OIA 3684 Attachment 2 Research brief Metropolitan rail research.pdf

Schedule 1: TAR 12/10 - Final and agreed research brief
Contents
Minimum Compliance Checklist
4
Acknowledgments and Confirmations
5
Proposal Summary Form
6
1
Research Purpose and Objectives
12
2
Explanation of the Research
14
2.1
Similar Research
14
2.2
Scope Additions
14
2.3
Opportunities for Collaboration
14
2.4
Synergies with Other Research
15
3
Methodology
16
3.1
Description of Methodology
16
3.2
Milestone Schedule
18
3.3
Strengths and Weaknesses
19
4
Research Project Outputs
20
5
Implementation
21
6
Risk Assessment
22
7
Research Capability, Experience & Capacity
23
7.1
Proposed Team
23
7.2
Relevant Experience
24
7.3
Track Record
26
7.4
Capacity and Technology
27
7.5
References or Reference Sites
27
8
Project Steering Group and Peer Review
28
8.1
Project Steering Group
28
8.2
Peer Review
28
Annex A: Company Detail
29
Dr John Small
31

Schedule 1: TAR 12/10 - Final and agreed research brief

Dr Aaron Schiff
35
Dr Tim Denne
38
Reuben Irvine
40

Report Title
3

Schedule 1: TAR 12/10 - Final and agreed research brief

Acknowledgments and Confirmations
We acknowledge and accept the Proposal Process Rules set out in paragraphs 2 to 61 of
the RFP and note the following particularities.

  Pursuant to paragraph 28 we confirm that Covec’s current employees’
agreements, and sub contractor and consultant contracts stipulate that the
information gained by individuals working on customer projects is not to be
commercially exploited, nor disclosed to any party after such agreements or
contracts have been terminated.

  Pursuant to paragraph 33 we confirm that Covec has a significant commitment
to, and investment in, New Zealand. Covec is owned and operated by New
Zealanders in New Zealand. Please do not confuse us with the other Covec, a
Chinese multiservice company.

  Pursuant to paragraph 50 we acknowledge and confirm our agreement to the
Formation of Contract provisions in paragraphs 48 and 49.

Pursuant to paragraph 44 of Appendix 3 we acknowledge and accept NZTA’s standard
terms and conditions as set out in Appendix 2 of the RFP.

Pursuant to paragraph 46 of Appendix 3 we confirm that Covec has no existing or
potential conflicts of interest in relation to this work. Covec is currently working for
NZTA to develop a best practice indicator set for land transport (project TAR 11/09),
and advising NZTA on a benchmarking approach to public transport contracting.

Pursuant to paragraph 33 of Annex C to RFP 130/12, we confirm that Covec
acknowledges and confirms our agreement to the administrative processes set out in
paragraphs 34 to 42 inclusive of Annex C to RFP 130/12.
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1  Research Purpose and Objectives
The overarching purpose of the research is to investigate the supply and demand sides
of metropolitan rail markets in New Zealand to develop robust information and advice
of practical benefit to NZTA and other stakeholders when engaged in evaluating and
recovering the costs of metropolitan rail investments.

Within this, there are four specific purposes:

1.  To estimate the way metropolitan rail transport usage benefits different groups
within the community, including both users and non‐users of rail.

2.  To derive principles for guiding decisions over the allocation of metropolitan
rail costs between groups.

3.  To explain the implications of the above work for the economic instruments
currently used to assess projects, recover costs and set optimal average fare
levels.

4.  To derive optimal cost allocations between relevant groups and translate the
allocation for rail patrons into optimal average fare levels

The key objectives of the research are linked closely to the research purpose. In support
of purpose 1, the objectives are to:

  identify all groups in New Zealand society that are affected by metropolitan rail
usage whether directly or indirectly;

  using relevant data and information, quantify these impacts including the way
they are expected to vary with rail usage; and

  report on the reliability/precision of the resulting estimates.

In support of purpose 2, the objectives are to:

  identify and clearly articulate the policy principles that are relevant to cost
allocation for metropolitan rail; and

  explain how these principles can be applied to cost allocation and the estimation
of average fares per passenger, bearing in mind

o  the level of (dis)aggregation in the impact estimates derived above;

o  the distinction between capital and operating costs and the desirability
of full capital cost recovery over time;

o  the industry structures for different stakeholder groups (e.g. monopoly,
concentrated, competitive); and
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o  the need for practical advice based on a solid conceptual framework and
firmly grounded on facts.

In support of purpose 3, the objectives are to:

  review the relevant existing processes for evaluating projects (EEM) and
raising/allocating revenue (farebox recovery policy, FAR and rail fare setting in
Wellington and Auckland);

  evaluate these processes in light of the empirical and conceptual work reported
under purposes 1 and 2; and

  explain and evaluate the materiality of any implications for changes to the
existing processes.

In support of purpose 4, the objectives are to:

  undertake financial analysis to explore different scenarios for fully allocating
capital and operating costs between groups, subject to all scenarios being
consistent with the principles;

  recommend specific allocations for capital and operating costs between groups;
and

  translate the allocation for rail passengers into optimal average fare levels for
Auckland and Wellington.
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2  Explanation of the Research
2.1
Similar Research
We propose that the first stage of this project involve a comprehensive domestic and
international literature review. At this stage we have identified the following groups of
literature that are likely to have a bearing on this work.

  Practical applications of economics to issues closely related to this project in
other countries. This includes work recently commissioned for IPART in
Australia (as cited in the RFP), and comparative work on metropolitan rail
systems in the USA.

  Economic research on optimal cost recovery of transportation capital and
operating costs.

  Fundamental research in the field of co‐operative game theory as it applies to
cost allocation.
2.2
Scope Additions
We propose just one minor scope addition, which is to remain alive to the potential for
metropolitan rail transport to generate negative (as well as positive) externalities. At this
point it is not clear how important this issue will be.

Upon completion of this project, it is possible that additional work may be necessary to
refine the empirical work somewhat. There are two areas where this may apply.

First, as discussed below, given the breadth of this project it may be necessary to draw
on previous literature to estimate some of the key parameters. Depending on how
sensitive the results are to these estimates, there could be merit in undertaking more
specialised empirical work.

