.5 per cent and 33.0 per cent for Envestra Victoria and Envestra Albury respectively.
     
871. 
     The AER approves Envestra's revised proposed opening tax asset bases as at 1 January 2013 of:
     

• 
  $382.7 million ($nominal) for Envestra Victoria
  
• 
  $7.8 million ($nominal) for Envestra Albury.
  

872. 
     Envestra's revised proposals adopted all of the AER's decision adjustments to its opening tax asset bases.⁸¹¹
     
873. 
     The AER accepts Envestra's revised proposed tax depreciation approaches to group 7 tax assets and standard tax asset lives for group 7 tax assets. The group 7 tax assets relate to forecast capex for the 2013–17 access arrangement period. In its draft decision, the AER accepted most of Envestra's proposed tax depreciation approaches and standard tax asset lives for group 7 tax assets (except for the 'Land & buildings' asset class).⁸¹² Due to land being a non-depreciating asset, the AER split the 'Land & buildings' asset class into separate asset classes. Moreover, the AER assigned a standard tax asset life of 40 years to the 'Buildings' asset class and did not assign a standard tax asset life to the 'Land' asset class. Envestra's revised proposals adopted all of the AER's draft decision adjustments.
     
874. 
     The AER accepts Envestra's revised proposed standard tax asset life of 15 years for the 'Meters domestic' asset class, which is depreciated using the straight-line method.⁸¹³ The AER considers the proposed standard tax asset life is consistent with Tax Ruling 2012/2.⁸¹⁴ Since the same standard tax asset life applies, the AER also accepts Envestra's revised proposal to combine the 'Meters domestic' and 'Meters industrial & commercial' asset classes into a single asset class of 'Meters' for the
     2013–17 access arrangement period. This allows the 'Meters' asset class for tax purposes to align with its equivalent 'Meters' asset class in the capital base for regulatory depreciation purposes.
     

Table 9.68 AER's final decision on corporate income tax allowance for Envestra Victoria ($million, nominal)

	2013	2014	2015	2016	2017	Total
Tax payable	3.2	7.6	6.7	8.2	9.4	35.2
Less: value of imputation credits	0.8	1.9	1.7	2.0	2.4	8.8
Net corporate income tax allowance	2.4	5.7	5.1	6.1	7.1	26.4

Source: AER analysis.

Table 9.69 AER's final decision on corporate income tax allowance for Envestra Albury ($million, nominal)

	2013	2014	2015	2016	2017	Total
Tax payable	0.3	0.4	0.5	0.5	0.5	2.2
Less: value of imputation credits	0.1	0.1	0.1	0.1	0.1	0.5
Net corporate income tax allowance	0.2	0.3	0.3	0.4	0.4	1.6

Source: AER analysis.

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