RE: European Union

[Bruce McFarling <ecbm@xxxxxxxxxxxxxxxxxxx>]

At 10:49 AM 1/06/1998 +1000, Simon Camroux wrote:
....
>I believe that we should not privatise the remaining electricity assets in
>NSW/ Australia. The fact that we have encouraged competition in an area
>such as electricity generation is of great concern. The social cost of this
>action has presumably not been considered.

        Suppose that the privatisation of electricity generations follows
the Economist's (the English magazine, not those of us in the professional
subgroup
that has been magically endowed by possession of academic certification to
discuss economic issues) favorite model of a regulated monopopoly for the
natural monopoly part of a network-transmitted good -- the grid in this case
(the network in general) -- with competition provided by guaranteeing open
access to the network for transmission of the good.  Part of the argument in
favour being, of course, that a regulated monopoly will find high fixed costs
ways of providing the transmitted good, since this ensures a stable cost base
upon which its price will be determined.
        To the degree that we do not expect each member of a pool of providers
in a competitive market to maintain spare capacity in order to guarantee the
quality of the good transmission by the network -- a simple free rider
problem --
the regulator must include a surcharge for the network connection fee/rate in
order for the regulated network to maintain a spare provision capacity on its
own.
        Have these issues been worked through in the current wave of
privatisations.  I dunno, but I'd be surprised if all of them were.
The U.S. is *not* that these utilities would be absent without regulation:
rather that there were substantial problems with the quality/safety of the
goods provided, and there were substantial problems with equity of access to
the networks: a long distance call from New York to Philadelphia, fine.  A
long distance call from Harpers Ferry, WV, to Huron, SD, forget it (the local
analogy would be the likelihood of telephone service between Sydney and
Melbourne, compared to the likelihood between the Alice, NT, and Narrabri, NSW).
When these are privatised or deregulated, as the providers get accustomed to
being private and/or deregulated, they will behave more and more in the
ways that led to regulation in the first place.

Virtually,

Bruce McFarling, Ourimbah, NSW
ecbm@xxxxxxxxxxxxxxxxxxx