Superficially, NSW Treasurer, Michael Egan's letter Owning up to facts on electricity, (AFR Letters, 11 September) is correct in saying that the NSW Government is not the State's price regulator. However, the comprehensive ownership of both the generation and the retail firms in the industry has allowed the government to require its businesses to participate in a form of compulsory price insurance.
Covering half of demand, this has suppressed market signals and prevented the growth of risk alleviation products that respond to the market views of participants rather than those of the Government. This regulatory intervention is also thwarting the ability of the NSW electricity businesses to acquire sophisticated risk management skills, thereby jeopardising the growth of a mature market that can operate free of central planning.
Mr Egan is also playing fast with the truth on energy prices in NSW. In fact, NSW wholesale prices last year were higher than those in both Victoria and South Australia. While the Government-owned NSW electricity industry has performed creditably over recent years, on a range of measures its privatised counterparts in Victoria, and more recently South Australia, have performed better. The likelihood of this outcome was, of course, a major factor in Mr Egan himself fostering the privatisation of the NSW industry.
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