Second, the translation of optimal cost allocations for passengers into optimal fares is a
large and complex project once the finer points of tariff optimisation are considered. For
example, some level of price discrimination may well be efficient (eg peak and off‐peak
rates). There may also be a trade‐off between simplicity and accuracy (eg related to
zonal fares). Cross‐over into other modes (eg bus and ferry) would also be considered in
a full tariff optimisation project. We propose to concentrate on estimating an average
fare per passenger, but are interested and willing to work on any subsequent tariff
optimisation project.
2.3
Opportunities for Collaboration
During this project we will interact with staff from the NZTA, and with rail operators
and other local and regional transport agencies where possible. This will ensure we
have a good understanding of the relevant issues and available data.
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2.4
Synergies with Other Research
There are two forthcoming projects that are likely to be informed by this work. One is a
review of the farebox recovery policy. This policy is currently aiming for fares to recover
50% of operating costs. We expect our work to provide useful information to the policy
review.

Secondly, there is a review of the Economic Evaluation Manual (EEM) scheduled for
2012‐13 which could be informed by this work. To the extent that rail projects compete
for funds with roading, TDM and other projects, it should be helpful to have better
information on the external benefits of metropolitan rail.
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3  Methodology
Our general approach to this project can be summarised in the following graphic.

Clearly therefore, the project traverses a lot of ground, from the estimation of
externalities through the institutional arrangements for metropolitan rail in New
Zealand, to financial analysis of cost allocation and optimal rail fares. We consider that
overall success will therefore depend heavily on

  judicious use of pre‐existing information; combined with

  careful attention to properly representing the precision/reliability of the results.

With these considerations in mind, we now elaborate on the methodology outlined in
the Proposal Summary Form. We anticipate that the final report will follow a similar
structure to what follows in the description section (with the addition of an executive
summary and appendices).

3.1
Description of Methodology
Literature review
The final report will include a section summarising the way metropolitan rail is
organised in New Zealand, noting for example the technologies used and planned, the
network and train service operators, and other relevant facts such as there being a
vertically integrated structure in Wellington but not Auckland. Key funding channels
will also be identified.

We will then review and summarise history of metropolitan rail in New Zealand over
the last 15‐20 years, with particular reference to:
  the way capital and operating costs have been funded in New Zealand;
  recent and planned investments in infrastructure and rolling stock; and
  the rationales given for these decisions.

We will also outline the way the theoretical and applied international literature views
the general issue of cost sharing for metropolitan rail and compare this at a high level
with current structures in New Zealand.
Economic principles for costing and cost allocation
This stage of the methodology involves standing back from what is currently happening
in New Zealand and drawing on economic principles to assess what should happen.
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This work will consider operating costs and capital costs separately. It will also have
regard to the potential for increasing returns to patronage in passenger rail and the
implications of this.

We will start with very basic economic principles concerning efficiency and equity, trace
these through the cost allocation literature (without labouring the point) and distill from
this analysis the economic principles relevant to cost allocation in this context.

This work will not be limited to cost allocation however. We will also consider the level
of revenues needed by the monopoly network operator in order to recover costs over
time. We will address this through well established principles of regulatory economics,
and will describe an appropriate structure for estimating necessary revenues.

The final step is to apply these principles, compare their implications with the status
quo, highlighting any differences (under‐ or over‐payment) by stakeholder group. It
should be noted that in some cases, this approach leads to quite wide ranges of
potentially fair and efficient costs. For example, it is common for economists to observe
that anything between “incremental cost” and “stand‐alone cost” is potentially
acceptable. While this is often true, it is also often unhelpful from a practical standpoint.
We will explain how co‐operative game theory can narrow these ranges.
Economic modelling and estimation
This section of work will use diagrams and text to describe how externalities and other
relevant parameters (notably capital and operating costs and patronage) fit within an
economic model of cost sharing for metropolitan rail. This will support our analysis of
how costs should be allocated.

We expect that we will need to draw on (fully documented) third party sources to
compile information on some relevant parameters, particularly demand elasticities but
possibly also including some estimates of externalities. For other information (patronage
and fare data, cost estimates) we anticipate that the rail operators will hold the relevant
information, while existing funding levels and structures will be drawn from the
literature review stage.

It is important to note that Covec would be very keen to undertake direct econometric
estimation of key parameters where possible. Our team includes highly skilled
econometricians capable of such work. However we need to be realistic about our time
allocation in the context of this particular project, so unless good quality data are readily
available we may need to rely on third party sources.

Using these inputs we will estimate the direct and externality benefits currently
accruing to different stakeholder groups in NZ’s metropolitan rail sector. Potential
beneficiary groups include:
  rail patrons;
  road‐based commuters;
  road accident victims;
  landlords and other property owners;
  central and local governments; and
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4  Research Project Outputs
The primary output of this project will be a comprehensive research report suitable for
publication on the NZTA’s website. As outlined above, this report will include a
description of our methodology and findings. We would also be happy to make our
spreadsheet modelling available for publication.

We are well aware that many of the largest and most significant rail‐related decisions
have been highly influenced by political considerations in recent years, and arguably
this is likely to continue. In our view, this is all the more reason to develop and promote
sound advice of the type we propose, firmly grounded in both fact and theory. It is
therefore critical that the report be, and be perceived to be, objective and politically
neutral.

Covec has considerable experience of working successfully to provide sound and
objective advice to government agencies facing politically charged environments. In the
last 2‐3 years we have completed such projects for three different government agencies
in connection with

  the government’s investment in UltraFast Broadband
  amendments to the legislation governing the dairy industry; and
  regulating natural monopolies.

In our experience, stakeholders are more inclined to buy into and respect analysis of this
type if they are engaged in a respectful and disciplined way during the process of
analysis. We will work closely with NZTA to form an appropriate steering group and
will then strive to ensure that each member of this group is able to understand and
respect the final outputs.

In summary, this is not simply a report writing project. Rather, NZTA can be assured
that Covec, while working towards the final report, will:

  interact with stakeholders in a respectful and disciplined manner;

  seek to accommodate alternative views where possible but in any case ensure
they are covered in the report; and

  do our utmost to ensure NZTA’s satisfaction.
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5  Implementation
We expect that the primary end users of this research will be the NZTA itself, other
central government transport policymakers (e.g. the Ministry of Transport), funding
agencies (eg Auckland Transport) and metropolitan rail service operators.

