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NSW electricity prices: up, up and away

By Jonathan J. Ariel - posted Wednesday, 11 March 2015


New South Wales Premier Mike Baird is one lucky guy.

Who'd have thought that the decision to sell off a publicly owned natural monopoly - the state's electricity network businesses - would arouse scant suspicion in newspapers and expose many in the electronic media for their misunderstanding of what privatization means or worse, see them cozying up to it as they are spoon fed the irrelevancy that "the private sector is more efficient".

Heads up: a competitive market leads to efficiencies, not a monopolistic market. Even if such a market has one player: a private company.

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Apart from the union movement's mostly fear laced - alas not educative – advertising campaign, the last time something remotely interesting on the issue was uttered was way back last June by a gentleman called Bob Walker and his wife, Betty Con Walker.

The Walkers are names that probably don't ring as loud a bell as they should with energy consumers in the First State. Or should I say, the owners of the multi-billion dollar electricity network assets commonly known as the "poles and wires".

The former, Bob Walker, is an emeritus professor of accounting at the University of Sydney whereas the latter, Betty Con Walker, PhD is an economist.

Writing for Fairfax Medialast June, they quite rightly queried the logic of selling off electricity assets just after they were expensively renewed and have a good 40-year life ahead of them.

They ask:

Why would any rational financial manager seek to sell a profitable natural monopoly?

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Wouldn't it be better to enjoy the earnings from this new investment?

Very sensible questions indeed.

They quote from annual reports and budget papers which show the networks are generating an after-tax return on assets of averaging 10.7 per cent a year and a return on equity averaging 20.7 per cent a year.

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About the Author

Jonathan J. Ariel is an economist and financial analyst. He holds a MBA from the Australian Graduate School of Management. He can be contacted at jonathan@chinamail.com.

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