Financeability tests and their role in price regulation - IPART - NSW ...

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42 IPART Financeability tests and their role in price regulation Organisation Report/Review Date Credit rating applied 27 Regulation Rail’s outputs and funding for 2009-14 Civil Aviation Authority UK OXERA EnergieKamer (Netherlands) Economic Regulation of Heathrow and Gatwick Airports 2008-2013 Heathrow and Gatwick Airports – CAA price Control Proposals Updating the WACC for energy networks – methodology paper 2008 FFO/interest Debt/RAB (Gearing) FFO/Debt RCF/Debt March 2008 November 2007 September 2009 Financial indicators applied Outcome Action considered/taken/proposed BBB+/Baa1 Adjusted interest cover ratio Net debt to RAB FFO/interest coverage FFO/adjusted net debt the results are consistent with a solid investment grade credit rating in current and prospective conditions (2009-2014) Sensitivity and Monte Carlo tests showed that a solid investment grade credit rating can be maintained in the face of a range of fluctuations in cash flow. Price caps for Heathrow are likely to be consistent with maintenance of solid investment grade from at least 2 credit agencies Gatwick airport would be likely to maintain solid investment grade. However one ratio – adjusted interest cover ratio exhibits declining profile – more consistent with Baa2. BBB+/Baa1 No discussion of financial ratios The paper examines the appropriate gearing level to maintain an investment grade credit rating The paper concludes that a strong BBB+/Baa1 rating is the minimum after considering market data, credit companies and regulatory decisions The paper concludes that the appropriate gearing level to maintain this rating is approximately 50-60%. This figure is reached by examining the average gearing of European network companies and regulatory precedents In the 2007 report, the CAA considered advancing revenue using a net present value neutral basis to remedy the adjusted interest cover ratio However, CAA was reluctant to do so because (1) it would not reflect costs and (2) it would seem counter-intuitive to defer revenues in order to improve financeability, In the final decision in March 2008, the CAA concluded that there was no basis to adjust price controls. N/A B Financeability tests in other jurisdictions
Financeability tests and their role in price regulation IPART 43 Organisation Report/Review Date Credit rating applied 27 Fathom Consulting Queensland Competition Authority Essential Service Commission (Vic) Final Report for the Consumer Council of Water Benchmark Retail Cost Index for Electricity: 2010- 11 Metropolitan Melbourne – Water Price Review 2009 Final Decision Financial indicators applied Outcome Action considered/taken/proposed from European regulators 2009 N/A No discussion of financial ratios The report provides some discussion of the financeability problem. It concludes that financeability concerns are not as significant as water industry companies stated. Most water companies remain above the lower bound of the investment grade spectrum. Secondly, some water companies had previously pursued aggressive payout policies. These aggressive payout policies have been paid out of increased leverage. Vast majority of payout ratios are above the average payout ratio for the UK equity market. December 2009 N/A No discussion of financial ratios No discussion of financeability issue June 2009 BBB+ No discussion of financial ratios No discussion of financeability,. However it does state that a BBB+ credit rating is used to determine the debt margin in calculating WACC Australian Electricity transmission and May 2009 BBB+ No discussion of financial ratios No discussion of financeability N/A Financeability could be addressed at least partially with cuts in dividend payouts. And a less aggressive dividend policy, these 2measure would tend to improve the company’s credit rating N/A N/A B Financeability tests in other jurisdictions
Page 1: Independent Pricing and Regulatory
Page 4 and 5: © Independent Pricing and Regulato
Page 7 and 8: Contents Contents Invitation for su
Page 9 and 10: 1 Introduction 1 Introduction In ma
Page 11 and 12: 1 Introduction We expect that the o
Page 13 and 14: 2 Why do IPART and other regulators
Page 19 and 20: 3 How do IPART and other regulators
Page 21 and 22: 3.1.2 Computing the financial ratio
Page 23 and 24: 3 How do IPART and other regulators
Page 25 and 26: Box 3.1 Differences in financeabili
Page 27 and 28: 4 How IPART should address finaceab
Page 33 and 34: 5 How should IPART respond when a b
Page 37 and 38: IPART seeks comment 5 How should IP
Page 41 and 42: Box 5.4 Case study: Ofgem 5 How sho
Page 43: � identify the reasons for the de
Page 46 and 47: 6 Summary of IPART’s preliminary
Page 48 and 49: B Financeability tests in other jur
Page 52 and 53: 44 IPART Financeability tests and t
Page 54 and 55: C CEPA note on UK legislative requi
Page 56 and 57: C CEPA note on UK legislative requi
Page 58: D Quantifying the impact of credit

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