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Ownership, regulation, and financial disparity: The case of electricity distribution in Australia

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  • Mountain, Bruce R.

Abstract

Following electricity sector reforms in the late 1990s, prices charged by government-owned distributors in the south and eastern states of Australia more than doubled and the productivity of these government distributors declined. Econometric analysis associates much higher regulated revenues and regulated asset values with government-owned than investor-owned distributors. This disparity is not observed in other countries. Various commonly repeated explanations for higher distributor spending (stricter network planning standards, flawed regulatory rules, flawed appeal mechanisms, catch-up for historic underspending) do not seem to explain the disparity. This analysis suggests that owning governments perceive their cost of capital to be lower than that of their regulated private peers. The perceived premium encouraged government distributors to expand their asset base, and hence their prices and profits. The private-interest theory of regulation provides a plausible explanation for this.

Suggested Citation

  • Mountain, Bruce R., 2019. "Ownership, regulation, and financial disparity: The case of electricity distribution in Australia," Utilities Policy, Elsevier, vol. 60(C), pages 1-1.
    • Handle: RePEc:eee:juipol:v:60:y:2019:i:c:10
    DOI: 10.1016/j.jup.2019.100938
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    Cited by:

    1. Havyatt, David, 2022. "Toward consumer-centric energy network regulation: Australia's experience," Utilities Policy, Elsevier, vol. 78(C).

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    More about this item

    Keywords

    Electricity distribution; Independent regulation; Ownership and regulation; Regulatory capture;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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