Sophistry and high electricity prices in Australia. (October 2022)

• Record Type: Journal Article
• Authors: Johnstone, David; Havyatt, David
• Is Part Of: Critical perspectives on accounting. Volume 88(2022)
• Publication Date: 2022-10
• Subjects: Privatisation -- Regulation -- Electricity prices -- Utilities rate setting -- CAPM -- Performative economics, Philosophy of finance; Accounting -- Social aspects -- Periodicals; Accountants -- Professional ethics -- Periodicals; 657.05
• DOI: 10.1016/j.cpa.2021.102298
• Languages: English
• ISSNs: 1045-2354

Abstract

Highlights: Regulators rely on esoteric finance theory to set electricity prices. Electricity transmission owners earn guaranteed "risk free" revenues. Small changes in settings cause massive changes in regulated revenues. Household and business consumers pay high price for privatisations. Australian electricity prices highest in the world. Abstract: We present a critical description and analysis of the conceptual framework and political processes by which regulators set electricity distribution prices in Australia. Prices have increased greatly after the market restructure in the 1990s, contrary to the rationale behind that reform. Our paper is both interpretive and analytical. We find that the regulators' methodology, which combines accounting asset valuation and financial theory, not only invites "gaming" by the networks (and higher electricity prices) but, more remarkably, is technically misconceived on its own theoretical terms. We interpret the regulatory framework as innately one-sided and preordained to favour electricity network owners. Electricity market 'reforms' have brought not only higher prices but also social hardship and disruption. It is important that their foundations be questioned, not only from alternative political and sociological perspectives but also in terms of the financial logic on which they supposedly stand. Ostensibly independent and sophisticated submissions to regulators have been contrived by vested political and economic interests to sway regulators' decisions. By tilting the regulatory regime, the electricity networks have harmed not only household consumers but also business and industrial electricity users, which of itself raises questions of whether there are actually economic benefits. Our questioning of the internal validity of the utilities regulators' rational economics methodology is a provocative and potentially effective form of criticism because it cannot be waved away as ideological, political or 'unscientific'.