On 4 November 2016, the Council agreed to a number of actions to support the next phase of heavy vehicle road reform. In November 2017, the Council asked NTC to continue its work developing the FLCB as part of the Land Transport Market Reform program. The NTC presented a progress report to the Council in November 2018, recommending a number of further actions to improve the model.
This project builds on the existing prototype FLCB model and feasibility work developed between 2015 and 2018.
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.
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.
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.
One of the most important potential advantages of this approach is that asset owners receive greater certainty about future revenue whereas users get greater certainty around future charges.