Asset values, power prices and regulation

Written By: - Date published: 9:03 pm, April 29th, 2013 - 11 comments
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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.

Bertram says:

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.

11 comments on “Asset values, power prices and regulation ”

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  1. Logie97 1
    29 April 2013 at 9:41 pm

    Dennis Skinner in House of Parliament -10 minutes in talks about Thatcher’s deregulation and the “Shareholding democracy”. deja-vu …

  2. geoff 2
    29 April 2013 at 10:23 pm

    Fantastic article, this Geoff Bertram is the business. If only his article could get the same coverage as all the robber baron ones that are trying desperately to make some shit cling to the NZ POwer policy.

    [lprent: helps if you leave a link. Oh I see that you did link on another comment. ]

    • geoff 2.1
      30 April 2013 at 1:30 pm

      Lprent: the link I was referring to was the one Mike Smith has in his article (which also happens to be the one I linked to that other comment.

      • lprent 2.1.1
        30 April 2013 at 2:26 pm

        Yeah sorry about that. I actually moderate backwards in time across the comments. I get occasional screwups from it. But usually it is the most effective way to look at what people are actually saying (which is what I moderate on) rather than looking at why they said it.

  3. Shaz 3
    30 April 2013 at 12:16 am

    Funny that the prospectus does not mention this risk of inflated values and excessive profits even though these were made clear by Geoff in the Select Committee process.

    Funny also how the prospectus talks about technology changes as a risk but does not make clear the risk of domestic scale photovoltaics to an industry based on massive scale generation remote from the site of delivery. The domestic scale photovoltaics industry is booming internationally and even the government’s own website promotes them as , a cost effective answer to domestic electricity supply.
    http://www.smarterhomes.org.nz/energy/generating-your-own-electricity/photovoltaic-cells/

    Funny how all the assumptions in the prospectus assume a steady state situation for financial forecasting relative to all of the risks.

    and funny how MRP’s internal reports and the reports of finance companies on MRP are not available to the general public and even funnier that the people who were not allowed to release those reports are now able to comment freely on the new Labour/Green policy.

    Hmm!

    • DH 3.1
      30 April 2013 at 6:25 pm

      “Funny also how the prospectus talks about technology changes as a risk but does not make clear the risk of domestic scale photovoltaics to an industry based on massive scale generation remote from the site of delivery.

      To be honest I doubt they see it as a threat, I’ve seen their research and their costings are about 5yrs out of date. They also use the highest price suppliers as a reference.

      NZ is totally backwards when it comes to PV, I’ve been trying to educate the crew here at the TS and it’s a hard sell. The Greens are obsessed with wind and no-one can tell them it’s too expensive.

      The Aussies have installed PV grid-tie systems on over 750,000 homes now and Kiwis still think it’s exotic and unproven. That many installed here would make up 20% of domestic power consumption.

      “The domestic scale photovoltaics industry is booming internationally and even the government’s own website promotes them as , a cost effective answer to domestic electricity supply.”

      http://www.smarterhomes.org.nz/energy/generating-your-own-electricity/photovoltaic-cells/

      They’re miles out of date too, look at their costings;

      “PV systems can be expensive. According to EECA, a 2kW grid-connected system will cost between $13,500 and $26,500 to install. ”

      An importer can land all the hardware for that exact system for under $3,000 now. Installation costs bugger-all, it’s an easy job.

      They’re also way out on generation figures;

      “According to the Energy Efficiency and Conservation Authority (EECA), a 1kW system could be expected to produce between 2.5 and 5 kWh per day – or between 880kWh and 1750kWh per year. ”

      You won’t get 1750kWh in NZ, typical is around 1000-1300. There’s a mass of hard data available on solar generation, I don’t know why there’s so much confusion or arguments over it. You can download historical generation data from over 45 schools here, nearly all have identical 2kW PV grid-tie systems installed.

      http://www.schoolgen.co.nz/

      I expect NZ will sit around with finger up ass and one day the price of PV panels will go back up again. It’s what this country seems to do best.

      • Colonial Viper 3.1.1
        30 April 2013 at 6:35 pm

        Man, this PV stuff is so good you should be out there making a killing with your PV business.

        • DH 3.1.1.1
          30 April 2013 at 7:00 pm

          Nope. I’ve pretty much lost interest because there’s too many negative dicks like you in this country. All you do is whine and knock other people’s ideas.

        • Shaz 3.1.1.2
          1 May 2013 at 11:03 am

          Thanks DH. and Colonail Viper – you are being idiotic. In addition to DH’s information. Germany has a billion dollar industry employing thousands in PV kick started by government support. The issue is that the electricity industry here (for many reasons) is operating on old models that are not preparing NZ for the Smart Grid failing completely to take advantage of natural strengths.

      • geoff 3.1.2
        1 May 2013 at 1:28 pm

        DH: I thought the problem with PV is that the power companies give you shitty deals with the grid-tie power you produce?

        • Shaz 3.1.2.1
          1 May 2013 at 1:42 pm

          Yes at the moment. Another good reason for having a single purchaser allowing small producers a look in 😉

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