NZIER report on compensation for transmission infrastructure
NZIER report on compensation for transmission infrastructure
NZIER report on compensation for transmission infrastructure
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5.2 Results<br />
For modelling purposes we assume that annual payments would take effect from<br />
2010 into perpetuity. We c<strong>on</strong>sider the net present value of c<strong>on</strong>tinuous payment costs<br />
and benefits using a discount rate of six percent (the l<strong>on</strong>g run risk free rate) and eight<br />
percent (the Treasury rate). The total additi<strong>on</strong>al costs to Transpower and landowners<br />
of switching from annual lump-sum payments are shown in Table 3.<br />
Note that we c<strong>on</strong>sidered costs based <strong>on</strong> 314 landowners <strong>on</strong>ly. Including more<br />
landowners would have little impact <strong>on</strong> development, management and review costs.<br />
Uncertainty costs facing Transpower would increase but dispute costs would reduce.<br />
The net effect would be small.<br />
These costs, while based <strong>on</strong> available in<strong>for</strong>mati<strong>on</strong> and our best judgement, should be<br />
taken as indicative. We can <strong>on</strong>ly estimate a priori what the net cost of developing<br />
periodic payments will be, <strong>for</strong> example.<br />
Table 3 Cost of periodic payments<br />
Net present value to Transpower and landowners at 6% and 8% discount rates<br />
Costs Transpower<br />
$’000<br />
6% 8%<br />
Landowners<br />
$’000<br />
Transpower<br />
$’000<br />
Landowners<br />
$’000<br />
Development 119 0 119 0<br />
Management 258 0 198 0<br />
Review 1,246 0 987 0<br />
Dispute -794 -352 -674 -308<br />
Total costs 829 -352 628 -308<br />
Total net cost both parties 478 320<br />
Source: <str<strong>on</strong>g>NZIER</str<strong>on</strong>g><br />
With adopti<strong>on</strong> of the assumpti<strong>on</strong>s outlined above and a six percent discount rate, it<br />
will cost Transpower an extra $829,000 to give landowners the opti<strong>on</strong> of receiving<br />
periodic payments with adjustment every five years, approximately $50,000 per year.<br />
Landowner costs, <strong>on</strong> the other hand will reduce by $352,000 in net present value<br />
terms, about $21,000 per year.<br />
The effect, c<strong>on</strong>sidering landowners‟ reduced costs al<strong>on</strong>g with the increased costs<br />
facing Transpower, will be a net increase in costs of $478,000, or roughly $29,000<br />
per year. The biggest increase in cost is due to periodic reviews of land values and<br />
operati<strong>on</strong>al costs. These costs are borne by Transpower. Costs are reduced due to<br />
assumed lower dispute related costs, benefiting both Transpower and landowners as<br />
a group.<br />
It is possible that Transpower would value the above costs differently than we have,<br />
or include cost items not listed above. We have, <strong>for</strong> example, possibly overestimated<br />
<str<strong>on</strong>g>NZIER</str<strong>on</strong>g> – Compensati<strong>on</strong> <strong>for</strong> transmissi<strong>on</strong> <strong>infrastructure</strong> 42