Experts will help resolve earnings for monopolies

The Commerce Commission has appointed a panel of experts to help resolve the question of how much monopoly businesses can earn on their capital.

The move follows the commission's warning last month that it planned to impose price controls on Vector because the Auckland powerlines company was earning more than the 7.35 per cent allowable cost of capital.

This warning sparked investor anger and allegations that the commission's figure is too low.

The panel includes two overseas academics, Bradford Cornell and Julian Franks, as well as Victoria University associate professor Martin Lally, who advised the commission on its draft cost-of-capital guidelines.

Cornell is a visiting professor of financial economics from the California Institute of Technology and Franks is professor of finance at the London Business School.

The commission said it needed the panel to help it assess the complex submission on draft guidelines for allowable return, issued in October last year.

"The submissions raised a broad range of issues which need to be carefully assessed. To this end, and in line with suggestions made by some submitters, the commission has appointed the panel of experts to review the draft guidelines and submissions, and provide advice to the commission."

Investors said yesterday they would judge the quality of the panel on the outcome of its work. But they questioned the appointment of Lally, since he was closely linked with the formulation of the draft guidelines.

It said the panel would provide a report outlining its advice by mid-December ahead of the commission formulating its final guidelines on estimating the cost of capital.