Table Australian regulators' approaches to the value of imputation credits Regulator Form of adoption Year Distribution rate Utilisation rate Value of imputation credits IPART Review of imputation credits, final decision 2012 0.7, using cumulative payout ratio approach 0.35, using 2011 version of SFG dividend drop off study 0.25 ESC review, greater metropolitan water businesses, final decision 2013 N/A N/A 0.5, on 2011 guidance QCA Cost of capital market parameters, final decision 2014 0.84, using the financial statements of 20 largest companies 0.56, based primarily on the domestic ownership share of listed equity 0.47 ERA Review of rate of return estimation for rail networks, revised draft determination 2014 0.7, using cumulative payout ratio approach 0.7, most weight to simple domestic ownership of all equity, some weight to conceptual goalposts approach, low weight to tax statistics and dividend drop off studies 0.5 ACCC Fixed line services (telecommunications), draft decision on access determination 2015 N/A N/A 0.45, set for consistency with previous ACCC decisions, but with regard to a range of recent evidence, including firm specific factors Source: As specified in table. Conceptually, the value of imputation credits must be between 0 and 1. The range of values adopted by Australian regulators is from 0.25 to 0.5. This range is narrower than the range of estimates recommended by experts (from 0.25 to 0.84), but it is still quite wide. This highlights the lack of consensus among regulators on the value of imputation credits. Given the lack of consensus among experts, this is perhaps not surprising. Our preliminary decision value of imputation credits of 0.4 sits within the range adopted by regulators. Previous Australian Competition Tribunal considerations The Australian Competition Tribunal has considered in detail the of imputation credits (gamma) in three proceedings since 2010, relating to applications by: Energex Limited DBNGP (WA) Transmission Pty Ltd, and WA Gas Networks Pty Ltd.
Hathaway and Officer (2004) 0.49 (1986–2004) Authors suggest that estimate has increased post-2000. Bellamy and Gray (2004) 0.36 (1995–2002) Range of 0.0–0.60 is also presented. Bruckner et al (1994) 0.69 (1991–1993) Also present an earlier period Brown and Clarke (1993) 0.80 (1988–1991) Source: As specified in table. Estimates of the utilisation rate from alternative market value studies Authors Pre-2000 results Post-2000 results Notes Dividend drop off using hybrids Feuerherdt, Gray and Hall (2010) N/A (1995–2002) Combined drop off of 1.0. With dividends at full value, this is a utilisation rate of 0. Futures study (individual or index) SFG (2013b) 0.12 (2000–2013) Uses individual Cannavan et al (2004) 0–0.15 (1994–1999) Uses individual firms. Cummings and Frino (2008) 0.52 (2002–2005) Uses index. Rate of return study NERA -1.57 (1987–2000) -1.90 (2000–2012) Uses past returns. For the entire period, estimate is -1.50. Lajbcygier and Wheatley (2012) -1.57 (1987–2000) -1.68 (2000–2009) Uses past returns. For the entire period, estimate is -1.88 Siau et al (2013) -0.29–0.30 (1996–2011) Uses forecast returns. Note is from negative 0.29 to positive 0.30. Simultaneous share trades Chu and Partington (2008) N/A (1996) Combined drop off of 1.29. With dividends at full this is a utilisation rate of 0.68. Walker and Partington (1999) 0.88–0.96 (1995–1997) Chu and Partington (2001) N/A (1991–1999) Combined drop off of 1.5. With dividends at full value, this is a utilisation rate above 1. Source: As specified in table.