53 December 2014 Assessing Proposals for Regulatory Write-downs Crawford* The regulatory asset base supply both existing and plays a central role in future consumers over their monopoly infrastructure service life. In the case of regulation across Australia, electricity networks, these and most developed physical asset lives typically economies. It represents span between 30 and 50 unrecovered past capital years. The mechanism of the investments made by the regulatory asset base allows existing and past these costs to be borne infrastructure owners. through time by beneficiaries Provision of a rate of return of the services enabled by on the value of these past the assets, avoiding current investments usually consumers subsidising future represents the single largest consumers, or an unfair component of access deferral of current costs on to charges for many future consumers. infrastructure services, under Importantly, the regulatory the commonly applied base quite often also block’ approach to ‘building reflects large setting access prices. The investments regulatory asset base exists that have been made to meet to recognise that networks regulatory obligations. As a are required to fund common example, because capital intensive electricity is deemed to be an physical assets that will essential service, most
53 December 2014 Assessing Proposals for Regulatory Write-downs Crawford* The regulatory asset base plays a central role in monopoly infrastructure regulation across Australia, and most developed economies. It represents unrecovered past capital investments made by the existing and past infrastructure owners. Provision of a rate of return on the value of these past investments usually represents the single largest component of access charges for many infrastructure services, under the commonly applied ‘building block’ approach to setting access prices. The regulatory asset base exists to recognise that networks are required to fund capital intensive physical assets that will supply both existing and future consumers over their service life. In the case of electricity networks, these physical asset lives typically span between 30 and 50 years. The mechanism of the regulatory asset base allows these costs to be borne through time by beneficiaries of the services enabled by the assets, avoiding current consumers subsidising future consumers, or an unfair deferral of current costs on to future consumers. Importantly, the regulatory base quite often also reflects large investments that have been made to meet regulatory obligations. As a common example, because electricity is deemed to be an essential service, most
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