4/28/2023 0 Comments Building blocks![]() The approach was subsequently adopted in other sectors regulated by the ACCC and by other state regulators around Australia. The Australian Competition and Consumer Commission adopted a building block approach in its 1999 draft guideline on how it would set electricity transmission revenue caps under the 1998 National Electricity Code. Further, it did not determine the specific operating costs for a particular distributor, but create a benchmark forecast of what the efficient firm might spend, which created an incentive to earn more than what might be described as a reasonable rate of return for a particular distributor. The building block approach adopted by the Office in its price fixing review is forward looking, in that it looked at expected reasonable expenditure. The court accepted that this 'building block approach' was not rate-of-return regulation: : at (f) modelling the X factors to produce a price path for the basket of Network Tariffs whereby an efficient distributor, based on the demand projection, can be expected to earn the benchmark revenue (e) establishing demand projections for each distributor for the period 1 January 2001 to 31 December 2005 (d) establishing a benchmark revenue comprising the amounts derived in accordance with the steps (a) to (c) above, which is known as the building blocks approach (c) determining an additional allowance called the efficiency carry over amount for operating and capital costs savings achieved by the distributors in the first period (b) establishing an amount for depreciation (a) Establishing forward looking cost or expenditure benchmarks for each of the distributors for operating expenditure, capital expenditure, and cost of capital In a subsequent application for judicial review in the Supreme Court of Victoria, the regulator described the 'building block approach' that it had used to drive the X factor as follows: : at ![]() ![]() The Tariff Order required the ORG to "utilise price based regulation adopting a CPI-X approach and not rate of return regulation". The ORG issued a consultation paper on the framework for setting price controls under the 1995 Victorian Electricity Supply Tariff Order, to apply to electricity distribution networks in Victoria from the beginning of 2001. 6 The building block approach versus index-based approachesĪlthough the principles behind the building block approach are very similar to the principles in many other regulatory regimes around the world (especially the UK), the first use of the term in Australia was in 1998 by the Office of the Regulator General (ORG) in Victoria (the predecessor of the Essential Services Commission of Victoria).4.1 The building block model and uncertainty.3 The building block model and incentives.2.2 The asset base roll forward equation.
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