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

Contents
Contents
Invitation for submissions iii
1 Introduction 1
1.1 What is financeability? 1
1.2 What is IPART’s financeability test? 2
1.3 What is the purpose of this review? 2
1.4 How and when can stakeholders provide input to this review? 3
1.5 Issues on which IPART seeks comment 3
1.6 What does the rest of this paper cover? 4
2 Why do IPART and other regulators test for financial viability? 5
2.1 The relevance of financeability to IPART’s legislative obligations 6
2.2 Why we need to assess financeability when building block method is used 7
2.3 Why we need to assess financeability when the regulated business is
government-owned 8
3 How do IPART and other regulators assess financeability? 11
3.1 IPART’s current financeability test 11
3.2 How IPART has addressed short-term financial viability concerns in past
determinations 15
3.3 How regulated businesses and their shareholders can address financeability
issues 16
4 How IPART should address finaceability in the future? 18
4.1 Should we consider other factors in addition to financial ratios when
projecting the likely credit rating? 18
4.2 What is the appropriate benchmark or target credit rating? 20
4.3 Should we use notional or actual gearing ratio for the financeability test? 21
5 How should IPART respond when a business fails the financeability test? 25
5.1 Should IPART allow for equity raisings or mandate equity injections to ensure
short-term financial viability? 25
5.2 In what circumstances should IPART make adjustments to address
financeability issues? 27
5.3 What options for making such adjustments are available? 27
5.4 Should any regulatory adjustments to address financeability issues be NPVneutral?
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