WORKSHOP Privatisation and Regulation of Electricity and Energy Utilities

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Privatisation As Easy as ABC?
Prof Graeme Hodge Monash Centre for Regulatory
Studies
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Session Outline

• Privatisation (definition, values and promises)
• Does Privatisation Work?
• Meta analytic international review
• Case Study Victorias Electricity reforms
• Transcending Privatisation Debate The Rise
  of Independent Regulators
• Challenges, observations Implications
• Conclusions

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1. Privatisation definition values

• Privatisation world-wide trend
• 85b pa in ES
• A political movement, swept along by collapsed
  central economies
• Definition transfer of enterprises/service
  functions from public to private hands

• Private Sector Model
• Individual choosing in markets, using
  Demand/price (closed private actions)
• Search for market satisfaction (or exit)
• Sovereign customers amidst competition

• Public Sector Model
• Collective choice in polity, using need for
  resources (open public actions)
• Search for justice equity
• Sovereign citizens using voices amidst collective
  action in polity

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1. Privatisation promises

• Economic (increase efficiency)
• Consumer (lower prices, better services, more
  choice)
• Political (eg reduce union power, smaller
  government, free up SOEs)
• Fiscal (raise revenue, reduce deficit)
• Social (share owning democracy)
• Reduce Corruption
• Act on advice increase confidence
• Placate External Bodies (- Banks)
• Ideology (... Our Belief )

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2. Does Privatisation Work? - International
Meta Analysis

• Hotly contested!
• Meta-analysis of 162 empirical reports n10,468
  msrts
• Productivity Financial increases were
  significant - but so was performance of control
  firms not privatised
• Labour productivity gains
• No simple link between size of private sector
  natnl eco growth
• Other meta-reviews found little evidence of
  systematic performance improvement (Martin
  Parker 1997), though not all

• Narrative reviews suggest consumer promises
  often not met
• M/A of British Telecom found sig. service quality
  improvement, but regulatory intensity public
  accountability were far stronger influences than
  ownership change
• Winners losers theme (investors vs citizens,
  Argentina vs NYSX)

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2. Does Privatisation Work? -
International Meta Analysis

• Developing Countries
• In 63 of firms, profitability improved
• In 80 of firms, efficiency improved (Cook and
  Kirkpatrick, 2003)

Most critical issue in the privatisation of SOEs
is the effectiveness of new regulatory
competition arrangements
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2. Does Privatisation Work? - Victorias
Electricity Reforms
Now additional generators
Now AER, ESC
Now 5 distributors / 15 retailers
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2. Does Privatisation Work? - Victorias
Electricity Reforms

• Performance?
• Customers had a charter of rights
• Prices down 14 from 1994 to 2000
• Time-off-supply down by 31 (to 199 mins pa)
• Residential disconnections down by 2/3rds since
  1995

• But
• Unplanned outages up
• Price reduction was regulated ( after an SOE
  price rise of 10)
• Disconnections rose markedly just before 1995
  sales under new commercial practices

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2. Does Privatisation Work? - Victorias
Electricity Reforms

• So
• Victorian politics - saw pure policy designs
  flourish reforms score a credit
• Success depended on careful regulatory/market
  design before privatisation
• The later CLCV/MCRS review in 2006 found
• price benefits from reforms were not
  equitably distributed (with gains mostly going to
  industrial/high volume users, and with low volume
  rural regional / domestic users missing out),
  little reliable consumer price data a recent
  fall in disconnection figures (due to
  introduction of wrongful disconnection payment in
  2004)
• Whats next?

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3. Transcending the Privatisation Debate The
Rise of Independent Regulators

• People talk now about living with a regulatory
  state (law), regulatory governance (eco)
  regulatory capitalism (pol sci)
• The arrival of regulatory governance
• The privatisation era era of
  regulation
• Regulator numbers tripled in 1990s
• both in economic regulation (electricity,
  telecoms, competition) social regulation (food
  safety, pharmaceuticals, environment)
• We recognized independent mechanisms better
  governed utilities (away from politics)
  ensured consumer gains after privatisation
• International knowledge consultants (US170b
  463k staff across 140 countries) were crucial here

The diffusion of agencies in 36 countries and 7
sectors (Gilardi, Jordana Levi-Faur 2006)
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3. Transcending the Privatisation Debate The
Rise of Independent Regulators

• Regulation is
• about reordering priorities power, policy
  permanency (not just risks)
• a distinctive mode of policy making (Majone
  1999) an alternative mode of public control
  (Minogue 02, p653)

• We have been rethinking regulation. It
• covers multiple disciplines is decentred
• across all sectors
• includes huge range of regulatory
  mechanisms/tools
• has international linkages
• Todays paradox
• A professional regulatory technocracy exists
• Yet regulatory activity is political activity

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4. Challenges, Observations and Implications

• Keeping the Regulators (big R and small r)
  accountable (to many stakeholders?)
• Institutional depoliticisation has shifted the
  debate arena
• Regulatory discretion
• the passive regulator
• the active regulator
• Other (eg reducing regulatory burdens,
  establishing what works)

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4. Conclusions

• In todays age of regulatory capitalism
• Privatisation discussions continue reflecting our
  values/beliefs
• Continued debate around the role of government
• But it is regulatory sophistication integrity
  that matters most
• Lets remember
• Regulatory activity is political activity!
• Arena shifting has occurred for debates
• Regulators with greater legitimacy remain
  accountable
• Regulatory discretion sees some regulators being
  passive and others active
• Ministers need to remain vigilant, transparent
  and open to rediscovering the public interest (as
  well as ensuring business confidence!)