“There is a lot of judgment involved in assessing so-called excessive returns; 10 different economists could quite easily give 10 different stories of what are appropriate returns and 10 different methods of assessing those returns,” the McDouall Stuart executive director told EnergyReview.Net yesterday.
Last Thursday New Zealand’s Commerce Commission found that several gas pipeline operators - including Auckland’s Vector, New Plymouth-headquartered Powerco, NGC and Wanganui Gas - were earning “excess” returns on their cost of capital.
The commission recommended price control for Vector and Powerco and estimated this would achieve net annual benefits of NZ$6.9 million and NZ$3.7 million respectively, equating to average distribution charge reductions of 18.5% and 12.2%, respectively for customers of those firms.
Stone said over-regulation could harm the industry.
“There is certainly a very big risk that you end up suppressing investment or reinvestment,” he said.
“That’s apparent from other markets, particularly the US, where significant under-investment has led, in the extreme example, to power blackouts. Security of supply is important and the commission must be very clear that there are excess returns, which can be monitored very accurately.”
As economists’ definitions could vary by plus or minus 10%, Stone said the commission should not bother with “excess” returns under that figure. “Let’s be pragmatic, not chasing little bits at the margin.”