As outlined above, our research report will include specific recommendations in terms
of the cost shares that would be appropriate for all relevant stakeholder groups, and
high‐level recommendations regarding rail fares. It seems likely that implementation of
the recommendations will require actions by several different agencies. For example, to
the extent that rates funding is appropriate, local government Councils will need to be
involved in order to secure full implementation.

In the event that discussions and/or negotiations are required to progress
implementation through agencies that are “one step removed” from rail industry issues,
Covec is willing and able to assist in those processes, pursuant to a follow‐on contract.
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6 Risk Assessment
The primary risks of this project are related to the methods used in the empirical
estimation of key parameters. As noted above, Covec is willing and able to formulate
and estimate robust econometric models for this purpose, but doing so within the
available timeframes will require early access to suitable data. We will pursue this
matter vigorously at the outset of the project, but there is a risk that we will need to rely
instead on third party estimates for some of the key parameters.

There are no material risks regarding Covec personnel. We have put forward a strong
and well‐balanced team that is not unduly reliant on any single person, and are
therefore confident that the project could be delivered on‐time and to a high standard
even if one of our team became unavailable for any reason.

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7  Research Capability, Experience & Capacity
7.1
Proposed Team
Covec is pleased to offer a highly experienced team for this project. The team has many
successful projects to its credit, including work involving

  the estimation of externalities associated with rail transport;

  welfare and regulatory economics for government agencies; and

  detailed financial modelling

Further details of our relevant experience are given in section 7.2 below.

Following are brief details of the proposed team members and their proposed roles in
the project. Full CVs are attached to this proposal.

Reuben Irvine is an economist with over 10 years of professional experience. He has
expertise in competition, regulatory and taxation economics, and experience in
analysing economic, regulatory and public policy issues across a wide range of sectors,
including network industries, such as telecommunications. Reuben has particular
expertise in analysing complex issues in welfare economics including the interaction of
direct and external costs and benefits. For this project, Reuben Aaron will be the project
leader, responsible for management and delivery, and will be NZTA’s primary point of
contact.

Dr Aaron Schiff is an economist with ten years of consulting and academic experience.
He is highly skilled in data analysis and economic modelling. Aaron has recently led a
research project on aviation data gaps and indicators for the Ministry of Transport and
is currently leading work on transport indicators for NZTA. He has also led work for
Watercare on demand forecasting and tariff design, and consulted for a range of sectors
in New Zealand and abroad, including transport, telecommunications, banking and
payment systems. Aaron will be involved in all aspects of this project.

Dr John Small has over 20 years of experience in econometrics, economic analysis and
public policy. He has worked in across all utility sectors and advised key decision
makers at the highest levels of government and industry. John previously led Covec
work to develop a model for evaluating public rail infrastructure investment (including
externalities) for the Ministry of Transport, and has recently been closely involved in
advising government agencies on sensitive issues related to fibre‐optic investment
(UFB), the dairy sector, and the design of economic regulation. John will be involved in
all aspects of this project.

Dr Tim Denne has 25 years of experience in economic analysis and public policy. He
has worked in transport, energy, natural resource, industrial and environment sectors.
Recently his work has included difficult applications of welfare economics to the design
of bio‐diversity offsets, and to the analysis of bus transport in Auckland. Tim was
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previously a member of the core team designing the ETS and he has advised the
Ministry of Justice on risk measurement approaches that could be used as the basis for a
risk‐based alcohol licence fee, and data gap analysis for MfE to assist it in its analysis of
the value of alternative water allocation approaches. Tim will be involved with all
aspects of this project, particularly in relation to the treatment of externalities.
7.2
Relevant Experience
Covec is New Zealand’s foremost economics and research consultancy. We are regularly
tasked to analyse and advise government agencies on the most difficult and contentious
of issues. Our analytical approach is firmly grounded in economic theory, uses data and
other information judiciously, and is reported through clear, concise and complete
documents. While we have used and are familiar with all of the tools and modelling
techniques available to modern economists, we are also acutely aware that tool/model
selection is a rare skill. For example, if a general equilibrium model is necessary and
appropriate, we will use it. However in many cases (including this one), there are much
better methods available.

In selecting recent experience of relevance to this project we have chosen projects that
illustrate the following features of our track record.

  Transport economics
  Rail investment
  Tariff setting
  Cost allocation
  Financial modelling
  Welfare analysis
  Political sensitivity
  Econometrics and statistics

More details of Covec’s experience and expertise can be found on our website at
www.covec.co.nz.

Rail Infrastructure Investment Appraisal: Covec was engaged (in 2005‐06) by the
Ministry of Transport to develop a framework for evaluating public investment in rail
infrastructure. The purpose was to assist the Ministry to develop sound advice for
Ministers in response to requests for funding from the monopoly network
owner/operator. The framework was oriented towards rail freight rather than
metropolitan rail. It incorporated externalities including those arising from reductions in
road freight and was encapsulated in a written report and a spreadsheet model. [Rail
investment, transport economics, welfare analysis, econometrics and statistics]

Bus Contract Benchmarking: Covec is assisting NZTA to develop a benchmarking
approach to public transport contracting. This would enable regional councils to use
information from competitive bids to inform price setting for negotiated contracts. It is
examining the feasibility of a benchmarking system based on different levels of data
availability and includes the evaluation of systems using data envelopment analysis
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(DEA), econometrics and component cost benchmarking. [transport economics,
econometrics and statistics]

Transport Indicators and Benchmarking: Covec is currently working for NZTA to
develop a framework for measuring the contribution of land transport to the wellbeing
(welfare) of New Zealanders. This project involves developing indicator definitions,
reviewing international practice, and making recommendations for specific indicators
and how these could be presented in a coherent wellbeing framework. [transport
economics]

Vehicle Fleet Model: Covec developed for EECA a model of the vehicle fleet that
includes vehicles in size, age, and fuel categories, plus projections of vehicle kilometres.
It is used to project future fuel demand and to analyse the impacts of technology shifts
and government policy. [transport economics, econometrics and statistics]

TMIF Aviation and Maritime Data Gaps: Covec was engaged by the Ministry of
Transport to undertake two separate projects to review existing aviation and maritime
data in New Zealand and assess data gaps in the Ministry’s Transport Monitoring
Indicators Framework (TMIF). These projects involved developing a set of data
definitions (consistent with international standards), developing methodologies for
populating the indicators, assessing available data, and consulting with the aviation and
maritime industries regarding the practicalities of populating the indicators. [transport
economics]

