Key elements of the building blocks There is no one tool that by itself can determine an overall revenue allowance. Therefore in setting our alternative overall revenue allowance for TransGrid of $2310.5 million ($nominal) for the 2015–18 regulatory control period we: apply relevant tests under the NER, the assessment methods and tools developed as part of our Better Regulation guidelines and consider information provided by TransGrid, the CCP, consultants and stakeholder submissions consider our revenue allowance against section 16 of the NEL, including the constituent decisions and the interrelationships we discussed in section 5. The building block approach We have employed the building approach to determine TransGrid's annual revenue requirement—that is, we based the annual revenue requirements on our estimate of the efficient costs that TransGrid is likely to incur in providing transmission network services. The building block costs, illustrated in Figure 81, include: indexation of the RAB a return on the RAB (return on capital) depreciation of the RAB (return of capital) forecast opex increments or decrements resulting from incentive schemes such as the efficiency benefit sharing scheme (EBSS) the estimated cost of corporate income tax. Our assessment of capex directly affects the size of the RAB and therefore the revenue generated from the return on capital and return of capital building blocks. Figure 81 The building block approach for determining total revenue The following section summarises our decision by building block and provides our high level reasons and analysis. Regulatory asset base The RAB is the value of TransGrid's assets that are used to provide transmission network services. These include transmission poles and wires, substations, IT systems, land and easement, motor vehicles and buildings. The RAB is the value on which TransGrid earns a return on capital. Further, TransGrid earns a depreciation allowance (or a return of capital) on assets in its RAB. The RAB is therefore an important input to the return on capital and depreciation building blocks, and thus to the revenue requirement. As part of this draft decision, we are required to assess TransGrid's proposed opening value for the RAB for each year of the 2014–18 regulatory control period. Our assessment involved:
Key elements of the building blocks There is no one tool that by itself can determine an overall revenue allowance. Therefore in setting our alternative overall revenue allowance for TransGrid of $2310.5 million ($nominal) for the 2015–18 regulatory control period we: apply relevant tests under the NER, the assessment methods and tools developed as part of our Better Regulation guidelines and consider information provided by TransGrid, the CCP, consultants and stakeholder submissions consider our revenue allowance against section 16 of the NEL, including the constituent decisions and the interrelationships we discussed in section 5. The building block approach We have employed the building approach to determine TransGrid's annual revenue requirement—that is, we based the annual revenue requirements on our estimate of the efficient costs that TransGrid is likely to incur in providing transmission network services. The building block costs, illustrated in Figure 81, include: indexation of the RAB a return on the RAB (return on capital) depreciation of the RAB (return of capital) forecast opex increments or decrements resulting from incentive schemes such as the efficiency benefit sharing scheme (EBSS) the estimated cost of corporate income tax. Our assessment of capex directly affects the size of the RAB and therefore the revenue generated from the return on capital and return of capital building blocks. Figure 81 The building block approach for determining total revenue The following section summarises our decision by building block and provides our high level reasons and analysis. Regulatory asset base The RAB is the value of TransGrid's assets that are used to provide transmission network services. These include transmission poles and wires, substations, IT systems, land and easement, motor vehicles and buildings. The RAB is the value on which TransGrid earns a return on capital. Further, TransGrid earns a depreciation allowance (or a return of capital) on assets in its RAB. The RAB is therefore an important input to the return on capital and depreciation building blocks, and thus to the revenue requirement. As part of this draft decision, we are required to assess TransGrid's proposed opening value for the RAB for each year of the 2014–18 regulatory control period. Our assessment involved: