Addressing the Rising Costs of Electricity, Water and Gas – Would More Multi-Utility Firms Help?

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Abstract

In the face of rising costs of living and stagnant productivity growth in the utilities sector, this article considers the scope for the greater bundling of services and the further development of multi-utility firms in Australia. With particular reference to the water sector, the article sets out the range of factors likely to contribute to, or inhibit such developments in Australia. In summary, this article concludes that the limited economies of scope that exist between the water and energy (gas and electricity) sectors, as compared to those within the energy sector, is a primary factor restricting the potential development of multi-utility firms. It also suggests the potential scope for bundling and development of multi-utility firms is likely to be inhibited by the lack of competition in the water sector, and to a lesser degree the predominant government ownership of that sector. Nonetheless, this article suggests further work should be undertaken to more accurately assess the potential for economies of scope in the delivery of utility services. It also notes that any change to facilitate bundling as a means to lower pricing also requires pricing regulation to be adapted to address any potential obfuscation by firms.

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