Monopoly Regulation: Covec has been advising the New Zealand Commerce
Commission for several years on aspects of its monopoly regulation regime under the
Commerce Act. Of particular relevance here, we advised on cost allocation issues, which
are important for regulated airports and electricity distribution businesses. We also
advised in detail on the valuation of regulated assets and depreciation policies both of
which are relevant to KiwiRail’s network business. [tariff setting, cost allocation, political
sensitivity]

Dairy Economics: Covec was asked to assist the Ministry of Agriculture and Fisheries
(now MPI) to assess Fonterra’s pricing for farm gate milk during 2011‐12. We developed
a conceptual framework, interrogated Fonterra’s modelling (including cost allocation
issues) and advised on several contentious aspects of the legislation recently passed by
Parliament. [tariff setting, cost allocation, financial modelling, political sensitivity]

Telecommunications Liberalisation: Covec advised the governments of Vanuatu and
the Solomon Islands (2007‐8) during separate processes, each of which resulted in
monopoly telecommunications companies yielding their franchise licences several years
early and accepting a new model of regulated competition. Our work involved face‐to‐
face negotiations, detailed modelling of the financial implications for the monopolists,
tariff design, and the design of regulatory regimes. In the case of Vanuatu, Covec was
subsequently contracted to regulate the market for the first three years following
liberalisation. [tariff setting, welfare analysis, financial modelling, econometrics and statistics,
political sensitivity]

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Welfare Economics in Network Industries: In June 2012, Covec taught a three‐day
short course for analysts at the New Zealand Treasury on the subject of competition and
regulation in network industries. The course included coverage of foundational
concepts drawn from welfare economics, the theory and practice of economic regulation
in New Zealand and elsewhere, and the tools and methods of competition analysis. The
course was well received and we have recently agreed to repeat it for the Government
Economics Network over the next two weeks. [welfare analysis, cost allocation, tariff
setting]
7.3
Track Record
The following projects in addition to those listed in the previous section demonstrate
Covec’s track record in providing similar services.

Project name
Economic Framework: Land Transport Funding Decisions
Covec was commissioned to develop a framework that the
Ministry of Transport could use to compare alternative solutions
to funding shortfalls arising in the context of the “pay-as-you-
go” approach to land transport funding in New Zealand. The
Description
alternative options included deferral of some projects, increasing
fuel taxes and RUCs, and borrowing. Starting from first
principles, we used the concepts and methods of economics to
develop and illustrate a robust and useable framework.
Location
Auckland
Contract value
s 9(2)(b)(ii)
Programmed completion date
June 2012
Completion date
June 2012
Margaret Mabbett
Manager, Funding and Infrastructure, Ministry of Transport
Client contact
s 9(2)(a)

[email address]

Project name
Water demand modelling and forecasting
Watercare engaged Covec to analyse and model the drivers of
demand for water in Auckland. This data-intensive project
involved time-series analysis of demand trends, as well as
cross-sectional analysis of demand across Auckland as a
Description
function of population and business characteristics in different
areas. The resulting data analysis was presented in a
comprehensive report to Watercare, with visualisations of
demand and the relationships to demand drivers, as well as a
spreadsheet model capturing these relationships.
Location
Auckland
Contract value
s 9(2)(b)(ii)
Programmed completion date
October 2011
Completion date
November 2011
Charlotte Reed
Tonkin & Taylor
Client contact
(formerly Demand Management Planner at Watercare)
s 9(2)(a)

[email address]

Project name
Analysis of Air NZ – Virgin Alliance
For the Ministry of Transport, Covec undertook an economic
competition and welfare analysis of the proposed trans-Tasman
alliance. This involved extensive data analysis and quantitative
Description
modelling of trans-Tasman airfares and demand (passenger
flows), using data from arrival and departure cards and
commercial data sources.
Location
Wellington
Contract value
s 9(2)(b)(ii)
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Programmed completion date
December 2010
Completion date
December 2010
John Macilree
Principal Advisor, Ministry of Transport
Client contact
s 9(2)(a)

[email address]
7.4
Capacity and Technology
We expect that completing this project will require approximately 320 hours work over
approximately six months assuming most of the work will be completed by the end of
March 2013 as envisaged in the milestone schedule. This represents less than a 10%
workload on average for the team members. Taking into account expected other work
over the project timeframe; we are confident that we have sufficient capacity to
complete this project by the deadline.

No significant equipment or technology will be required for this project beyond
standard computer hardware and software, which we already have available.

7.5
References or Reference Sites
The following referees can be contacted in relation to our experience and expertise:

Margaret Mabbett
Manager, Funding & Infrastructure, Ministry of Transport

[email address]

s 9(2)(a)

Andrew Hume
Manager, Resource Management Policy, Ministry for Primary
Industries

[email address]

s 9(2)(a)

Calum Gunn
Chief Advisor, Regulation Branch, Commerce Commission

[email address]

s 9(2)(a)

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8  Project Steering Group and Peer Review
8.1
Project Steering Group
We propose to discuss the precise composition of the steering group with NZTA.
However at this point it would seem helpful to have representatives from the following
organisations present:

  NZTA

  The Ministry of Transport

  Auckland Transport

  Kiwi Rail

  Veolia

  Greater Wellington Regional Council

  Auckland Council
8.2
Peer Review
A complete draft report will be peer reviewed by milestone 6 of milestone schedule
presented above. The draft final report provided to NZTA will incorporate the
reviewers’ comments.

