Geoff Bertram states in today’s DomPost (repeated on interest.co.nz) that he advised the Select Committee on the Mighty River Power sale legislation that the excessive profits gained by the power companies were potentially subject to regulatory interest by any government that placed consumer interest ahead of the companies’ interests. The Government and the companies cannot say they were not warned.
So how big is the regulatory risk facing the electricity generators? Suppose a New Zealand government regulates the big generator-retailers.
The first decision would be how much of the companies’ declared book values would be allowed to stand. A US regulator would aim for a write-down to historic cost; a British one would settle for indexed historic cost (that is, they would allow regulated asset values to have risen with the consumer price index since the assets were “vested” in the new companies).
Bertram proposed a regulatory regime based around historic cost and progressive pricing. Further detail about the way asset revaluations have been calculated and used by the companies to gain income and increase prices are in this paper delivered by Geoff Bertram to a Fabian Society seminar in Wellington a few weeks ago.
Also in today’s DomPost, Lewis Evans, an Professor of Economics at Victoria University, attacks the Labour/Greens plan on the basis that government revenue will fall so household taxes may need to be increased by $280. The billions of tax cuts dished out by National to very wealthy households should be able to take care of that.
Lewis Evans features regularly in the so-called Institute for Competition and Regulation. The substance of his article is also on their website here. The ISCR is an incorporated Society attached to Victoria University and funded by Telecom, Meridian Energy, Powerco, Contact Energy, Fonterra and Westpac. Unsurprisingly, the Institute is not known for its enthusiasm for either competition or regulation.