Economic Efficiency. Market Failure and Regulation
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Transcript of Economic Efficiency. Market Failure and Regulation
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Economic Efficiency. Market Failure and Regulation
2008/24175
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Lyndon RoweChairmanEconomic Regulation Authority
28 April 2008
Economic Efficiency. Market Failure and Regulation – The Long Term Interests of Consumers
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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 – ChairmanSteve Edwell – Member
Peter Panegyres - Member
General ManagerPeter Kolf
Planning & Executive SupportChris 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
CompetitionMarkets &Electricity
Robert Pullella
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Completed Inquiries - Mostly in the Water Industry
1. Annual Inquiry into the Bunbury and Busselton Water Boards’ Tariffs Feb 2008
2. Annual Inquiry on the Water Corporation’s Tariffs Jan 2008
3. School Bus Operators’ Charter Bus Operations Jul 2007
4. Annual Urban Water & Wastewater Pricing May 2007
5. Harvey Bulk Water Pricing May 2007
6. Country Water & Wastewater Pricing July 2006
7. Esperance – Kalgoorlie Bulk Water Supply Nov 2005
8. 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
Interests of Consumers
Optimum
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Producer and Consumer Surplus
MC
AR
Price
Quantity
p
q
Consumer Surplus
p x q = Total Revenue
Producer Surplus
Total Cost
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Supply of Goods & Services
Private GoodsBread, Butter etc
Mixed GoodsPipelines, Wires etc
Public GoodsFree to air, Defence etc
Common PropertyFisheries, Water resources etc
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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
Q
Ppm
Ppo
Qpm Qe Qpo
MR
MC
AC
D=AR
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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
Q
S
D
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Recycled Water in Bunbury
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Concluding Comments
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Economic Efficiency. Market Failure and Regulation.