Assessing Government’s Performance Management Capability: the Case of the Australian Electricity Industry
| DOI | 10.1177/0020852304041235 |
| Published date | 01 March 2004 |
| Author | Judy Johnston |
| Date | 01 March 2004 |
| Subject Matter | Journal Article |
International
Review of
Administrative
Sciences
Assessing government’s performance management capability:
the case of the Australian electricity industry
Judy Johnston
Abstract
When governments open up opportunities for private investment in traditional
public sector areas, it is increasingly clear that a useful range of performance
management information needs to be available to both government and busi-
ness. Government needs to know how it is performing, comparatively, within
and beyond its own domain, for the development of public policy and produc-
tivity enhancement. Business needs to know, understand and monitor the indus-
try environment in which investment is contemplated or has already taken place.
Performance measurement and monitoring is especially important where gov-
ernments wish to attract foreign direct investment (FDI) to their shores. Whether
governments manage performance and information well or are still constrained
by bureaucratic and political thinking is still at issue. Using the example of the
contrived national electricity market in Australia, this article, through literature and
document review, examines the likely value to government and business of
performance information, now available in the public domain. First, the article
considers some of the changes to the Australian electricity industry. Second,
specific performance indicators relevant to the national electricity market are
examined in terms of their utility for government and business decision-making.
Third, the impact of the political environment on performance management
information is explored. The article concludes that while some important quanti-
tative performance management information is available in a rational sense,
other more political, qualitative indicators also need to be taken into account.
Judy Johnston is Senior Visiting Research Fellow at the Institute for Research into International
Competitiveness, Curtin University, Western Australia and Senior Researcher at the Institute for Inno-
vative Collaboration, Alliances and Networks, University of Technology, Sydney. CDU: 65.012.3(94)
Copyright © 2004 IIAS, SAGE Publications (London, Thousand Oaks, CA and New Delhi)
Vol 70(1):123–136 [DOI:10.1177/0020852304041235]
02_RAS 70_1 articles 2/27/04 1:00 PM Page 124
124 International Review of Administrative Sciences 70(1)
Introduction
Australia, to a large extent, like other Anglo-American polities over the last two
decades, has adopted the market-based, neo-classical economic model of public
governance, as its primary strategic approach, especially to support business and
government performance and international competitiveness. The advent of a
National Competition Policy (NCP)1 designed to increase productivity of state-owned
and other large entities and to introduce more competitive models of enterprise also
stimulated change. The concern of governments in taking a more market-based
approach (MBA) was the obvious lack of productivity on an international comparative
basis, not least of all in dominant industries, such as the electricity industry. The
electricity industry, as the third largest Australian industry, in 1994–95 ‘raised AU$12.3
billion from sales and employed approximately 42,000 persons’.2
While an international benchmarking study undertaken in 1996 on the electricity
industry revealed that Australia had improved its productivity significantly since the
advent of the MBA, it still lagged behind other developed economies. For example,
Australia rated well against the United Kingdom (UK) in restoring interrupted supply
but it rated poorly against Japan, even though the cost of supply in Japan was
significantly higher. In overall operating efficiency, too, Australia ranked considerably
behind the United States of America (USA) and Canada. On price average, Australia
was one of the lowest providers among the Organization of Economic Cooperation
and Development (OECD) countries for thermal-based systems.3
The 1996 study indicates the utility of benchmarking for enhancing productivity in
particular industries, even on an internationally competitive basis, but it also reveals
the difficulties of performance management, given the complexity of the many
factors and how these might be used as a basis of comparison. However, what is
absent from the study is that industry indicators on their own, even if reasonably
reliable, will not be sufficient to provide a full picture of the industry overall. A more
political view of performance monitoring also needs to be understood in undertaking
industry analysis. It is, after all, the hand of government through rational processes
of industry restructuring that provides opportunities but, similarly, governments also
create potential threats to businesses through political actions, as the case of change
in the Australian electricity industry attests.4
Australian electricity industry reform
Until the 1990s, subnational governments in Australia owned and operated highly
vertically integrated and monopolistic electricity businesses, which were mostly con-
fined within subnational geographical boundaries. Therefore, one of the early inten-
tions of the reform process was for governments to disaggregate the monopolistic
electricity GBEs, eventually to create four market segments — generation, trans-
mission, distribution and retail. Governments further disaggregated each market seg-
ment so that competition between entities within the segments could be facilitated.
Within the spirit of NCP,5 a model was devised to contrive a national electricity
market (NEM) that would support competitive practices through deregulation, over-
come the productivity limitations imposed by the application of subnational bound-
02_RAS 70_1 articles 2/27/04 1:00 PM Page 125
Johnston Assessing government’s performance management capability 125
aries, support the disaggregation process of the vertically integrated state monopo-
lies and possibly result in widespread privatization involving allowed foreign direct
investment (FDI) in the new businesses participating in the industry.6
The NEM was started by governments as a wholesale operation in December
1998,7 initially involving trading across two states through an electricity grid that was
already interconnected. The governments of these two subnational areas and lead-
ing trading states of Victoria and New South Wales (NSW) chose different structural
approaches to support NEM entry. The Victorian government, after the initial corpo-
ratization of its entities through the disaggregation process, chose to privatize all or
part of most of its assets, initially in distribution and generation. There was a great
opportunity for private sector entry, which in the event realized an exceptional finan-
cial benefit for the state, which exceeded government’s expectations about the
estimated value of the assets. One of the longer-term interests of private investors
was the likelihood of co-generation opportunities, as the gas industry was also being
reformed. In the event, co-generation opportunities have been slow to materialize as
reform in the gas industry has not proceeded at the same pace as for the NEM.
In NSW, the government, while intending to follow the Victorian government’s
lead in privatization, for political reasons chose only to disaggregate their entities, to
keep them in government ownership and to run them as corporate enterprises.
Generators in NSW, for example, were required to return a substantial financial divi-
dend to government on an annual basis.8–15
Several years on, five interconnected regions now operate on the NEM, three
more state or territorial government areas having joined the initial two. The primary
interest of the NEM is efficiency and reliability and it has no direct accountability for
considering sustainability and resource use, which are usually a subnational govern-
ment’s responsibility. The National Electricity Market Management Company
(NEMMCO) as a corporate entity jointly owned by participating subnational govern-
ments operates the (wholesale) market on the NEM. Participants on the NEM are
bound by entry and operating requirements under the National Electricity Code,
which, in effect, represents the formal governance system for the NEM. NEMMCO is
meant to ensure ‘that the highest standards of accountability, integrity and trans-
parency are upheld in the performance of the dual roles of market operator and
power system operator in the NEM’.16 The generation output of participants is pooled
and then scheduled for sale on the NEM. The NEM has no capacity to store energy,
because of the nature of the product, and there is no way of identifying which
generator has contributed to the energy...
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