Change on the horizon?

26/03/2008 - 22:00

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Could a big outback utility be created by the merger of Horizon Power with the regional operations of the giant Water Corporation?

Change on the horizon?

Could a big outback utility be created by the merger of Horizon Power with the regional operations of the giant Water Corporation?

The idea has been mooted in the Economic Regulation Authority’s draft ‘Inquiry into Competition in the Water and Wastewater Services Sector’, released last December.

With the final report due to be submitted to Deputy Premier, State Treasurer and Minister for Economic Development, Eric Ripper, at the end of this month, a joint review of this possibility by the two potential merger partners has produced vastly different responses from them.

The Water Corp believes there is little merit in doing anything beyond working collaboratively in areas where they both operate.

In contrast, Horizon is open to what it perceives are big potential benefits of integration.

Both parties agree that the recent review by GEM Consulting found the case for a merger was weak in the short term, with any immediate synergy gains burned up with the cost of disaggregating Water Corp and transferring regional water and wastewater assets to Horizon to form a multi-utility.

In pure cost terms, the simple case of regional merger doesn’t work. At best it is cost-neutral.

While the Water Corp agrees there are opportunities to improve service levels in regional Western Australia, it believes this can be done through existing efforts to improve collaboration with Horizon.

In fact, Water Corp viewed that if a merger took place it ought to result in the energy utility becoming part of the water giant.

The Water Corp points out that it services a much bigger number of regional customers, due to the fact that Horizon’s operations are much more focused on the truly remote parts of WA.

The South West Interconnected System for power distribution includes the Wheatbelt and all of the South West, which means Horizon’s footprint is largely the non-rural mining areas and the Kimberley, areas where it shares just 40,000 customers with the Water Corp.

“The corporation concluded that in terms of restructuring options, a merger of Horizon Power into the corporation would be significantly more costeffective than forming a regional multi-utility,” the Water Corp wrote in its submission to the ERA inquiry.

“The single merged entity would achieve most of the advantages associated with a regional utility but avoid many key costs.” But Horizon, which has its head office in Karratha, still believes there is a case for a more detailed review which would cover efficiency and productivity gains, consider future plans, look at different service footprint options, and examine the benefits gained by putting more control at a regional level.

Horizon Power sees the primary motives for the creation of a regional multi utility to be qualitative in nature and arising from a regional focus,” the energy utility submitted.

“These benefits are of interest to stakeholders and ought to be considered alongside any quantitative evaluation.

“Further, the socio-economic benefits associated with a regionally-focused multi-utility warrant further examination.” Horizon suggests that alongside the continued development of collaboration between the two utilities there should be a more comprehensive analysis of the merger proposal with the ERA’s involvement.

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