With today’s sudden media focus on the “gold plating” of electricity infrastructure driving excessive retail price rises, it seems the Federal Labor government has finally woken up and read its own carbon policy blueprint. From the Garnaut Review:
There is a pressing need to revisit the state-owned distributors. There is an unfortunate confluence of incentives that may be leading to significant over-investment in network infrastructure. It is clear from market behaviour that the rate of return that is allowed on network investments exceeds the cost of supplying capital to this low-risk investment. The problems are larger where the networks continue to be owned by state governments. State government owners have an incentive to over-invest because of their low cost of borrowing and tax allowance arrangements. In addition, political concerns about reliability of the network, and about the ramifications of any failures, reinforce these incentives.
A comparison of costs between Victoria, where the network providers are in private hands, and New South Wales and Queensland, where the network providers are in state hands, provides compelling evidence to support this contention. While there are likely to be genuine differences between the states that explain some of these divergences, it is unlikely that these differences explain the majority of them.
Distribution networks are, of course, natural monopolies. So a strong regulatory regime is required to prevent price gouging.
Given the ceaseless attack on the carbon price, why on earth has it taken so long to make this an issue?