The state government has released details of its plan to overhaul the state's loss-making electricity generator Verve Energy, announcing changes to the vesting contract between Verve and electricity retailer Synergy.
The state government has released details of its plan to overhaul the state's loss-making electricity generator Verve Energy, announcing changes to the vesting contract between Verve and electricity retailer Synergy.
Energy Minister Peter Collier said the decision to replace the Vesting Contract will provide greater stability for Verve and save the State up to $1.5 billion over 10 years.
The Vesting Contract governs Verve's activities and its relationship with Synergy.
Since last September, a specially convened committee has been considering how to implement a raft of recommendations made by electricity sector expert Peter Oates to stem Verve's heavy ongoing losses.
Mr Oates recommendations included a shift to full cost reflective tariffs and overhaul of market rules.
Mr Collier said that there were a number of issues with the old Vesting Contract, which left Verve's power plants sitting idle and the corporation unable to plan for its long-term financial future.
He said that WA taxpayers could not continue to subsidise Verve's losses.
"Replacing the Vesting Contract alone will not solve Verve's issues but it is a significant step towards strengthening the State's energy sector," said Mr Collier.
The opposition's energy spokeswoman Kate Doust said the new vesting contract does not provide enough incentives for private investment in the electricity market.
Ms Doust said the market was devoid of competition as a result of two years of inaction by the Barnett Government.
"The disaggregation of the electricity companies by Labor was done to attract investment
and diversity in the Western Australian electricity market," she said.
"The Barnett Government has not led market-based reform but rather fiddled at the edges of the problem while continuing to fuel uncertainly in the industry."
"The announcement today of a new vesting contract simply means that Colin Barnett and
Peter Collier are catching up to the required reforms in the market.
"Their track record of encouraging dirty and inefficient fuels is not reform, it is degeneration," she said.
The new contract takes effect from October 1.
See statement from Peter Collier below:
The State Government has endorsed a plan to help ensure the long-term security and reliability of Western Australia's energy sector.
Energy Minister Peter Collier said the Vesting Contract between Verve Energy and Synergy had been replaced to provide greater financial stability for Verve and save the State up to $1.5billion over 10 years.
This was a key recommendation of a review, initiated by the Minister and led by Peter Oates, into the State's energy sector and to arrest the slide of Verve's financial performance.
Mr Collier said there were a number of issues with the previous Vesting Contract, which left Verve's power plants sitting idle and the corporation unable to plan for its long-term financial future.
"Changes to the Vesting Contract will play a major role in securing Verve Energy's financial position, which is essential to the long-term economic growth of WA and to ensure the lights stay on," he said.
"Improving the financial position of the corporations may also ultimately reduce the subsidy paid to cover the difference between the cost reflective price of electricity and the price paid by consumers - taxpayer funds that could be used on other priority areas such as schools, hospitals and roads.
"As a responsible Government, on behalf of the taxpayers of WA, we cannot continue to subsidise Verve's losses.
"The State Government is committed to a financially stronger Verve because of its importance as the backbone of the WA energy market."
Mr Collier said the Government inherited an energy sector that was in tatters because of a totally flawed disaggregation process - a legacy left by the previous Labor government.
"In the three financial years prior to disaggregation, Western Power Corporation achieved a total profit before tax result of almost $1billion," he said.
"When the Liberal-National Government took office, we were left with the reality that a subsidy of almost $1.5billion would be required over three years to keep Verve Energy viable.
"Replacing the Vesting Contract alone will not solve Verve's issues but it is a significant step towards strengthening the State's energy sector."
Mr Collier said the Oates Review identified several key factors driving the need for change.
"Recommendations related to the need to address market design issues, improve reliability arrangements and amend the Vesting Contract arrangements," he said.
"Mr Oates is leading a program of work to implement a number of the recommendations, allowing the Government to fulfil its responsibility to deliver a reliable electricity supply."
The new contract takes effect on October 1, 2010.
