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

Bruce R. Mountain

Utilities Policy, 2019, vol. 60, issue C, -

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.

Keywords: Electricity distribution; Independent regulation; Ownership and regulation; Regulatory capture (search for similar items in EconPapers)
JEL-codes: C51 D72 D78 G18 H21 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.jup.2019.100938

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