Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Commission releases expert reports about the WACC percentile

Commission releases expert reports about the WACC percentile


Issued 23 June 2014

Release No. 118

The Commerce Commission has released a number of expert reports as part of its ongoing review of the appropriate percentile estimate of the weighted average cost of capital (WACC). The WACC is used in the price-quality path and information disclosure regimes that apply to businesses regulated under Part 4 of the Commerce Act 1986.

In a judgment at the end of last year, the High Court questioned the Commission’s use of the 75th percentile estimate of the WACC to set price-quality paths. The Court considered the 75th percentile was insufficiently supported by evidence, and might be at odds with the Part 4 objective to limit the ability of regulated suppliers to earn excessive profits.

Following consultation with stakeholders about the implications of the judgment, the Commission sought further evidence to inform its decision whether the appropriate level is above, below, or at the 75th percentile.

“The reports released today add to the analytical and empirical evidence already provided in submissions from interested parties about the appropriate WACC percentile,” said Commerce Commission Deputy Chair Sue Begg. “Most of the quantitative analysis undertaken focuses on the electricity sector, because we are resetting prices for electricity lines services for the next five years in November.”

“Despite that focus, the evidence is relevant to all the sectors regulated under Part 4, including airports and gas pipeline businesses. We are releasing these reports in advance of our draft decision so that all interested parties have more time to engage their own experts to comment on that evidence.”

The reports were prepared by a number of expert advisers and firms engaged by the Commission: Professor Ingo Vogelsang of Boston University, Professor Julian Franks of the London Business School, Associate Professor Martin Lally of Victoria University of Wellington, European economic consulting firm Oxera, and the Australian consultancy Economic Insights.

The Commission also released a working paper about regulatory incentives and the cost of capital, and plans to release a peer review of Oxera’s report by Professor Vogelsang when it is available.

Submitters will be able to provide their views on these reports as part of their submissions on the Commission’s draft decision. A process update paper accompanying the reports sets out the intended timing and scope of the draft decision.

“At this stage, the main change to our process is to delay our draft decision on the appropriate WACC percentile for airports, given the combination of its different industry characteristics and its regulatory regime” said Ms Begg. “We will advise the revised timeline for our airports draft decision at a later date.”

You can find the expert reports on the Commission’s website: Further work on WACC.


ends

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Housing Policy: Auckland Densification As Popular As Ebola, English Says

Finance Minister Bill English said calls by the Reserve Bank Governor for more densification in Auckland’s housing were “about as popular in parts of Auckland as Ebola” would be. More>>

ALSO:

Crown Accounts: NZ Government Deficit Smaller Than Expected In First Half

The New Zealand government's operating deficit was smaller than expected in the first six months of the financial year, as the consumption and corporate tax take rose ahead of forecast in December, having lagged estimates in previous months. More>>

ALSO:

Fruit & Veg Crackdown: Auckland Fruit Fly Find Under Investigation

The Ministry for Primary Industries (MPI) is investigating a find of a single male Queensland fruit fly in a surveillance trap in the Auckland suburb of Grey Lynn... MPI has placed legal controls on the movement of fruit and some vegetables outside of a defined circular area which extends 1.5km from where the fly was trapped in Grey Lynn. More>>

ALSO:

Scoop Business: Westpac NZ Reaches $2.97M Swaps Settlement

Westpac Banking Corp’s New Zealand unit has agreed to pay $2.97 million in a settlement with the Commerce Commission over the way the bank sold interest rate swaps to farmers between 2005 and 2012. More>>

ALSO:

Going Dutch: Fonterra Kicks Off $144M Partnership With Dutch Cheese Maker

Fonterra Co-operative Group, the world’s largest dairy exporter, has commissioned a new dairy ingredients plant in Heerenveen, in the north of the Netherlands, its first wholly-owned and operated ingredients plant in Europe. More>>

ALSO:

Scoop Business: NZ Retail Sales Beat Estimates

New Zealand retail sales rose more than expected in the fourth quarter, led by vehicle-related transactions, food and beverages, adding to evidence that cheap credit and a growing jobs market are encouraging consumers to spend. More>>

ALSO:

Delivery Cuts Go Ahead: 'Government Money Grab' From NZ Post

"It's a money grab by the Government as the shareholder of New Zealand Post" says Postal Workers Union advocate Graeme Clarke about the changes announced by NZ Post. More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news