Modelling Issues and Sensitivity Tests
62. Data limitations can affect the results of any model. The Commission has taken every effort to minimise the risks associated with data limitations. It has required gas pipeline businesses to complete a data template, has sought further clarification of the data provided, and in some cases adjusted the information provided.
63. The Commission was particularly concerned about common cost allocations by the businesses, and has adjusted the common costs of Powerco and Vector in the base case analysis. The Commission also has reservations as to the forecast information provided and revisions to historical figures made in some cases.
64. No model can be expected to reflect all real world scenarios. Nonetheless, the Commission considers that a building blocks model, by linking prices and returns to the costs incurred by gas pipeline businesses does provide a reasonable method for the evaluation of business behaviour in markets of limited competition.
65. Sensitivity tests were run on numerous variables in the modelling including:
- asset base - only possible for Wanganui Gas given data limitations;
- WACC;
- common costs;
- self-insurance (Powerco, Vector, Wanganui Gas);
- growth forecasts;
- excess returns unrecoverable;
- dynamic inefficiency costs of control; and
- tax (Powerco and Vector).
66. The range of sensitivities presented for each variable above was a matter of Commission judgment. An overview of the approach is discussed in Chapter 7 (Modelling Issues and Sensitivity Tests) and results are presented in the company chapters.
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