Instructions from the Court
In September 2011, the High Court held that input methodologies for cost allocation, asset valuation and the treatment of taxation must also be specified as applicable to default price-quality paths. The High Court also directed us to determine a stand-alone input methodology for starting price adjustments, but the Court of Appeal has since concluded that this input methodology is not required.
To complete this task, Decisions 710, 711, and 712 were re-determined on 28 September 2012 to specify input methodologies for cost allocation, asset valuation and the treatment of taxation as applicable to default price quality paths. These decisions apply to the regulation of electricity distribution, gas distribution, and gas transmission services respectively.
How the building block input methodologies have been specified as applicable to default price-quality paths
The input methodologies for cost allocation, asset valuation and the treatment of taxation are applied when assessing the main ‘building block’ cost components facing each supplier. In the case of default price-quality paths, the input methodologies for these matters will be applied when we set starting prices based on the current and projected profitability of each supplier.
To complete the task set for us by the Court, the December 2010 input methodologies have been re-specified in a way that recognises the low cost intent of default price-quality paths. The purpose of default/customised price-quality regulation is to provide a relatively low cost way of setting price-quality paths for suppliers, while allowing the opportunity for individual suppliers to have alternative price-quality paths that better meet their particular circumstances.
Consistent with the relatively low cost intent of default price-quality paths, and with views of submitters, we have:
- taken the existing input methodologies for cost allocation, asset valuation, and the treatment of taxation as a starting point; and
- simplified the components where necessary.