Economic society of australia business symposium university of sydney 30 september 2004
Download
1 / 13

Economic Society of Australia Business Symposium University of Sydney 30 September 2004 - PowerPoint PPT Presentation


  • 282 Views
  • Updated On :

Economic Society of Australia Business Symposium University of Sydney 30 September 2004. Infrastructure Investment in Australia - Is there an Emerging Crisis? Implications for Economic Regulation of Future Infrastructure Investment. John Tamblyn Chairperson

Related searches for Economic Society of Australia Business Symposium University of Sydney 30 September 2004

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Economic Society of Australia Business Symposium University of Sydney 30 September 2004' - Angelica


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
Economic society of australia business symposium university of sydney 30 september 2004 l.jpg

Economic Society of Australia Business SymposiumUniversity of Sydney30 September 2004

Infrastructure Investment in Australia

- Is there an Emerging Crisis?

Implications for Economic Regulation of Future Infrastructure Investment

John Tamblyn

Chairperson

Essential Services Commission, Victoria

1


Overview l.jpg
Overview

  • Is there an infrastructure investment crisis?

  • Economic regulation and long term investment

  • Conclusions of recent policy reviews

  • Recent Victorian regulatory experience

  • Observations on the regulation/investment debate

  • Implications for economic regulation


Is there an infrastructure investment crisis l.jpg
Is there an infrastructure investment crisis?

  • Popular view of major infrastructure under investment

    • transport, water, energy sectors

    • needed to meet future demand/sustain growth

    • support efficiency, reliability, sustainability goals

  • Policy view of infrastructure under investment

    • COAG/MCE etc communiqués – Parer/PC reports

    • supporting analysis of extent/causes is qualitative, anecdotal and fragmented

  • AUSCID infrastructure report card/modelling

    • underlying analysis superficial and unconvincing

    • blames market, regulatory, policy failure

  • Clearly a significant problem for economy/community

    • BUT: weak analysis of scope, causes, solutions


Economic regulation and l t investment l.jpg
Economic regulation and L.T. investment

  • 10 years of access regulation experience

    • Part IIIA/CP Agt – energy, transport, telecom regimes

  • Focus was on natural monopoly NW industries

    • but application to partially contestable sectors

  • Regulation has sought more efficient outcomes by:

    • imposing CPI-X price caps using BB approach to;

    • encourage more efficient costs and prices; and

    • prevent misuse of monopoly power

  • Have the costs of regulatory failure exceeded those of market failure thro:

    • regulatory errors in setting price caps

    • intrusive/costly regulatory methods

    • discouraging L.T. infrastructure investment


Conclusions of recent pc reviews l.jpg
Conclusions of recent PC reviews

  • PC Part 111A and Gas Code reviews concluded:

    • coverage wrongly applied to contestable markets

    • regulation has been costly and intrusive

    • too much focus on S.T. cost/price efficiencies

    • regulation has discouraged L.T. investment

  • Particular investment incentive concerns:

    • coverage risk  whether asset covered or not

    • regulatory risk  uncertainty about regulatory decisions

    • asymmetric truncation  cap upside returns not downside

  • PCs ‘Gas Code recommendations include:

    • binding no-coverage rulings pre-construction

    • existing Code options (eg fixed principles/extended periods)

    • But had difficulty addressing truncation issue


Recent victorian regulatory experience l.jpg
Recent Victorian regulatory experience

  • 2000 electricity distribution price review

    • BB approach, post tax WACC, tariff basket control

    • cost/service efficiency c/o incentives

    • reductions in proposed OPEX and CAPEX programs

    • significant Po price reductions (9.1 – 18.4%)

    • vocal industry concerns about profit/investment impact

  • 2002 gas distribution price decision

    • improvements on EDPR BB approach

    • modest Po reductions

    • significant allowances for replacement CAPEX investment

    • ESC concern about delivery of capital program

  • Difficult to deal with L.T. capital proposals under the BB price cap approach


Slide7 l.jpg

Electricity experience to date (1)

  • Revenue tracking above forecast

    • Demand growth

    • S-factor/efficiency carryover

All DB Revenue Forecast v Actual

M$ 1999

Forecast

Actual


Electricity experience to date 2 l.jpg

Capex & opex expenditure tracking below forecast

What is the reason?

Excessive forecasts/regulatory gaming

Deferral of necessary expenditure

Efficiency improvements

Other

Electricity experience to date (2)

Forecast ($m real 1999)

Actual ($m real 1999)


Electricity experience to date 3 l.jpg

Service standards are improving & exceeding targets, although capex / opex below benchmark

But is medium-term reliability at risk?

Electricity experience to date (3)


Observations on the regulation investment debate l.jpg
Observations on the regulation/investment debate although capex / opex below benchmark

  • Accept that under-investment more costly than higher S.T. prices

    • cost of NW reliability failures

    • loss of dynamic competition potential

  • Limited empirical analysis showing under investment

    • PC uses first principles reasoning and anecdotal evidence

    • significant investment since regulation introduced

    • has it been too little/too late or about right?

  • PC concludes regulation has discouraged/deferred efficient investment BUT …

    • regulation can cause over or under investment

    • have outcomes been biased against investors or users


Observations on the regulation investment debate 2 l.jpg
Observations on the regulation/investment debate (2) although capex / opex below benchmark

  • Must distinguish “deferred” and “efficient” investment

    • more or earlier investment not necessarily efficient

    • delaying investment sound if demand/viability uncertain

  • Regulatory innovation can reduce regulatory/investment risk

    • revenue/loss sharing mechanisms (but PC concerns)

    • treat investment to meet D growth as efficient

    • pre-investment rulings for small town gas extensions


Implications for economic regulation l.jpg
Implications for economic regulation although capex / opex below benchmark

  • L.T. investment/reliability clearly a priority for regulation/regulators

  • Useful policy options proposed by PC

    • adopt a single Code objective of “efficiency”

    • regulated prices to satisfy pricing principles

    • focus price cap regulation on natural monopoly infrastructure businesses

    • permit lighter-handed regulation models where competition is emerging

    • allow binding no-coverage rulings

    • allow price cap methods other than BB


Implications for economic regulation 2 l.jpg
Implications for economic regulation (2) although capex / opex below benchmark

  • Regulatory measures under access rules

    • regulatory consultation/guidelines/precedents

    • fixed principles on parameter methods/values

    • extended access periods (eg 10 or 15 years)

    • flexible depreciation schedules/capitalisation of losses

    • pre-construction approval of access prices/conditions

    • provider initiated reviews w.i. Period

  • Regulators must be pro active/transparent in applying these measures to reduce investment risk

  • BUT: assessing CAPEX/network augmentation requirements remains a difficulty for regulators

    • balancing cost efficiency incentives/L.T. reliability risks