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Price-Cost Margins and Profit Rates in New Zealand Electricity Distribution Networks Since 1994: the Cost of Light Handed Regulation

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  • Geoff Bertram
  • Dan Twaddle

Abstract

From 1994 to 2003, New Zealand’s corporatized electricity lines networks operated with no industry regulator, but under the spotlight of mandatory information disclosure. As a result there exists a large body of detailed, audited and publicly available accounting data on the financial performance of these businesses. Using that data, this paper finds that price-cost margins have widened substantially since deregulation. We estimate the extent to which ‘‘light-handed regulation’’ has allowed profits to exceed the levels which would have been acceptable under the old rate-of-return regulatory framework, and find that the answer is about $200 million per year, on an ongoing basis. Copyright Springer Science+Business Media, Inc. 2005

Suggested Citation

  • Geoff Bertram & Dan Twaddle, 2005. "Price-Cost Margins and Profit Rates in New Zealand Electricity Distribution Networks Since 1994: the Cost of Light Handed Regulation," Journal of Regulatory Economics, Springer, vol. 27(3), pages 281-308, January.
    • Handle: RePEc:kap:regeco:v:27:y:2005:i:3:p:281-308
    DOI: 10.1007/s11149-005-6625-4
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    References listed on IDEAS

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    1. Bushnell, James, 2005. "Looking for Trouble: Competition Policy in the U.S. Electricity Industry," Staff General Research Papers Archive 13140, Iowa State University, Department of Economics.
    2. Stephen Martin, 1997. "Competition Policy: Publicity vs. Prohibition & Punishment," CIE Discussion Papers 1997-02, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
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    Citations

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    Cited by:

    1. Paul Nillesen & Michael Pollitt, 2011. "Ownership Unbundling in Electricity Distribution: Empirical Evidence from New Zealand," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 38(1), pages 61-93, January.
    2. Jamasb, Tooraj & Pollitt, Michael, 2007. "Incentive regulation of electricity distribution networks: Lessons of experience from Britain," Energy Policy, Elsevier, vol. 35(12), pages 6163-6187, December.
    3. Jamasb, Tooraj & Pollitt, Michael, 2008. "Reference models and incentive regulation of electricity distribution networks: An evaluation of Sweden's Network Performance Assessment Model (NPAM)," Energy Policy, Elsevier, vol. 36(5), pages 1788-1801, May.
    4. Paul Nillesen and Michael Pollitt, 2021. "Ownership Unbundling of Electricity Distribution Networks," Economics of Energy & Environmental Policy, International Association for Energy Economics, vol. 0(Number 1).
    5. O'Sullivan, Kimberley C. & Howden-Chapman, Philippa L. & Fougere, Geoffrey M. & Hales, Simon & Stanley, James, 2013. "Empowered? Examining self-disconnection in a postal survey of electricity prepayment meter consumers in New Zealand," Energy Policy, Elsevier, vol. 52(C), pages 277-287.
    6. Brandão, Roberto & Tolmasquim, Maurício T. & Maestrini, Marcelo & Tavares, Arthur Felipe & Castro, Nivalde J. & Ozorio, Luiz & Chaves, Ana Carolina, 2021. "Determinants of the economic performance of Brazilian electricity distributors," Utilities Policy, Elsevier, vol. 68(C).
    7. Paul L. Joskow, 2014. "Incentive Regulation in Theory and Practice: Electricity Distribution and Transmission Networks," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 291-344, National Bureau of Economic Research, Inc.
    8. Howden-Chapman, Philippa & Viggers, Helen & Chapman, Ralph & O’Sullivan, Kimberley & Telfar Barnard, Lucy & Lloyd, Bob, 2012. "Tackling cold housing and fuel poverty in New Zealand: A review of policies, research, and health impacts," Energy Policy, Elsevier, vol. 49(C), pages 134-142.
    9. O'Sullivan, Kimberley C. & Howden-Chapman, Philippa L. & Fougere, Geoff, 2011. "Making the connection: The relationship between fuel poverty, electricity disconnection, and prepayment metering," Energy Policy, Elsevier, vol. 39(2), pages 733-741, February.
    10. Collan, Mikael & Savolainen, Jyrki & Lilja, Emma, 2022. "Analyzing the returns and rate of return regulation of Finnish electricity distribution system operators 2015–2019," Energy Policy, Elsevier, vol. 160(C).
    11. Howden-Chapman, Philippa & Viggers, Helen & Chapman, Ralph & O'Dea, Des & Free, Sarah & O'Sullivan, Kimberley, 2009. "Warm homes: Drivers of the demand for heating in the residential sector in New Zealand," Energy Policy, Elsevier, vol. 37(9), pages 3387-3399, September.
    12. Filippini, Massimo & Wetzel, Heike, 2014. "The impact of ownership unbundling on cost efficiency: Empirical evidence from the New Zealand electricity distribution sector," Energy Economics, Elsevier, vol. 45(C), pages 412-418.
    13. Yang, Hangjun & Fu, Xiaowen, 2015. "A comparison of price-cap and light-handed airport regulation with demand uncertainty," Transportation Research Part B: Methodological, Elsevier, vol. 73(C), pages 122-132.

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