Economic Efficiency. Market Failure and Regulation

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

• Functions
• Administers Access to Monopoly Infrastructure
• Licenses Service Providers
• Monitors Regulates Markets
• Inquiries (Referred by Government)

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The Governing Body

• Full Time Chairman Lyndon Rowe
• Part Time Members Steve Edwell, Peter Panegyres
• Independent of Government, Industry Consumers

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

• Annual Inquiry into the Bunbury and Busselton
  Water Boards Tariffs Feb 2008
• Annual Inquiry on the Water Corporations 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

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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

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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

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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

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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

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

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• Electricity
• Infrastructure
• SWIN
• 30 Licences

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• Rail
• Infrastructure
• Westnet Rail
• PTA

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• Water
• Services
• 30 Licences

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Economic Efficiency

• Technical
• Allocative
• Dynamic

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Electricity
All other commodities
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Producer and Consumer Surplus
Price
p x q Total Revenue
p
Quantity
q
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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
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Market Failure

• Public Goods
• Externalities
• Market Power
• Imperfect Information

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ERA Regulation

• Market Failure is Monopoly Power
• Access
• Monopoly Pricing

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Monopoly Diagram
P
MC
Ppm
AC
Ppo
DAR
MR
Q
Qpo
Qpm
Qe
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Natural Monopoly
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Examples of the Challenge- Water Pricing

• Developer Charges
• Usage Charges
• Fixed Charges

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Examples of Government Failure

• Environmental
• Sprinkler Restrictions in Bunbury
• Recycled Water in Bunbury

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Quantity Restrictions
P
S
D
Q
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Recycled Water in Bunbury
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Concluding Comments
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Economic Efficiency. Market Failure and
Regulation.