Regional Aspects of Microeconomic Reform in the Electricity Supply Industry of Victoria

As a result of the microeconomic reform of the electricity generation industry in Victoria, even though the state as a whole, in future, would be able to enjoy the promised benefits of this measure, the main power supplying area of the State - the La Trobe Valley Region - appeared to be the most affected by the recent recession. A few thousand people have been retrenched and considerable migration of population takes place from the region to other areas of Victoria and interstate. Based on this example the paper examines some theoretical issues of the consequences of microeconomic reforms of a natural monopoly in an area in which the reformed industry is a significant fraction of the local economy. The strategy of deregulation and privatisation of the electricity generation and distribution is discussed from the perspective of the State of Victoria as a whole and from the point of view of the region where the industry is predominantly located. General equilibrium approach to regional economics is used to design a simple model. Substantial deterioration of a regional economy (in terms of the reduction of local employment and purchasing power) is considered as an undesirable result of any reforming policy which is been undertaken on the State or federal level. Therefore, the ultimate goal of this modelling exercise would be to find out the conditions that require to apply temporary governmental regulatory measures to such a disadvantageous region in order to compensate negative consequences of the deregulation of an industry.