Heathrow is subject to RAB based regulation, the RAB is intended to represent the economic value of the business.
The RAB is calculated each year by taking the opening RAB, adding capital expenditure, and deducting regulatory forecast depreciation and any proceeds from asset disposals. It is then uplifted by inflation to give the closing RAB.
|£million 2011/12 prices||
|Regulatory Asset Base||9 mo. 2014
Before capital expenditure is added to the RAB, it must meet two sets of criteria based on the capital expenditure’s value for money as well as going through a process of effective consultation with the airlines.
In Q6, a more flexible approach to capital planning has been adopted, recognising that additional flexibility is required in order to respond to the dynamic nature of the airport industry. A two tier approach has been applied, where capital investment is classified as either, core or development, to reflect the maturity of projects. A development capital expenditure cashflow incentive is applied to ensure that Heathrow only recovers a return on development capital expenditure that is actually used.