What if we’d had price control in the good old days ?? A light-hearted look at the NZ power lines...

What if we’d had price controlin the good old days ??

A light-hearted look at the NZ power lines industryin the early years of the 20th century

South Canterbury Electric Power Board, about 1927

C’mon Cyril … we’ve got to out-perform the economy-wide

efficiency gain by 2.3%

110kV line construction near Levin, about 1924

Hey George, what d’ya reckon the efficiency claw-back on this would

be ?

Addington transformer workshop, 1930’s

Remember to roll this into the RAB at standard cost, Harry

Hutt Valley Electric Power Board’s first pole, Petone, 1924

Ya know, indexed historical cost could be a suitable replacement

for RAB, Fred.

Waitemata Electric Power Board erecting pole, possibly 1920’s

Well Tom, I’m really not convinced that Government Bonds are a

good proxy for the risk-free rate.

Bay Of Plenty Electric Power Board’s pole factory, 1927

Now remember, guys - your efficiency gains will be shared with customers at the next price re-set.

Wanganui Rangitikei Electric Power Board line gang near the Woollen Mill at Aramoho, 1925

So tell me again, Percy, why does the most efficient capital structure have

60% debt ?

Waitaki Electric Power Board, 1925

Hey guys, I’m a bit worried that we might have over-run the efficient

bench-mark cost for this job.

Laying cables in Auckland, 1908

Hey, Bill, I’m sure the price increase of bitumen is way above

CPI

Southland Electric Power Board erecting poles, 1920’s

C’mon Albert, I’ll bet ya £2 that a hypothetically efficient new entrant wouldn’t do this.

Franklin Electric Power Board first pole, 1925

Des, are you sure you considered the efficient non-network

alternative ?

North Auckland Electric Power Board trucks at the Mangawhai pub, 1946

Guess we’d better hold off those

efficiency gains until after the next re-set

Wellington Municipal Electricity Department erecting a pole, 1935

Hopefully this won’t get optimised out of the RAB

Ashburton Electric Power Board erecting a pole, 1935

Well, Eric, my view is that we really do need to allow for non-

diversifiable risk when estimating the WACC.

Marlborough Electric Power Board erecting its first concrete pole, 1920’s

I reckon we could really do with a valuation methodology that safe-harbors marginal assets, George

Marlborough Electric Power Board erecting its first concrete pole, 1920’s

For insights on how price regulation works today, contact Phil Caffyn…

Phone (07) 854-6541 Email phil@utilityconsultants.co.nz Web www.utilityconsultants.co.nz