We propose that one of the peer reviewers be:

Dr Adolf Stroombergen
Chief Economist and Director

Infometrics

Rather than approaching a second peer reviewer at this proposal stage, we would like to
discuss this choice with NZTA. The main alternatives we propose would be

(a)  An econometrics specialist, in the event that the data are available to undertake
our own modelling directly; or

(b)  An international specialist in rail funding.
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(c)
Annex A: Company Detail
a.  Full legal name:

Covec Limited

b.  Trading name:

Covec Limited

c.  Contact person:

John Small
Covec
PO Box 3224, Shortland St, Auckland
09 916 2012
[email address]

d.  Contract authority:

Same as contact person

e.  GST registration number:

80‐555‐199

f.  Financial viability and stability:   Covec has been in business for over 10 years and
is currently profitable. Financial accounts are available on request.

g.  Confidentiality:

We confirm that our employees’ agreements and
subcontractor or consultant contracts stipulate that the information gained by
individuals working on customer projects is not to be commercially exploited, nor
disclosed to any party after such agreements or contracts have been terminated.

h.  Legal status:

Limited liability

i.  Country of residence:

New Zealand

j.  Details of owners/controllers:
Tim Denne
John Small
Shane Vuletich

k.  Insurance:

Professional indemnity
Up to NZ$2,000,000
QBE Insurance (International) Ltd

General liability
Up to NZ$2,000,000
QBE Insurance (International) Ltd

Lawyers:

Webb Henderson

Level 1, 110 Customs St West

PO Box 105‐426, Auckland

09 970 4100

[email address]

Proposal. Metropolitan Rail: External Benefits and Optimal Public Funding
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Schedule 1: TAR 12/10 - Final and agreed research brief

Bankers:

Kevala Shismanian

ASB

0800 272 222

[email address]

Accountants:

Lynne Small
Earthstar Chartered Accountants
s 9(2)(a)

[email address]
Proposal. Metropolitan Rail: External Benefits and Optimal Public Funding
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Schedule 1: TAR 12/10 - Final and agreed research brief

Dr John Small
Employment History

Director
John applies the tools and techniques of
Covec, New Zealand
economics to issues at the boundary
2001 – Present
between public policy and private business,
and on either side of that boundary.
Lay Member

High Court of New Zealand
He has worked in all major network
2003 – Present
industries, in banking and finance,
agriculture, food processing, and on
Head of Department, Economics
regional economic development. He is
University of Auckland
particularly interested in competition,
2003 – 2004
regulation, market risk assessment, efficient
Director
contracting, and start‐up businesses.

CRNEC – University of Auckland

1998 – 2004
Areas of Expertise
Director
  Competition & regulatory economics
Network Economics Consulting Group,
  Economic & social development
Australia
  Economic modelling & analysis
1998 – 2001
  Financial analysis
Lecturer & Senior Lecturer, Economics
  Forecasting & projections
University of Auckland, New Zealand
  Research & data collection
1994 – 2004

Lecturer, Economics

University of Canterbury, NZ
Education
1993
PhD in economics
The University of Canterbury, 1993
Teacher, Mathematics
Karamea School, Karamea, NZ
BA in economics (1st class honours)
1987 – 1988
The University of Canterbury, 1990

BSc in economics
The University of Canterbury, 1989

Proposal. Metropolitan Rail: External Benefits and Optimal Public Funding
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Schedule 1: TAR 12/10 - Final and agreed research brief

Experience – Representative Sample
negotiations with incumbent
telecommunications company to prematurely
Telecommunications Regulation. Won
end its statutory monopoly Work required
international tender to supply and support the
forecasting of company profits under status‐
first independent regulator of
quo and competitive scenarios.
telecommunications in Vanuatu.
Government of Vanuatu, 2007
AUSAID, 2008‐10
Government of Solomon Islands, 2009‐09
Dairy Economics. Expert advice to team of
Gas Pipeline Investment: appointed to a Panel
officials co‐ordinated by MAF to investigate
of Expert Advisors convened by gas industry
milk pricing in New Zealand. MAF, 2011‐12.
co‐regulator to reform gas pipeline access
Infrastructure Valuation and Cost Recovery.
arrangements and investment approval
Expert advisor to Commerce Commission
processes.
during development of “input methodologies”
Gas Industry Company, 2011‐12
that define how regulation will be applied to
Demand for Fibre Services in Auckland: Major
electricity and gas networks and airports.
report quantifying potential demand for fibre‐
Commerce Commission, 2009‐10.
to‐the‐home and modelling the business case
Market Rules. Expert advisor on proposed
for investment.
change to rules governing wholesale electricity
Auckland, Manukau and Waitakere Cities, 2008
market in Australia. Australian Energy Markets
Broadcast Royalties: Economic analysis of the
Commission, 2012.
appropriate royalty payable by radio
Heritage Valuation. Investigating the value to
broadcasters to recording companies pursuant
society at large from planning restrictions
to a reference to the Copyright Tribunal,
designed to preserve heritage features in
including econometric modelling of the value
certain Auckland locations. Auckland City
to record companies of radio airplay.
Council, 2008‐10.
Radio Broadcasters Association, 2008‐09
Water Development Options: Two reports.
Electronic Payments. Developed an electronic
One focused on evaluation of alternative (and
payments strategy for national grocery retailer
complementary) options for augmenting
faced with significant increases in transaction
supplied of fresh water (including demand
costs due to industry shifts.
management); the other evaluating network
Foodstuffs, 2011
development options for waste water
Electricity Market Reform. Sequence of
infrastructure. This work was undertaken as
meetings with Minister of Energy to explore
part of the “three waters” programme of work.
options for significant adjustments to NZ
Watercare Ltd, 2007.
electricity market arrangements.
Waste Policy: Advising on costs and benefits
Ministry of Economic Development, 2006
of alternative methods for reducing waste‐to‐
Oil Security: Economic analysis of the social
landfill in the Auckland region..
value to New Zealand of holding additional
Auckland Council, 2011‐12
oil stocks and on mechanisms for increasing
Aviation Merger: Economic modelling to
stocks and the competitive impacts of these.
predict the impact of a proposed trans‐Tasman
Ministry of Economic Development, 2004
alliance between Air New Zealand and Virgin
Electricity Network Modelling: Econometric
on aviation competition and the New Zealand
modelling and other advice for new regulatory
economy more generally.
regime for electricity distribution companies.
Ministry of Transport, 2010‐11
NZ Commerce Commission, 2003
Telecommunications Negotiations: Economic
modelling of compensation and direct
Proposal. Metropolitan Rail: External Benefits and Optimal Public Funding
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Schedule 1: TAR 12/10 - Final and agreed research brief

California Grid Investment with Real Options:
Small, J. (2002) “Public Sector Reform in New
Development and application of a real options
Zealand: Implications for Japan”, The Otemon
methodology for assessing grid investment
Journal of Australian Studies 28: 115‐124.
proposals taking generation investment into
account, with London Economics
Reeves, J.J. (2000) C.A. Blyth, C.M. Triggs and
International.
J.P. Small, “The Hodrick‐Prescott Filter, a
California Independent System Operator, 2001‐02
Generalization, and a New Procedure for
Extracting an Empirical Cycle from a Series”,
Bank Capital Modelling: Jointly commissioned
Studies in Nonlinear Dynamics and Econometrics
by banks to build econometric model linking
4(1): 1‐16.

