NZIER report on compensation for transmission infrastructure

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when Transpower are purchasing easements landowners are not always able to postpone selling until prices reflect their idea of worth. The Natural Gas Corporation of New Zealand addressed the issue of changing landuse effect on land value. It provided landowners with the option to claim additional compensation for land taken if their land was rezoned within ten years of the easement being purchased (Mitchelmore 2009). Some authors argue that allowance should be made, at the time the easement is created, for potential future land use effect on land value (Beesley 2008; Hutchison et al 1998). Hutchison and Rowan-Robinson (2000) suggest that compensation should be adjusted by assigning probabilities to possible future land uses. Beesley (2008) agrees, suggesting that compensation should be based on, among other things, the value of land under different land-use scenarios, weighted by the probability of land being put to that use in the future. In theory, however, the probability of land being put to a different use in the future is reflected in current market price. Identifying and valuing alternative uses risks double counting price determinants (as the influence of these factors may already be incorporated in actual land market price). On the other hand, using market data to price easements does have its problems, such as missing location specific factors. The issue may be better addressed by providing a share of compensation for easements as a rent rather than outright land purchases, discussed further in section 5. 3.4.3 Injurious affection Injurious affection refers to the permanent depreciation in the value of retained land due to an easement. 15 Injurious affection is described in the literature as including the permanent nuisance and inconvenience as well as the loss of scenic value caused by the infrastructure (Alberta Surface Rights Board 2009; Nuuja and Viitanen 2007). These descriptions suggest that injurious affection has an element of operational costs (inconvenience to normal farming functions caused by infrastructure), and externalities (loss of scenic value). Each of these is discussed separately below. 3.4.4 Operational costs For intensively farmed land particularly, infrastructure can impose significant operating costs. Overhead lines and structures increase the time and financial costs of applying fertiliser or controlling pests (Hutchison and Rowan-Robinson 2000), impede the movement of machinery to prepare or harvest crops (NFU 2009) and restrict the ability of farmers to run metal fences parallel with lines due to the possibility of induced current (Hamer and O‟Brien 2007). Hydro-Québec provide a form of operational cost compensation which takes into account, among other things, 15 See for example Land Information New Zealand at http://www.linz.govt.nz/crown-property/public- works/guide/compensation/index.aspx <strong>NZIER</strong> – Compensation for transmission infrastructure 21
the cost of driving around support structures and maintaining uncultivated space (Hydro-Québec 2000). Operational costs include compensation for restrictions on development within proximity of the transmission infrastructure, considered by Hamer and O‟Brien (2007), to be the single largest imposition of such infrastructure. In most of the cases we looked at (Australia, Canada, Finland, New Zealand and the United Kingdom) operational costs resulting from transmission infrastructure are calculated and compensated for (see, for example, Hamer and O‟Brien 2007). Operational costs are more of a concern to landowners than the infrastructures‟ effect on land values. Solum <strong>report</strong>s the findings from a mid 1980s survey of 180 landowners in Wisconsin with transmission infrastructure on their land (including 127 agricultural landowners). The survey found that more agricultural landowners were concerned about the costs imposed by the infrastructure hindering farming operations than on decreasing property value (Solum 1985). This is to be expected given the change to land value is only realised if a property is sold and hence will be discounted, whereas operational costs are current. In some cases, operational cost compensation recognises that when infrastructure is spaced close together it places greater restrictions on farming operations. The UK‟s National Grid‟s compensation increases by 50 percent when the supports of two separate electricity lines are within 30 metres of each other (Hamer and O‟Brien 2007). Hydro-Québec allows for an increment of 50 percent over and above 100 percent of market value compensation “in consideration of the small surface area used” (Hydro-Québec 2000 pg 64). Beesley points out how cost to the landowner is, in part, a function of how the transmission infrastructure is installed over the land. The author suggests additional compensation may be needed when, for example, lines dissect productive land diagonally increasing the time cost of working land (Beesley 2008). There appears to be a large degree of consensus on the factors which are considered as causing additional operating costs. Exactly how compensation is calculated, however, is not clear in the literature. From what we can gather operational costs are generally based on additional cost estimates as provided by industry experts. 3.4.5 Externalities There were two negative externalities from transmission infrastructure commonly discussed in the literature; the aesthetic impact of infrastructure, and the perceived effect of transmission lines on health through Electro Magnetic Fields (EMFs). A number of authors thought that these externalities should be compensated for (Beesley 2008; Hutchison and Rowan-Robinson 2000). In some countries (for example, Australia, Finland and the United Kingdom) payment appears to be in part intended to compensate landowners for their loss from externalities (see, for example, Hamer and O‟Brien 2007). Although how externalities were priced was not <strong>NZIER</strong> – Compensation for transmission infrastructure 22
Page 1 and 2: Compensation for transmission infra
Page 3 and 4: Key points Easements create a surpl
Page 5 and 6: The costs of providing the option o
Page 7 and 8: 5.1 Costs of periodic payments ....
Page 9 and 10: Some authors suggest that that the
Page 11 and 12: 2. Easements An easement is a right
Page 13 and 14: Figure 1 Infrastructure surplus $ S
Page 15 and 16: information and the method by which
Page 17 and 18: Landowners feel, however, that Tran
Page 19 and 20: The remainder of the literature rev
Page 21: the degree of sterilisation (Hydro-
Page 25 and 26: lump-sum and annual payments (PSC 2
Page 27 and 28: thought approximately 90 percent of
Page 29 and 30: Table 1 Compensation summary Countr
Page 31 and 32: 4.1.1 Market value of land Estimati
Page 33 and 34: landowners is to do with the requir
Page 35 and 36: cross already worked ground. As an
Page 37 and 38: In a number of countries the effect
Page 39 and 40: 5.1 Costs of periodic payments We s
Page 41 and 42: for four different land uses (fores
Page 43 and 44: 5.2 Results For modelling purposes
Page 45 and 46: 6. Transparency and collective barg
Page 47 and 48: In conclusion we think that easemen
Page 49: Munneke, H and J Trefzger 1998. Non

NZIER report on compensation for transmission infrastructure

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