28/05/2009 - 00:00

Worthwhile taking shot at reform

28/05/2009 - 00:00

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Deregulation can create opportunities but can’t define outcomes.

RETAIL trading hours and energy supply may not have a lot in common, but both are the subject of ongoing debate over the merits of market deregulation.

On the retail trading front, Premier Colin Barnett is pressing ahead with plans to extend trading to 9pm six days a week, while steadfastly opposing moves to open up Sunday trading to more competition.

The debate has been coloured recently by comments from particular retailers over whether they will or won't take advantage of the extended trading hours.

On the energy front, a state government report has fuelled discussions over the impact of the deregulation that occurred in 2005.

The Independent Market Operator, which supervises the wholesale electricity market, has predicted the number of companies generating electricity in the South West of Western Australia will more than double by 2010-11, compared to when the reform process began in 2005.

It also anticipates that the market share of government-owned electricity generator Verve Energy will decline from 90 per cent in 2005 to around 65 per cent in 2010-11.

Chamber of Commerce and Industry WA executive director industry policy, Trevor Lovelle, said the greater competition and new investment identified in the report would, over time, help drive prices lower.

"The IMO has provided further evidence why the state government should continue the yet to be completed reform process," Mr Lovelle said.

One of the most interesting aspects of the energy report is that the market has responded in ways that were not anticipated in the lead-up to deregulation.

That's what free markets and private enterprise are all about - the market and its many participants have an opportunity to determine their own fate, rather than governments prescribing the outcome.

Prior to energy reform, Alinta was rightly seen as the next big player in the market, but it has become mired in financial problems after being bought by failed investment group Babcock & Brown.

The opportunity foregone by Alinta has been seized by Queensland company ERM Power, through its NewGen Power arm, and coal miner Griffin Energy, which has built coal power stations and wind farms and plans to establish more.

Wesfarmers' Premier Coal business has entered the market in a smaller but innovative manner through Premier Power Sales, which acts as a reseller of electricity supplies.

Another new entrant is Energy Response, which acts as an aggregator on the demand side of the electricity market. Its clients actually make money by not using power at specified times. Who would have thought that was possible prior to deregulation?

These outcomes were not anticipated when deregulation occurred, nor can we be sure what will happen if retail trading hours are deregulated.

Some current retailers may resist the opportunities that are presented, but many others will move to take their place.

Similarly, some shoppers may prefer to stick with traditional retail hours, but many others will enjoy the ability to shop at night.

If Western Australian shoppers reject extended trading en masse and it is not commercially viable for shops to stay open longer, then so be it. But experience in other jurisdictions, including relatively small cities like Canberra, tells us that will not be the case.

The debate over labour market deregulation has similar parallels.

Critics feared that employers would use it as an opportunity to simply drive down wages and remove working conditions valued by their staff.

In practice, the outcome was favourable in the vast majority of cases, with employers and their staff acting together to lift workplace efficiency, often by giving staff more autonomy and control, making work more stimulating and providing more capacity for higher remuneration.

The evidence is compelling across a range of markets that deregulation can deliver substantial benefits, often beyond what we anticipate in the lead-up.

But if we don't pursue reform opportunities, we will never know.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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