consideration. Dr David Denham also supported the proposed objective as a sound basis for developing a tariff structure, but argues that social welfare cannot be maximised the fixed charge component is far too high and does not ‘because appropriately reward customers for conserving water.’ Commission’s consideration On 1 July 2016 the ICRC Act was amended to incorporate an overarching objective specific to the making of a price direction. Part 4 of the ICRC Act now includes a section 19L that states: The objective of the commission, when making a price direction in a regulated industry, is to promote the efficient investment in, and efficient operation and use of regulated services for the long term interests of consumers in relation to the price, quality, safety, reliability and security of the service. In to apply this new objective in practice, the Commission’s preference is to adopt a social welfare approach, using the concept of Pareto optimality. An economic outcome is Pareto-efficient if it is impossible to make some individuals better off without making some other individuals worse off. When examining a single market using the tools of partial equilibrium analysis, embodied in the familiar supply and demand curves, the concept of Marshallian aggregate surplus provides a ready means of judging whether a change in market outcomes increases or decreases social welfare. As to the interpretation of the phrase term’, the Commission’s preference is to ‘long adopt an approach that recognises that a particular measure or decision might reduce welfare in the immediate future but confer benefits at some later point. In recognising this possibility, the Commission would, however, expect that the benefits of the measure should outweigh its costs, where more distant costs and benefits may be given less weight in the assessment than those accruing earlier. Draft position For the purposes of the draft assessment framework, the legislated economic efficiency objective set out in section 19L of the ICRC Act replaces the objective proposed in the issues paper (see Box 2.2). Box 2.2 Draft overarching efficiency objective To promote the efficient investment in, and efficient operation and use of regulated services for the long term interests of consumers in relation to the price, quality, safety, reliability and security of the service. Pricing principles In addition to the overarching efficiency objective discussed above, when varying or making a price direction the Commission is also required to have regard to the provisions set out in section 20(2) of the ICRC Act (see Appendix 2).
consideration. Dr David Denham also supported the proposed objective as a sound basis for developing a tariff structure, but argues that social welfare cannot be maximised ‘because the fixed charge component is far too high and does not appropriately reward customers for conserving water.’ Commission’s consideration On 1 July 2016 the ICRC Act was amended to incorporate an overarching objective specific to the making of a price direction. Part 4 of the ICRC Act now includes a section 19L that states: The objective of the commission, when making a price direction in a regulated industry, is to promote the efficient investment in, and efficient operation and use of regulated services for the long term interests of consumers in relation to the price, quality, safety, reliability and security of the service. In to apply this new objective in practice, the Commission’s preference is to adopt a social welfare approach, using the concept of Pareto optimality. An economic outcome is Pareto-efficient if it is impossible to make some individuals better off without making some other individuals worse off. When examining a single market using the tools of partial equilibrium analysis, embodied in the familiar supply and demand curves, the concept of Marshallian aggregate surplus provides a ready means of judging whether a change in market outcomes increases or decreases social welfare. As to the interpretation of the phrase ‘long term’, the Commission’s preference is to adopt an approach that recognises that a particular measure or decision might reduce welfare in the immediate future but confer benefits at some later point. In recognising this possibility, the Commission would, however, expect that the benefits of the measure should outweigh its costs, where more distant costs and benefits may be given less weight in the assessment than those accruing earlier. Draft position For the purposes of the draft assessment framework, the legislated economic efficiency objective set out in section 19L of the ICRC Act replaces the objective proposed in the issues paper (see Box 2.2). Box 2.2 Draft overarching efficiency objective To promote the efficient investment in, and efficient operation and use of regulated services for the long term interests of consumers in relation to the price, quality, safety, reliability and security of the service. Pricing principles In addition to the overarching efficiency objective discussed above, when varying or making a price direction the Commission is also required to have regard to the provisions set out in section 20(2) of the ICRC Act (see Appendix 2).