NZIER report on compensation for transmission infrastructure

Key points
Easements create a surplus by lowering the costs of transmitting
electricity
Transpower uses easements to build and maintain transmission infrastructure across
private property where it is less costly to do so relative to alternatives, such as
running lines beside public roads or purchasing land corridors. Such savings create
an economic surplus for Transpower.
Transpower pay part of this surplus to landowners in compensation
for the costs imposed on them by easements
Compensation is provided in recognition that easements lower the value of land, and
that transmission towers and power lines increase the costs of normal farmer
operations. Transpower also provides for some or all of the transaction costs facing
the landowner during easement negotiations. New Zealand law requires that
compensation is enough to leave the landowner no better or worse off due to the
easement.
Easement purchases are not standard transactions, however. Transpower has the
option of compulsory purchase and (although rare) can force unwilling landowners to
sell easements. This distorts the market‟s ability to set prices.
A number of factors limit the accuracy of easement value estimates
Easement values and compensation amounts are estimated because easement
prices are not set or observed in a readily observable market. Landowners can not
simply refuse to sell and a number of factors make it difficult to accurately estimate
easement values;
Transpower require confidentiality agreements from parties selling easements, so
there is a lack of publically available information, or precedents, on easement
prices
There is a degree of uncertainly on the operational costs imposed on landowners
from towers and lines
There are limited land market data for determining how easements change
properties‟ values.
The final price paid for an easement is determined during negotiations between
Transpower and landowners. A lack of transparency over previous settlements and
the imperative of settling at some point skew the negotiations in Transpower‟s favour.
Easements run the risk of being inefficient if compensation does not
at least fully cover the costs imposed on landowners
If the full opportunity costs of easements are not considered, then Transpower will be
encouraged to use under-priced easements when another option may involve less
real resource cost. Not fully considering the costs imposed on landowners, for
<strong>NZIER</strong> – Compensation for transmission infrastructure ii