Business wants a faster process

Business leaders who gathered at a WA Business News forum last week agree that the Electricity Reform Task Force’s report will mark an important first step in the long journey to get much-needed electricity market deregulation in WA, as Noel Dyson reports.

BUSINESS leaders with an interest in the energy market were disappointed that reforms outlined by the Electricity Reform Task Force did not go far enough in liberalising the sector.

Those who gathered at WA Business News’s invitation last week to discuss the impact of the task force’s work believed that Western Power should be dissected into more than the four new entities suggested.

Most would have preferred horizontal disaggregation, on top of the proposed vertical break-up, which would have allowed Western Power’s generation and retail arms to be carved up into smaller competing units.

However, the group generally agreed that the task force’s 79 recommendations were a politically expedient first step in the long journey to electricity reform in this State.

Three weeks ago the ERTF proposed that Western Power be broken into separate generation, retail and network businesses, with a fourth entity being created to control power in regional areas not connected to WA’s main power grid the South West Interconnected System.

However, they agreed that the task force’s proposal of creating a regional power entity was a vital one and likely to create a far better electricity system in that business region.

It should be noted that almost all those present at the WA Business News lunch were pro reform, with Western Power declining to be represented to put forward a dissenting view.

A consistent theme of the lunch was that electricity reform was essential because WA would continue to lose business to the eastern States until its electricity prices became competitive.

Opposition Leader Colin Barnett also came in for some scathing criticism for his long-held view that Western Power should not be broken up.

The gas, coal and sustainable energy sectors are also likely to battle for rights to fuel electricity generation options.

Perth Energy director Ky Cao said the ERTF’s report was politically appropriate but economically unsuitable.

“It did not go far enough. It should have gone to horizontal disaggregation as well,” he said.

Chamber of Commerce and Industry chief executive Lyndon Rowe said the chamber felt the ERTF’s report was overly conservative.

“However, we think the timeline the committee set is realistic,” he said.

The task force recommended that Western Power’s break-up be conducted on July 1 2004.

AlintaGas manager electricity strategy Andrew George said WA could not afford to miss the chance to deregulate its power system.

“The issue with the speed of implementation of the report is how long WA will allow damage to be done to its economy,” he said.

Sustainable Energy Industry Association president Matthew Rosser said the conservative speed of implementation the task force proposed meant that regional WA would miss out on a lot of opportunities.

“By 2006 the Federal Government’s Mandatory Renew-able Energy Target window of opportunity will be lost,” he said.

Under the MRET scheme WA will be required to produce 2 per cent of its electricity from renew-able sources by 2010.

Mr Rosser said if that MRET goal was not reached, WA taxpayer funds would be used to set up renewable electricity operations in the eastern States.

ERTF member Frank Harman admitted that the task force had taken a conservative and politically expedient route with its report.

Dr Harman said it had been decided that the first step towards electricity market deregulation would be the hardest and had wanted to ensure that government was not left with an impossible situation.

“I think people involved with politics in WA are aware of the power Western Power has,” Dr Harman said.

“Some see it as bad enough that we have broken Western Power into four.

“We wanted to encourage new entrants into the market. At the moment the networks arrangements serve Western Power’s corporate interests.

“It’s up to you people to follow up with anything else.”

Indeed, the ERTF’s report will remain just a set of recommendations unless the WA Government adopts it.

Some of the hurdles come from convincing energy industry unions that implementation of the report will be good for their members.

The Construction Forestry Mining and Energy Union, the Communications, Electrical and Plumbing Union, the Australian Services Union and the Australian Manufacturing Workers Union only won the right to have input into the future of WA’s electricity industry at the most recent Australian Labour Party State conference.

Representatives of those unions, together with Energy Minister Eric Ripper’s chief of staff Mike Megaw, ALP State secretary Bill Johnston and MLA Mark McGowan form the Energy Reform Review Group that will be providing its report to the Government on the ERTF report by the end of this month.

Australian Services Union State secretary Paul Burlinson said his union questioned whether there was a need to reform WA’s energy sector.

“We have no argument with reform but we have an argument with the premise the ERTF’s report was based on,” he said.

“We have seen electricity prices decrease significantly. Western Power has opened up the Goldfields and the Collie coalfields.

“The problem we have with vertical disaggregation is we don’t believe it will give benefits. Western Power is still the dominant generator.

“We need access to the transmission grid to be more transparent.”

Mr Burlinson said the higher fuel prices made Western Power uncompetitive with eastern States power providers.

Wesfarmers Premier Coal general manager business development Barry Kelly said the fuel price argument was flawed.

“On the figures we have if we gave Western Power the fuel, power prices would still be higher [than those in the eastern States],” he said.

Mr Kelly said Western Power had its own efficiency issues to consider.

“Since it was split away from AlintaGas in 1994, Western Power’s payments to government have gone up but its debt burden has also gone up 300 per cent,” he said.

However, Mr Kelly’s company, and indeed the rest of the coal industry, is under threat.

Coal competes with natural gas as a fuel option for new generation plants and the ERTF’s report called for diversity of fuel to help ensure security of supply.

A cost benefit study by the Allen Consulting Group commissioned by the ERTF report called for a coal price of $35 to $40 per tonne. The current coal price to Western Power is about $15 per tonne higher than that.

Mr Kelly said the coal industry needed volume to ensure it could meet that price requirement.

Chamber of Minerals and Energy director policy and external relations David Parker said some of the strongest support for the ERTF report had come from regional communities.

“Projects up in the Pilbara developed their own power. Western Power Corporation has just been a spectator up there,” he said.

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