The Value of Imputation Credits
11 September 2008
By Greg Houston and Brendan Quach with Simon Wheatley
This report has been prepared at the request of the Energy Networks Association (ENA), Grid Australia, and the Australian Pipeline Industry Association (APIA), in response to the first review by the Australian Energy Regulator (AER) of the weighted average cost of capital (WACC) parameters for electricity distribution and transmission network service providers (NSPs). Specifically, NERA was asked to review the value of and methodology used to estimate the value of imputation credits (gamma).
In the AER's post tax revenue model (PTRM), the value of gamma is used to determine the proportion of assumed company income tax that does not need to be included in a regulated firm's annual revenue requirement. Gamma represents the value that equity investors place on the franking credits created through the payment of company income tax.