the real business cycle to the rate of bank asset
impairment.
Small, John (2000) “An Overview of Utility
Westpac, ANZ Bank, ASB Bank, Bank of New
Regulation in New Zealand”, G. Lawrence
Zealand, 2007
(ed.), Utility Regulation in Australia and New
Zealand, Thompson Financial, London Ch 4.
Consumer Behaviour – Forex Conversions:
Econometric modelling of consumer reactions
Small, John (2000) “The Distribution of
to extra disclosure of international currency
Estimates of the Marginal Cost of Taxation”, in
conversion fees on credit card statements.
G.W. Scully and P.Caragata (eds), Taxation and
Bank of New Zealand, 2006
the Limits of Government, Kluwer Academic
Publishers, MA, 115‐126.
Inflation Forecasting – RBNZ: Comparative
study of empirical methods for forecasting
Small, John and Patrick Caragata (2000) “The
inflation.
Effect of Aggregate Tax Levels on Output
Reserve Bank of New Zealand, 1995
Growth in New Zealand”, in G.W. Scully and
P.Caragata (eds), Taxation and the Limits of
Tax Policy Econometrics: Sequence of projects,
Government, Kluwer Academic Publishers,
1992‐97. Work included empirical analysis of
MA, 89‐98.
tax policy and the construction of the first
formal revenue forecasting model, which is
Small, John P. and Patrick Caragata (2000)
still in use today.
“Regression Based Estimation of Effective Tax
New Zealand Inland Revenue Department, 1992‐7
Rates” in G.W. Scully and P.Caragata (eds),
Taxation and the Limits of Government, Kluwer

Academic Publishers, MA, 289‐305.
Publications
Mckenzie, D. and J. Small (1997) “Econometric
Small, John, (July 2009) “Utility Regulation in
Cost Functions for Cellular Telephony in the
New Zealand”, Network 32: 1‐6.
United States”, Journal of Regulatory Economics
12: 147‐157.
Guthrie, G., J. Small, and J. Wright, (2006)
“Pricing access: Forward‐looking versus
Small, J.P. (1997) SHAZAM 8.0: A Software
backward‐looking cost rules”, European
Review, Journal of Economic Surveys, 11: 447‐453.
Economic Review 50(7): 1767‐1789.
Small, J.P. and A. Harris (1996) “Universal
Small, J. (2004) “Market definition and the
Service and Local Telephone Network Access”,
design of competitive electricity industries”,
in Hansen S. (ed) Universal Service with Network
Competition and Consumer Law Journal 12(2):
Competition, CRNEC, University of Auckland.
236‐246
Small, J.P. (1995) ʺTesting and Estimation with
Aoki, R., and J. Small, (2004) “Compulsory
Seasonal Autoregressive Mis‐specificationʺ,
Licensing of Technology and the Essential
Journal of Quantitative Economics, 11: 21‐33.
Facilities Doctrine”, Information Economics and
Policy 16: 13‐29.
Small, J.P., D.E.A. Giles and K.J. White,
(1994)ʺThe Exact Powers of Some
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Schedule 1: TAR 12/10 - Final and agreed research brief

Autocorrelation Tests When Relevant
Regressors are Omittedʺ, Journal of Statistical
Computation and Simulation 50: 45‐57.
Small, J.P. (1994) ʺThe Exact Power of Some
Autocorrelation Tests When the Disturbances
are Heteroscedasticʺ, Journal of Econometrics 61:
383‐394.
Small, J.P. (1993) ʺThe Limiting Power of Point
Optimal Autocorrelation Testsʺ, Communications
in Statistics (Theory and Methods), 22:2463‐2470.
Giles, D.E.A. and J.P. Small (1991) ʺThe Power
of the Durbin‐Watson Test When the Errors
are Heteroscedasticʺ, Economics Letters 86:441‐
446.

Proposal. Metropolitan Rail: External Benefits and Optimal Public Funding
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Schedule 1: TAR 12/10 - Final and agreed research brief

Employment History
Dr Aaron Schiff
Director
Covec, New Zealand

2002 – 2006 & 2008 – Present
Aaron specialises in theoretical and
empirical economic modelling, regulatory
Visiting Fellow
and competition issues, intellectual property
Centre for Air Transport Research
and innovation, forecasting, and data
University of Otago, New Zealand
analysis and visualisation.
2009 – 2010

He has published papers in peer‐reviewed
Lecturer
international journals, and has consulted for
Department of Economics
a number of sectors in New Zealand and
University of Auckland, New Zealand
abroad including fixed and mobile
2002 – 2006 & 2008 – 2009
telecommunications, banking, payments
systems, and aviation.
Visiting Researcher

Institute of Economic Research

Hitotsubashi University, Japan
Areas of Expertise
2006 – 2008


Industrial organisation

  Competition policy
Examples of Relevant Experience
  Regulatory economics
Aviation Data: Review of New Zealand
  Intellectual property economics
aviation indicator data and development of
recommendations for filling data gaps.
  Data and statistical analysis
NZ Ministry of Transport, 2011
  Econometrics and forecasting
Data Analysis: Econometric analysis of the
  Quantitative modelling
drivers of water demand in Auckland.
  Telecommunications
Watercare, 2011
  Network economics
Economic Modelling: Economic analysis of
  Aviation
the welfare effects of constrained
  Payment systems
competition on a major gas pipeline.

