Note This attachment forms part of the AER's preliminary decision on Powercor's revenue proposal 2016–20. It should be read with all other parts of the preliminary decision. The preliminary decision includes the following documents: Overview Attachment 1 – Annual revenue requirement Attachment 2 – Regulatory asset base Attachment 3 – Rate of return Attachment 4 – Value of imputation credits Attachment 5 – Regulatory depreciation Attachment 6 – Capital expenditure Attachment 7 – Operating expenditure Attachment 8 – Corporate income tax Attachment 9 – Efficiency benefit sharing scheme Attachment 10 – Capital expenditure sharing scheme Attachment 11 – Service target performance incentive scheme Attachment 12 – Demand management incentive scheme Attachment 13 – Classification of services Attachment 14 – Control mechanism Attachment 15 – Pass through events Attachment 16 – Alternative control services Attachment 17 – Negotiated services framework and criteria Attachment 18 – f-factor scheme
approach and tax statistics. Lally prefers a conceptual approach, but his second preference is the equity ownership approach. As a result of the differing approaches, particularly to the utilisation rate, the range of estimates of the value of imputation credits is 0.25 to 0.84. Conceptually, the value of imputation credits must be between 0 and 1. Accordingly the range of recommended estimates from 0.25 to 0.84, which spans most of the possible range for the value of imputation credits, highlights the lack of consensus among experts. Our preliminary decision value of imputation credits of 0.4 sits in the lower half of the range recommended by experts, which is more favourable to service providers. The value of imputation credits used by other regulators Australian regulators have applied a wide range of approaches to estimate the value of imputation credits, resulting in varied outcomes. Table 44 summarises some recent regulatory decisions on the value of imputation credits. While these decisions have not directly informed our position on the value of imputation credits, they indicate that there is no conceptual or practical consensus amongst Australian regulators. 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, cumulative payout ratio approach 0.7, most weight to simple domestic ownership share 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
such cases, that particular technique (or data limitations) did not permit the disaggregation of the value of the dividend component and the imputation credit. In this situation, the study typically reports the combined value of the cash dividend and imputation credit together. The minimum value for the imputation credit component of this package will arise if the cash dividend is fully valued, and these estimates are presented in the 'notes' column. Table Estimates of the utilisation rate from dividend drop off studies Authors Pre-2000 results Post-2000 results Dividend drop off study Vo et al (2013) 0.35–0.55 (2001–2012) Range derived from large number of permutations and sensitivity tests. SFG 0.35 (2001–2012) Author's point estimate across a number of different regression forms. SFG (2011) 0.35 (2001–2010) Minney (2010) 0.39 (2001–2009) Average of results from 2001–2005 and 2006–2009 sub-periods. For the most recent sub-period (2006–2009), utilisation rate is 0.53. Beggs and Skeels (2006) 0.20 (1992–1997) 0.57 (2001–2004) Several other pre-2000 periods are presented. 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. Table Estimates of the utilisation rate from alternative market value studies Authors Pre-2000 results Post-2000 results Notes Dividend drop off study 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 (individual or index) SFG (2013b) 0.12 (2000–2013) Uses individual