Posts tagged #Brendan Quach

Airports not exercising market power – Productivity Commission

February 2019

The Productivity Commission today released its draft report on the Economic Regulation of Airports. 

We recently prepared analysis for Australia’s major airports and showed that airports have not been exercising market power in aeronautical, car parking or ground access services.

The draft report finds that existing airport regulation benefits the community and remains fit for purpose, and agrees with our analysis that Australia’s four major airports have not systematically exercised market power.

In aeronautical services, airports are constrained by the countervailing power of airlines, and generate “returns sufficient to promote investment while not earning excessive profits”. Prices at airport car parks are “not the result of market power”, but reflect the high opportunity cost of land near airport terminals, and act as signals to manage demand and reduce congestion. Airports are constrained in car parking by the myriad ways to access the airport.

The PC also finds that the current approach to regulation works well and wholesale changes are not justified. Instead, it recommends updating the current monitoring regime so that airports include more detail in their cost and revenue reporting to assist in future assessments on the effectiveness of regulation.

The PC is now accepting feedback on the draft report ahead of the final report in June.

The HoustonKemp team advising Australia’s major airports included Greg, Luke, Brendan, Sarah, Bronwyn, Alyse and Nick.

Airport market power ‘fact check’

September 2018

Today the ACCC submitted to the Productivity Commission’s inquiry into airport regulation that the current price monitoring regime is not effective in constraining airports’ market power, and that increased regulatory intervention is required (see here). But the ACCC’s evidence for the exercise of market power is thin: an assertion as to rising average revenues per passenger and quality of service metrics that remain ‘stable’. Substantial new investment in runway and terminal capacity has been overlooked, and the ACCC’s average revenue per passenger metric is heavily distorted by the changing mix of international and domestic passengers.

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HoustonKemp analysis for the Australian Airports Association (see here) shows a very different picture. The long term profitability of aeronautical services provided at each of the four monitored airports show no signs of market power, with returns on investment over ten years all converging to within the range of weighted average cost of capital estimates previously adopted by the ACCC itself and New Zealand’s Commerce Commission.

We look forward to the Productivity Commission’s evidence-based analysis.

Posted on September 18, 2018 and filed under Reports.

Powering Sydney's Future

May 2017

As part of its Powering Sydney’s Future (PSF) RIT-T assessment, TransGrid has published a report prepared by HoustonKemp on the issues to be considered in determining a commercial discount rate for a RIT-T application.  Our report also provides a “first-pass” indicative commercial discount rate that we consider appropriate to apply to the PSF RIT-T.  Our report can be accessed here.

 

Posted on May 9, 2017 and filed under Reports.

Retail margin methodology

May 2017

HoustonKemp has prepared a report for ActewAGL Retail, in relation to the ICRC’s draft decision to change the methodology for determining the retail margin component of regulated electricity standing offer prices. We considered the adequacy of the ICRC’s approach in light of the factors that may be expected to affect the costs recovered by the retail margin, the rationale provided by the ICRC and the approach adopted by other regulators. Our conclusion is that the ICRC’s central assumption that retail margin costs move in line with changes to CPI is not supported by any evidence, and our own assessment indicates that there are other drivers of these costs.  Our report is available here.

Posted on May 4, 2017 and filed under Reports.

HoustonKemp Seminar Series: Allowed rate of return

November 2015

Recent debate on the allowed rate of return for regulated energy networks has absorbed thousands of pages of service provider, expert and regulator analysis, much of which now sits for decision by the Competition Tribunal. In the first instalment of the HoustonKemp seminars series, our experts Greg Houston, Simon Wheatley, Brendan Quach and Daniel Young, provided a ‘lay person’s review’ of the issues that will drive allowed return outcomes over the coming year. Our speakers’ presentations can be found here.

Posted on November 30, 2015 and filed under Presentations.

Efficiency Benefit Sharing Schemes

11 February 2015

Ann Whitfield, Brendan Quach and Ehson Shirazi prepared a report for ActewAGL Distribution illustrating Efficiency Benefit Sharing Schemes that could be applied where the network business’ operating expenditure allowance in the following regulatory period is set on the basis of either the network’s revealed opex costs or by reference to comparative efficiency.  Our report is here.

Posted on March 2, 2015 and filed under Reports.