Gas Industry Company, 2011

Education
Economic Modelling: Quantitative public
interest analysis of a proposed alliance
PhD in economics
between Air New Zealand and Virgin Blue.
The University of Auckland, 2005
NZ Ministry of Transport, 2010
MCom in economics (1st class honours)
Data Analysis: Business case modelling of
The University of Auckland, 2000
investment in rural broadband.
BCom in economics
Vodafone New Zealand, 2010
The University of Auckland, 1998
Forecasting: Preparation of the official New

Zealand tourism forecasts.
NZ Ministry of Tourism, 2002 – 2010
Proposal. Metropolitan Rail: External Benefits and Optimal Public Funding
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Schedule 1: TAR 12/10 - Final and agreed research brief

Data Analysis: Development of a retail
Aoki, R. & A. Schiff (2010). Intellectual
performance benchmarking system.
property clearinghouses: The effects of
A major New Zealand Bank, 2010
reduced transaction costs in licensing.
Information Economics and Policy, 22: 218‐227.
Data Analysis: Development of a website
for benchmarking the performance of firms
Aoki, R. & A. Schiff (2010). Clearinghouses,
within peer groups.
patent pools and incentives to innovate. In
Benchmark New Zealand, 2009
Aoki, R. (ed.) Topics in Economics of
Intellectual Property and Innovation, Maruzen:
Economic Modelling: Analysed and
Tokyo.
modelled the effects of additional
competition in international internet
Becken, S., M. Nguyen & A. Schiff (2010).
bandwidth on retail broadband markets in
Impact of oil prices on New Zealand
New Zealand.
tourism: An economic framework. Land,
Kordia, 2009
Environment & People Report No. 12, Lincoln
University.
Aviation: Economic analysis of the key
drivers of the New Zealand aviation sector.
Schiff, A. (2009). New Zealand aviation data
New Zealand Ministry of Tourism and
review. Report for Centre for Air Transport
Foundation for Research, Science and
Research.
Technology, 2009 – 2010
Becken, S., A. Carboni, S. Vuletich & A.
Tourism: Assessment of the impact of
Schiff (2008). Analysis of tourist
higher oil prices on New Zealand inbound
consumption, expenditure and prices for
tourism.
key international visitor segments. Land,
Foundation for Research, Science and
Environment & People Report No. 7, Lincoln
Technology, 2008
University.

Kennes, J. & A. Schiff (2008). Quality
Publications
infomediation in search markets,
International Journal of Industrial
Duval, D. & A. Schiff (2011). Effect of air
Organization, 26: 1191‐1202.
services availability on international visitors
to New Zealand. Journal of Air Transport
Schiff, A. (2008). The ‘waterbed’ effect and
Management, forthcoming.
price regulation, Review of Network
Economics, 7: 392‐414.
Haab, T. C., A. Schiff & J. Whitehead (2011).
Web 2.0 and economic education. In K.
Aoki, R. & A. Schiff (2008). Promoting
McGoldrick & G. Hoyt (eds.), International
access to intellectual property: Patent pools,
Handbook on Teaching and Learning
copyright collectives and clearinghouses,
Economics, Edward Elgar, forthcoming.
R&D Management, 38: 189‐204.
Becken, S. & A. Schiff (2011). Distance
Kennes, J. & A. Schiff (2007). Simple
models for New Zealand international
reputation systems, Scandinavian Journal of
tourists and the role of transport prices.
Economics, 109: 71‐91.
Journal of Travel Research, forthcoming.
Schiff, A. (2003). Open and closed systems
Becken, S. & A. Schiff (2011). Demand
of two‐sided networks, Information
elasticity estimates for New Zealand
Economics and Policy, 15: 425 – 442.
tourism. Tourism Management, 32: 564‐575.
Proposal. Metropolitan Rail: External Benefits and Optimal Public Funding
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Schedule 1: TAR 12/10 - Final and agreed research brief

Schiff, A. (2002). Two‐way interconnection
with partial consumer participation,
Networks and Spatial Economics, 2: 295 – 315.
Schiff, A. (2002). The economics of open
source software: A survey of the early
literature, Review of Network Economics, 1: 66
– 74.
Schiff, A. & P. C. B. Phillips (2000).
Forecasting New Zealand’s real GDP, New
Zealand Economic Papers, 34 (2): 159 – 182.

Awards
Japan Society for the Promotion of Science
Postdoctoral Fellowship, 12/2006 – 5/2008.
Japan Society for the Promotion of Science
Grant‐in‐Aid for Scientific Research, 2007.
University of Auckland new staff research
grant, 2006.
Econometric Society Australasian Meetings
postgraduate travel award, 2003.
University of Auckland graduate research
fund grant, 2003.
Vodafone Doctoral Scholarship in Network
Economics, 2000 – 2002.
University of Auckland Graduate
Scholarship, 1999.
Senior Scholarship in Economics, 1998,
University of Auckland.
Flying Officer Alfred P. Fogerty Scholarship
in Economics, 1997.
Proposal. Metropolitan Rail: External Benefits and Optimal Public Funding
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Schedule 1: TAR 12/10 - Final and agreed research brief

Dr Tim Denne
Employment History

2003‐    Covec Ltd
Tim Denne is an economist with over 25
2002‐03 – Strategy Leader, Auckland
years’ experience in policy, economic and
Regional Council
financial analysis, and design of policy
2000‐02‐ Oxford Economic Research
and markets. He writes policy and
Associates
strategy papers, develops numerical
1999‐00 Center for Clean Air Policy,
models and economic analyses. He has
Washington DC
led numerous consultancy studies,
1990‐94, 96‐99 Environmental Resources
chaired government‐industry
Management, UK
workgroups, workshops and meetings,
1988‐90, 95‐96 Ministry for the
and is a frequent conference speaker. He
Environment, NZ
has advised private companies,
1986‐88 Research Fellow, Imperial College,
government departments and local
UK
authorities in many countries.
1985‐86 Research Economist, UK CEED

1983‐84 Research Assistant, Centre for
Previously he has worked in central and
Resource Management, NZ
regional government in New Zealand,

including (briefly) as strategy leader at

the Auckland Regional Council. He was
Key Industry Sectors
formerly Senior Managing Consultant at
  Natural Resources
Oxford Economics Research Associates.
  Energy‐intensive manufacturing

  Electricity generation

  Waste & recycling
Areas of Expertise
  Forestry
  Policy & cost benefit analysis
  Transport
  Financial Analysis
  Ports
  Energy & climate change

  Environment & natural resource

management
Examples of Relevant Experience
  Transport
Bus contract price benchmarking (2011)
  Forecasting & projections
assisting NZTA to develop a methodology to
  Commercial transaction support
improve the efficiency of negotiated public

transport contract pricing.

