A Blow to Deregulation

Deregulation and opening up competition in infrastructure like electricity and telecommunications have been central to Australia's strong economic performance.

To the applause of those recognising regulation's stifling effect on business, last April the Treasurer, John Brumby, announced a new Government agency, the Victorian Competition & Efficiency Commission (VCEC).  A key part of the VCEC's task was to scrutinise proposed new regulations, which were in future to require a business impact test.

The Bracks Government, intent on establishing the economic credentials that would keep them in office for decades, was also turning its mind to other promising cost-saving agendas.  A key one of these was in energy.  Minister Theophanous played the leading role in the formation of the Australia-wide Ministerial Committee designed to promote consistency and uniformity in the nation's $60 billion electricity and gas supply industry.

This need for greater uniformity in national competition arrangements is widely recognised.  It was a major feature of a recent broad-ranging Productivity Commission report into how to renew the reform process and maintain a strong economy.

Unfortunately the lofty principles behind the Victorian Government's initiatives in this direction are proving to be but chaff in the wind.  They are being discarded once ministers glimpse an opportunity for exploiting a vote-getting issue.

With the ink barely dry on its overarching policy programs, the Treasurer confronted a situation with regard to wind energy where they would frustrate his preferred outcomes.

Wind generators already receive hidden subsidies from electricity consumers as a result of a (Commonwealth) regulation.  These subsidies provide wind generators with a price for their output that is two to three times that received by conventional generators.

In spite of this, proponents of wind generators are finding it difficult to finance them.  So, Mr Brumby has introduced a Wind Energy Development Bill that will require customers, not wind developers, to pay for the costs of new electricity lines that connect them to the users.  As with the Commonwealth subsidy, consumers will be unaware of the transfer.  Needless to say, there was no scrutiny of the proposal by VCEC.

The new proposal piles on yet another subsidy to a hopelessly uncompetitive power source.  It also thwarts the national uniformity Victoria has so vociferously championed.  The electricity code requires generators to pay for new connections to customers.  Without such a rule, we would see remote and inaccessible generators whistling up new electricity lines that are paid for by users in general.  Providing "free" funding for these generators would bring a vast increase in the cost of the electricity delivered to the customer.

Making matters worse, the Victorian Government's wind proposals leaves the receipt of the subsidy for each proposal to the Minister's discretion.  This opens the door to the sort of banana republic political corruption that can cause the economy to nosedive.

A stable regulatory framework and an agreement by politicians to setting broad policy and legal frameworks are essential for an efficient productive process.  This requires politicians impose iron disciplines on themselves.  It would be most unfortunate if we in Victoria were witnessing the State's Treasurer spearheading a corrosion of these disciplines.

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