Forward-looking cost base model

shape

We are developing a working prototype of a Forward-looking Cost Base (FLCB) model to set heavy vehicle charges. This will enable road assets to be funded over their economic life. One of the most important potential advantages of this approach is that asset owners receive greater certainty about future revenue and users get greater certainty around future charges.

Our prototype model will be used to advise governments under the Heavy Vehicle Road Reform project led by the Commonwealth Department of Infrastructure, Regional Development and Cities.

Next steps

We will finalise our report in late 2019. The Transport and Infrastructure Council will consider it as part of their deliberations on the Heavy Vehicle Road Reform project.

About cost base models for heavy vehicle charges

Heavy vehicle charges are set to recover the costs to the road network that are attributable to heavy vehicles. These costs include road construction, maintenance and operations that reflect the characteristics of different heavy vehicle classes and the wear they cause on the roads.

Under the existing pay-as-you-go (PAYGO) system, these costs have been calculated using a backward-looking approach, that is, heavy vehicle charges recover the reported historical expenditure of building and maintaining the road network.

The life-cycle approach or building block model

Other network infrastructure (e.g. electricity, water, telecommunications) typically uses a ‘life-cycle’ approach based on ‘forward-looking costs’ to measure the costs of their investments and operations. This is also known as the ‘building block’ model. Under this model, costs are recovered over the time in which assets are used and consumed. For example, a newly commissioned 30-year asset would be paid for over the 30 years it is in service.

The forward-looking cost base model

A forward-looking cost base uses the current asset values and future operating costs to establish a forward-looking revenue requirement (or cost base). All assets are ‘paid for’ over their economic lives, while operating expenditure is recovered in the same period that it is provided.

Funding assets over their economic life, rather than immediately in the year that they are constructed, also helps to smooth the revenue requirement, or cost base, over time, especially when asset expenditure is lumpy or cyclical.

Contact us

Project manager Joel Mann
Contact email jmann@ntc.gov.au