The inquiry into electricity supply in New South Wales

In May 2007, the Premier of New South Wales (NSW) announced the establishment of an Inquiry into Electricity Supply in that State to be undertaken by the author of this paper. Fundamental to the Inquiry was the perceived need for additional baseload generating capacity, the identification of the available technologies, carbon constraints and the policy options that would encourage the private sector to undertake the required investments. Although NSW is part of the competitive National Electricity Market, State-owned generators dominate baseload supply. In addition, the State operates three electricity retailing businesses, has a monopoly on transmission and distribution, and provides price stability for NSW residential consumers through the Electricity Tariff Equalisation Fund. Overall, therefore, the State dominates the industry and, not surprisingly, potential private investors are sceptical that its market roles may be based upon criteria other than the purely commercial. The Inquiry's report, which was publicly released in September 2007, recommended sale of all State assets in both electricity generation and retail. This paper provides a rationale for that recommendation.