The Tribunal commissioned this paper by Dr Stephen King of the Research School for the Social Sciences at the ANU to assist in its consideration of the regulation of the electricity transmission network in NSW.
Transmission pricing can be a difficult and technically complex subject. One area of common agreement is that there are few suitable models in place overseas. The primary focus of the report is on the proposals developed for cost reflective network pricing (CRNP) under the auspices of the NGMC. In examining the link between asset valuation and pricing, the paper notes that the deprival value methodology underpinning CRNP provides an economic basis for valuing existing assets. However Dr King goes on to express concern that the recovery of sunk asset costs through pricing may not provide the most appropriate economic signals.