Following electricity sector reforms in the late 1990s, prices charged by government-owned distributors in the south and eastern states of Australia more than doubled and the productivity of these government distributors declined. Econometric analysis associates much higher regulated revenues and regulated asset values with government-owned than investor-owned distributors. This disparity is not observed in other countries. Various commonly repeated explanations for higher distributor spending (stricter network planning standards, flawed regulatory rules, flawed appeal mechanisms, catch-up for historic underspending) do not seem to explain the disparity. This analysis suggests that owning governments perceive their cost of capital to be lower than that of their regulated private peers. The perceived premium encouraged government distributors to expand their asset base, and hence their prices and profits. The private-interest theory of regulation provides a plausible explanation for this. •Government distributors have much higher regulated asset values and revenues than investor-owned distributors.•The government distributors' perceived cost of capital is lower than regulators determined.•The gap encouraged government distributors to expand assets and hence prices and profits.•The private interest theory of regulation provides a plausible explanation for this.