Lines Charges Misrepresented
The Electricity Networks Association believes that Simon Terry Associates have misread history in their condemnation of the methodology electricity distributors must follow in valuing their businesses.
ENA Chairman Ken Forrest says three points should be borne in mind in assessing the Simon Terry argument:
1. ODV was imposed by government as part of a comprehensive regulatory regime designed to convert the former power boards and MEDs to commercial entities. Because the former power boards and MEDs in many instances had poor asset registers it was necessary to provide a common method of valuation.
2. The ODV methodology was also utilised by the government in respect of its own lines company, Transpower.
3. It is salient that many line companies in New Zealand are not achieving a return on ODV.
Ken Forrest says that it is misleading to portray ODV as a device that is being misused to create false charges. Other countries have also had to establish common valuation methodologies. By way of example Australia through its equivalent of the Commerce Commission uses Optimised Depreciative Replacement Cost or ODRC to establish the asset base of line companies. ODV is simply ODRC with one further consumer safeguard added, ie. the requirement to set values at the lower of ODRC or the cost of the cheapest alternative. It is totally misleading to portray the use of ODV in New Zealand as a unique system being used to take monopoly rentals. It is not.
Ken Forrest said "The recent Ministerial Inquiry into the electricity industry reviewed the use of ODV and recommended that the ODV continue with some refinement. In particular, it recommended the Commerce Commission undertake a "once only recalibration of ODVs by all distribution companies and Transpower in order to standardise the process"."