Harvested Wood Product Accounting (2011)
Education
assisting MAF to evaluate alternative
approaches to accounting for emissions from
MSc (1st Class Hons) Resource Management,
forestry in the Emissions Trading System.
University of Canterbury   1983

PhD University of London  1988
Gas demand forecasting (2010‐11) providing a
regulated utility with a set of demand
forecasts to support its proposed Regulated
Asset Base.
Evaluation of the NZ Insulation Fund (2010‐
11) A cost benefit analysis of the government’s
subsidy programme for insulation and clean
heating, including energy saving and health
benefits.
Proposal. Metropolitan Rail: External Benefits and Optimal Public Funding
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Schedule 1: TAR 12/10 - Final and agreed research brief

Regulatory Impacts of Options for the
and rate) to meet a range of organisational
Foreshore and Seabed (2010) Inputs to the
objectives.
government’s RIS for new legislation options
Economic evaluation of potential for biofuels
for the foreshore and seabed for Ministry of
in New Zealand (2006) analysis for Ministry of
Justice.
Transport of costs of meeting biofuel supply
Possible Impacts of the Foreshore and
targets, plus recommendations on policy
Seabed Legislation on Port Companies (2010)
options to achieve targets.
for Ministry of Justice.
Social and Economic Impacts of Vehicle
Property rights and the Foreshore and Seabed
Emission Limits (2006) an analysis for
(2009) A thinkpiece for the Ministry of Justice
Ministry of Transport of the impacts of
on economic theory as it applies to property
regulations to control the emissions rates of
rights issues and the foreshore and seabed.
imported vehicles.
Estimating the impacts of loss of fishing
Review of Policy Instruments to Reduce
grounds (2009) A study of the costs of closure
Greenhouse Gas Emissions in the Transport
of commercial fishing grounds and the
Sector (2005) Evaluation for MfE of policy
distribution of those costs.
options for reducing fuel use in the transport
sector.
Analysis of Energy Efficiency, Energy
Conservation and Renewables Policy (2009‐
Oil Demand Restraint (2005) A review of
10) An analysis of the market failure
options for rapid reductions in demand for oil
justification for energy policy interventions
products and recommendations for an
and the possible net benefits of specific
Emergency Response Plan. (MED)
measures. For Ministry of Economic
Review of MED energy modelling (2005) A
Development.
detailed assessment of MED’s energy supply
Allocation of Emission Units under the ETS
and demand model relative to its objectives
(2009‐10) Development of rules for the free
and international best practice.
allocation of emission units for stationary
Recommendations are made for model
energy and industrial process emissions.
development.
Assistance to MfE in the roll‐out of the
Costs and benefits of oil security in New
allocation programme.
Zealand (2004‐05) A review for MED of the
Forecasting coal prices (2009) An examination
costs and benefits of increasing levels of oil
of current and projected future coal prices in
storage to meet the IEA’s 90 day storage
domestic and international markets (for
requirement.
Ministry of Economic Development).
Stakeholder Review of MED energy
Fuel rationing (2009) Design of a system of
modelling (2004) A review of stakeholder uses
liquid fuel quantity rationing that could be
of MED energy model output and the Energy
used in the event of a significant supply
Outlook as an input to planning for
failure. For Ministry of Economic
development of MED energy modelling
Development.
capability.
Forecasting demand for liquid fuels in NZ
Social and Economic Impacts of Vehicle
(2008) As part of the preparation for the sale of
Emissions Testing (2004‐05) Analysis for the
Shell’s NZ assets, this project involved the
Ministry of Transport of the likely impacts on
development of a projection model for
vehicle owners of a vehicle emissions testing
demand in all sectors.
rule. The study combines a database of the
emission characteristics of the vehicle fleet,
Financial viability of NZ Steel (2008) an
vehicle ownership data matched to socio‐
assessment of the medium‐run viability and
economic characteristics linked to the owner’s
expected production levels at NZ Steel’s
location.
Glenbrook plant as an input to the valuation of
the on‐site power plant for a potential

purchaser.

Water tariffs (2007) Assisting Metrowater to
develop an appropriate set of tariffs (structure
Proposal. Metropolitan Rail: External Benefits and Optimal Public Funding
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Schedule 1: TAR 12/10 - Final and agreed research brief

Reuben Irvine
Examples of Relevant Experience

Maritime Activity Indicators: Provided
Reuben is an economist with over 10 years
recommendations for filling data gaps
of professional experience. As a consulting
regarding the maritime transport sector.
economist he has expertise in competition
Ministry of Transport, 2011
and regulatory economics, and experience
in analysing economic, regulatory and
Coastal erosion protection: Cost‐benefit
public policy issues across a wide range of
analysis of proposed coastal erosion
sectors, including environmental policies.
protection measures.

Hastings District Council, 2011
Reuben has also worked in highly‐regarded
Electricity grid investment: Analysis of
public sector organisations both in New
potential economic benefits from additional
Zealand and abroad, where he has
grid investment in the lower South Island.
undertaken complex policy and economic
Transpower, 2010
analysis, research and has been involved in
the legislative process.
Forestry: Cost‐benefit analysis of proposed

national standards for plantation forestry.

Ministry for the Environment, 2010
Areas of Expertise
Urban limits and infrastructure costs:
•  Policy and cost‐benefit analysis
Economic analysis of proposed Tauranga
•  Competition analysis
urban limits and impacts on infrastructure
costs and funding.
•  Regulatory analysis.
Environment Bay of Plenty, 2009
•  Legislative process
Telecommunications regulation – Vanuatu:

Provided ongoing economic assistance to
Vanuatu Telecommunications Regulator.
Education
Work included analysis of antitrust
MCom in economics
implications of retail pricing schemes, design
The University of Auckland, 2002
and implementation of Universal Access
Policy, and training in competition economics.
BCom in economics
Government of Vanuatu, 2008‐2010
The University of Auckland, 1997
Water pricing: Analysis of Metrowater’s

water pricing.
Employment History
Auckland City Council, 2008
Consulting Economist
Solar/gas household water heater subsidy:
Covec, New Zealand
Policy advice on the subsidisation of solar
2006 – Present
and gas water heaters, including analysis of
retail markets for electricity, gas and
Economist
household water heaters.
The Competition Authority, Ireland
NSW Dept of Environment and Climate
2002 – 2005
Change, 2007
Policy Analyst/Senior Policy Analyst

Policy Advice Division, Inland Revenue,

New Zealand

1998 – 2002

Proposal. Metropolitan Rail: External Benefits and Optimal Public Funding
40