Instead, we provide an economic analysis of the implications of rating on the value of the distribution networks of utility companies. Our analysis is concerned solely with charging rates on the value of utility distribution networks (which can be on poles above ground or underground), and does not apply to the land and buildings owned by utilities and according to the standard residential and commercial rating schemes. Provides rating based on the value of distribution network utility companies with incentives consistent with New Zealand government policy.
Ø Reduction of tax transparency because the legal incidence of imposed fees will be different from the economic incidence. This paper provides an economic analysis of the valuation implications on the value of utility companies' distribution networks. There has been no legislative response to Auckland City Council's use of the Rating Powers Act to set charges on the value of utility networks within its jurisdiction.
From an economist's point of view, the court's comments are on the question. The Valuer General has determined that Optimized Depreciated Value (ODV) or Optimized Depreciated Replacement Cost (ODRC) should be the basis on which the value of utility distribution networks is calculated. The social cost of these behavioral adjustments is called the deadweight loss of the tax.6 Lift.
To consider this question in the context of utility utility distribution network value rates, consider the possibility that utilities derive an additional benefit from the presence of a road over and above the benefit derived from access to a public right-of-way. paths. When local authorities charge rates on the value of a utility's distribution network, it is equivalent to a tax on a certain type of capital. There is an extensive academic literature on the trade-off between dynamic and static efficiency, which is directly related to estimates of the charging efficiency of utility distribution networks.
If the weighted average cost of capital of the utilities is set at (a conservative) 10%, then rates set at 1% of value will equate to a tax of 10% of profits (on top of the existing corporate tax). rate). A specific tax on the value of the assets that make up utility distribution networks will also have a negative impact on tax transparency. This conclusion follows from the observation that the legal impact and the economic impact of the tax will be significantly different.
Consistency with Major Government Policy Platforms
An important characteristic of the provincial centers targeted by this regional development policy is that they have a lower population density than the large urban areas. Lower population density has a major impact on the profitability of network facilities, as the cost of installing cables or pipes may not vary significantly depending on the density of households and businesses served. This means that for any given asset value rating level, a rate charge based on the ODV of the utility distribution network would be higher per household/business and per dollar of profit for a utility operating in a county town than for an equivalent utility. utility operating in major metropolitan areas.
Both the new products and the improved facilities needed to support the expansion of businesses in these regions will be introduced more slowly in the presence of a tax on the value of assets. Energy saving networks are an example of the emergence of new differentiated products within the utility sector. A tariff on the value of utility assets provides a disincentive to make investments consistent with the energy saving strategy.
As New Zealand governments have reformed the tax system and social welfare network over the past 15 years, concerns about fairness and equity have focused on the impact of policy changes on low-income households. An analysis of the impact of assessing the value of utility distribution network assets begins with the observation that the use of basic products provided by utility companies is ubiquitous and the demand for basic products is inelastic. The ubiquitous use of landlines and gas and electricity for lighting, heating and cooking means that expenditure on network service products will account for a larger increase.
If the rates charged on utility assets are passed on directly to consumers through unit price increases of basic utility products, the rates paid will be much higher. In other words, rates on the value of network utility distribution assets will reverse some of the redistribution caused by charging rates on the capital value of the land rather than the unimproved value.
Assessment of the Arguments Used to Justify Rating Utility Assets
In these circumstances, we note that: i) Charging utility companies for the use of the road reserve (right of way) was prohibited by the legislator. ii). It is not clear whether the distribution networks use local services (as they use the right of way, not the road). It is well established in economics that pricing is an efficient mechanism for allocating scarce resources, but since there is no "right-of-way" congestion due to utility networks under the road bed, it is not clear that a price above zero is guaranteed.
Finally, we note that it is likely that consumers of basic utility products will pay most of the charges imposed on distribution networks and bear the costs of the delayed introduction of new products. As we have pointed out, this raises the question of whether the benefits of widening the valuation base outweigh the transaction and efficiency costs of doing so. In contrast, the only incentive provided by the valuation of distribution assets is to save on network expansion and maintenance.
We pointed out above that it is not possible to consider the tariff burden in legal terms: the burden of the tariffs is their economic impact and not their legal impact. Because utility use is ubiquitous and demand for basic services is inelastic, utility customers bear the bulk of the burden imposed on utilities. Moreover, since the utility customer base is not significantly different from the existing taxpayer base, it is not clear that there is an effective spreading of the tax burden.
The main redistribution we have been able to discern results from the fact that the burden of fees would fall disproportionately on low-income households, and it is not clear that this is socially beneficial. As such assessment, utility distribution networks do not foresee any expansion of the tariff base (and even if the assessment base were to expand, this would not necessarily be efficient).
Why Are Utilities Networks Different From Other Improvements On Land?
We have argued that the inelastic demand for basic utilities means that rating utilities imposes a flat-rate burden on households. There is therefore no market failure as there is in the provision of services to households (where the transaction costs may exceed the revenue collected (e.g. waste collection) or where free ride-hailing is possible (e.g. street lighting)). ØThe impact of a utility tax will not fall primarily on the shoulders of the utilities or their shareholders, as the demand for the utility commodities is relative.
In contrast, there is a close correspondence between the legal and economic incidence of ownership rates in residential property. There will also be a relatively close correspondence between the legal and economic incidence of tariffs in. Utility networks do not prevent other uses of the roadbed and there is no congestion problem to manage in terms of available roadbed space.
In contrast, residential and commercial properties preempt other uses of the land on which it is built.
Summary and Conclusions
Assessment on the value of distribution networks of municipal companies is a specific tax on these assets. As a result, the incidence of any tax will fall primarily on consumers rather than utility companies. We have emphasized in the paper that even if asset-based valuation of utility companies would broaden the valuation base, this would not necessarily increase efficiency.
We argued that charging utilities' distribution network value is inconsistent with a number of important government policies, including those on competition in the grid industries, regional development and energy. Finally, our analysis has shown that charges on utilities' distribution network assets are inconsistent with the key principles set out by the Department of the Interior (1998). Ø Transparency is reduced due to the difference between the legal and economic scope of rates, charged values of distribution networks of public services that provide basic services to consumers.
Ø Fairness is not increased because (where consumers apply) there is no broadening of the base already provided by property prices and price increases. Ø Efficiency is reduced because evaluating the utility distribution network will discourage the value addition of networks, the introduction of new products through networks and the creation of new networks (new products or bypass). We find that efficiency would be enhanced if the Appraisal Powers Act were amended to prohibit appraisals of network utility assets.
While there are a number of ways in which this can be achieved, one of them is to explicitly include the distribution assets of network companies in the machine exemption. This is in line with existing requirements in the Local Government Act and would at the very least encourage the courts to hear substantive evidence of efficiency, rather than just the definition of “an interest in land”, and to make efficiency a primary criterion. for the assessment of planned projects. extensions of the assessment base of local authorities.
