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

 

Fonterra: Canpac Site 'Resize' To Focus More On Paediatrics

Fonterra is looking at realigning its packing operations at Canpac, in the Waikato, to focus more on paediatric nutritionals... The proposed changes could mean around 110 roles may not be required at the site which currently employs 330. More>>

ALSO:

Scoop Business: Postie Plus Brand Gets 2nd Chance With Well-Funded Pepkor

The Postie Plus brand is getting a new lease of life after South Africa’s Pepkor bought the failed retailer’s assets out of administration and said it will use its purchasing power to reduce costs of stock and fatten margins. More>>

ALSO:

Warming: Warming Signs From State Of Climate Report

Climate data from air, land, sea and ice in 2013 'reflect trends of a warming planet' -- says the latest State of the Climate report, launched by U.S. and New Zealand scientists. More>>

ALSO:

Scoop Business: Embrace Falling Home Affordability, Says NZIER

Despair over the inability to afford a house is misplaced and should be embraced as an opportunity to invest in more wealth-creating activity, says the principal economist at the New Zealand Institute of Economic Research, Shamubeel Eaqub. More>>

Productivity Commission: NZ Regulation Not Keeping Pace

New Zealand regulators often have to work with out-of-date legislation, quality checks are under strain, and regulatory workers need better training and development. More>>

ALSO:

Callaghan Innovation: Investment To Help Deepen Innovation Reporting

Callaghan Innovation, the government’s high tech HQ for Kiwi business, is to help deepen New Zealand media coverage of the commercialisation of innovation through an arms-length partnership with independent business news service BusinessDesk. More>>

ALSO:

Tax Credits, Grants: Greens $1Bn R&D Plan

In the Party’s headline economic announcement, the Greens have launched their plan to build a smarter, more innovative economy which has as its centrepiece an additional $1 billion of government investment in research and development (R&D) above current spend, including tax breaks for business. More>>

ALSO:

Inflation: CPI Increases 0.3 Percent In June Quarter

The consumers price index (CPI) rose 0.3 percent in the June 2014 quarter, Statistics New Zealand said today. This follows rises of 0.3 percent the March quarter and 0.1 percent in the December 2013 quarter. More>>

ALSO:

Get More From Scoop

 
 
Computer Power Plus

Standards New Zealand

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