Julia Gillard has been talking about over-spending on infrastructure:
She said state and territory leaders must join Tasmania and the ACT in signing up to a national energy retail law to give consumers greater choice and information on household energy plans.
The states must also revise costly plans to build unnecessary “poles and wires” infrastructure, or the federal government will give market watchdogs more regulatory powers.
It sounds to me that Gillard is referring to something called the Averch-Johnson effect.
The Averch–Johnson effect is produced when fair rate of return regulation encourages a firm to invest more than is consistent with the minimization of its costs. This can happen when the allowed rate of return exceeds the cost of capital, since the difference between the two represents pure profit. Detailed descriptions of actual regulatory processes may be useful in suggesting guides for action, since actual outcomes depend as much on political and bureaucratic necessity as they do on economic analysis and ‘rational’ benefit–cost estimates.
I’m not sure that over-investment is happening but I don’t believe that more regulation is the solution.
If the government is concerned about power prices they should look to their own propaganda.
What the PM is talking about relates to the network costs. What Alan is talking about below relates to the Wholesale costs. I don’t want to say that reforms cannot be pursued in those areas, but it is the carbon tax and also ‘Retail, customer service and programs for energy efficiency and renewables’ that should be considered to generate cost savings – especially the programs for energy efficiency and renewables.