1. Economic Efficiency. Market Failure and Regulation 2008 /24175

2. Lyndon Rowe Chairman Economic Regulation Authority 28 April 2008 Economic Efficiency. Market Failure and Regulation – The Long Term Interests of Consumers

3. The Economic Regulation Authority Functions Administers Access to Monopoly Infrastructure Licenses Service Providers Monitors & Regulates Markets Inquiries (Referred by Government)

4. The Governing Body Full Time Chairman: Lyndon Rowe Part Time Members: Steve Edwell, Peter Panegyres Independent of Government, Industry & Consumers

5. Economic Regulation Authority Governing Body Lyndon Rowe – Chairman Steve Edwell – Member Peter Panegyres - Member General Manager Peter Kolf Planning & Executive Support Chris Brown Director References & Research Greg Watkinson Executive Director Licensing, Monitoring & Customer Protection Paul Kelly Director Gas & Rail Access Russell Dumas Manager Finance & Administration Pam Herbener Executive Director Competition Markets & Electricity Robert Pullella

6. Completed Inquiries - Mostly in the Water Industry 1.Annual Inquiry into the Bunbury and Busselton Water Boards’ Tariffs Feb 2008 2.Annual Inquiry on the Water Corporation’s Tariffs Jan 2008 3.School Bus Operators’ Charter Bus Operations Jul 2007 4.Annual Urban Water & Wastewater Pricing May 2007 5.Harvey Bulk Water Pricing May 2007 6.Country Water & Wastewater Pricing July 2006 7.Esperance – Kalgoorlie Bulk Water Supply Nov 2005 8.Urban Water & Wastewater Pricing Nov 2005

7. Current Inquiries Inquiry into Competition in the Water & Wastewater Services Sector Inquiry into Developer Contributions to the Water Corporation Review of the Grain Marketing Act 2002

8. Competition in the Water & Wastewater Services Sector Terms of Reference Issues Paper –Submissions closed 31 August 2007 Draft Report –Submissions closed 1 February 2008 Further Consultation Report –Submissions due 16 May 2008 Final Report –Presented to Government 30 June 2008

9. Developer Contributions to the Water Corporation Terms of Reference Issues Paper –Submissions closed 14 December 2007 Draft Report –Published 14 April 2008 –Submissions due 16 May 2008 Final Report –Presented to Government 30 June 2008

10. Review of the Grain Marketing Act 2002 Terms of Reference Issues Paper –Submissions closed 8 February 2008 Draft Report –Published 7 April 2008 –Submissions due 16 May 2008

11. Gas Pipeline Infrastructure: DBNGP GGP AGN Dist System Kambalda Lateral 7 Licences

12. Electricity Infrastructure: SWIN 30 Licences

13. Rail Infrastructure: Westnet Rail PTA

14. Water Services: 30 Licences

15. Economic Efficiency Technical Allocative Dynamic

16. Electricity All other commodities Interests of Consumers Optimum

17. Producer and Consumer Surplus MC AR Price Quantity p q Consumer Surplus p x q = Total Revenue Producer Surplus Total Cost

18. Supply of Goods & Services Private Goods Bread, Butter etc Mixed Goods Pipelines, Wires etc Public Goods Free to air, Defence etc Common Property Fisheries, Water resources etc

19. Market Failure Public Goods Externalities Market Power Imperfect Information

20. ERA Regulation Market Failure is Monopoly Power Access Monopoly Pricing

21. Monopoly Diagram P Q Ppm Ppo QpmQe Qpo MR MC AC D=AR

22. Natural Monopoly

23. Examples of the Challenge - Water Pricing Developer Charges Usage Charges Fixed Charges

24. Examples of Government Failure Environmental Sprinkler Restrictions in Bunbury Recycled Water in Bunbury

25. Quantity Restrictions P Q S D

26. Recycled Water in Bunbury

27. Concluding Comments

28. Economic Efficiency. Market Failure and Regulation.