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Economic Efficiency. Market Failure and Regulation

Economic Efficiency. Market Failure and Regulation. 2008 /24175. Economic Efficiency. Market Failure and Regulation – The Long Term Interests of Consumers. Lyndon Rowe Chairman Economic Regulation Authority 28 April 2008. The Economic Regulation Authority. Functions

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Economic Efficiency. Market Failure and Regulation

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  1. Economic Efficiency. Market Failure and Regulation 2008/24175

  2. Economic Efficiency. Market Failure and Regulation – The Long Term Interests of Consumers Lyndon Rowe Chairman Economic Regulation Authority 28 April 2008

  3. The Economic Regulation Authority Functions • Administers Access to Monopoly Infrastructure • Licenses Service Providers • Monitors & Regulates Markets • Inquiries (Referred by Government)

  4. The Governing Body Full Time Chairman: Lyndon Rowe Part Time Members: Steve Edwell, Peter Panegyres Independent of Government, Industry & Consumers

  5. Economic Regulation Authority Governing Body Lyndon Rowe – Chairman Steve Edwell – Member Peter Panegyres - Member General Manager Peter Kolf Planning & Executive Support Chris Brown Executive Director Competition Markets & Electricity Robert Pullella Director Gas & Rail Access Russell Dumas Executive Director Licensing, Monitoring & Customer Protection Paul Kelly Director References & Research Greg Watkinson Manager Finance & Administration Pam Herbener

  6. Completed Inquiries - Mostly in the Water Industry • Annual Inquiry into the Bunbury and Busselton Water Boards’ Tariffs Feb 2008 • Annual Inquiry on the Water Corporation’s Tariffs Jan 2008 • School Bus Operators’ Charter Bus Operations Jul 2007 • Annual Urban Water & Wastewater Pricing May 2007 • Harvey Bulk Water Pricing May 2007 • Country Water & Wastewater Pricing July 2006 • Esperance – Kalgoorlie Bulk Water Supply Nov 2005 • Urban Water & Wastewater Pricing Nov 2005

  7. Current Inquiries • Inquiry into Competition in the Water & Wastewater Services Sector • Inquiry into Developer Contributions to the Water Corporation • Review of the Grain Marketing Act 2002

  8. Competition in the Water & Wastewater Services Sector • Terms of Reference • Issues Paper • Submissions closed 31 August 2007 • Draft Report • Submissions closed 1 February 2008 • Further Consultation Report • Submissions due 16 May 2008 • Final Report • Presented to Government 30 June 2008

  9. Developer Contributions to the Water Corporation • Terms of Reference • Issues Paper • Submissions closed 14 December 2007 • Draft Report • Published 14 April 2008 • Submissions due 16 May 2008 • Final Report • Presented to Government 30 June 2008

  10. Review of the Grain Marketing Act 2002 • Terms of Reference • Issues Paper • Submissions closed 8 February 2008 • Draft Report • Published 7 April 2008 • Submissions due 16 May 2008

  11. Gas Pipeline • Infrastructure: • DBNGP • GGP • AGN Dist System • Kambalda Lateral • 7 Licences

  12. Electricity • Infrastructure: • SWIN • 30 Licences

  13. Rail • Infrastructure: • Westnet Rail • PTA

  14. Water • Services: • 30 Licences

  15. Economic Efficiency • Technical • Allocative • Dynamic

  16. Interests of Consumers Optimum Electricity All other commodities

  17. MC Consumer Surplus Producer Surplus Total Cost AR Producer and Consumer Surplus Price p x q = Total Revenue p Quantity q

  18. Supply of Goods & Services Rivalry Private Goods Bread, Butter etc Common Property Fisheries, Water resources etc Not Excludable Excludable Mixed Goods Pipelines, Wires etc Public Goods Free to air, Defence etc No Rivalry

  19. Market Failure • Public Goods • Externalities • Market Power • Imperfect Information

  20. ERA Regulation • Market Failure is Monopoly Power • Access • Monopoly Pricing

  21. Monopoly Diagram P MC Ppm AC Ppo D=AR MR Q Qpo Qpm Qe

  22. Natural Monopoly

  23. Examples of the Challenge- Water Pricing • Developer Charges • Usage Charges • Fixed Charges

  24. Examples of Government Failure • Environmental • Sprinkler Restrictions in Bunbury • Recycled Water in Bunbury

  25. Quantity Restrictions P S D Q

  26. Recycled Water in Bunbury

  27. Concluding Comments

  28. Economic Efficiency. Market Failure and Regulation.

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