Deregulation and Monopoly Profits in New Zealand's Gas and Electricity Sectors

Abstract

The paper reviews New Zealand's experience with light-handed regulation of gas and electricity lines networks. The regulations included provisions for quite detailed information disclosure, and analysis of the resulting data shows clear evidence of very high-realised rates of return, compared with a competitive benchmark cost of capital. Disclosure of these large monopoly rents did not, however, trigger any official response to protect consumers from monopoly pricing, nor any curb on companies' use of an officially-sanctioned set of accounting practices which, although ostensibly based on current-cost principles, failed to account for the accrual of asset revaluation gains when calculating warranted revenues. Both industries were left effectively unregulated for most of the 1990s, and recent policy adjustments have left untouched the consequences of their virtually unchecked exercise of market power in the decade following corportization and deregulation.