21/09/2018 - 10:25

ERA orders lower Western Power costs

21/09/2018 - 10:25

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An overnight decision by the Economic Regulation Authority will put downward pressure on power prices, with network operator Western Power ordered to further tighten its belt in the next four years.

ERA orders lower Western Power costs
Network fees represent about 40 per cent of the cost of electricity. Photo: Attila Csaszar

An overnight decision by the Economic Regulation Authority will put downward pressure on power prices, with network operator Western Power ordered to further tighten its belt in the next four years.

The authority sets access arrangements for use of the network, with those costs making up about 40 per cent of power prices.

The decision, which will cover the period from 2017 to 2022, allows Western Power a target revenue of $7.3 billion, 6.7 per cent lower than the company had requested.

Western Power will have a further opportunity to submit the access arrangement, with about 66 amendments required by the authority.

Under the ruling, Western Power will reduce operational spending to less than $1.8 billion over the period, $744 million less than in the five years to June 2017.

Capital expenditure was also tightened, with the authority ordering investment into the transmission network to be 31.5 per cent less than proposed, and into the distribution network to be 5.5 per cent lower.

A spokesperson for Western Power said it would be some weeks before the impact of the decision was clear.

Western Power has received the final decision from the Economic Regulation Authority regarding our access arrangement funding for the period 2017 – 2022," the spokesperson said.

"We are currently looking through the detail of the decision to understand its impact on service delivery and prices for our customers. 

"Given the size and detail of the document it will be some weeks before we have an accurate understanding of these impacts.

"Once we have completed our review process we will send our response to the ERA as part of the access arrangement funding process.”

Business News revealed in December last year that Western Power already planned to tighten spending, with the company’s draft proposal to the ERA including cuts of about $1 billion.

Any reductions in costs across the network will have flow on impacts for the grid's users, for example state-owned Synergy, which generates power and retails to almost all households in Western Australia.

Exactly how much of the cost reduction will end up in the pockets of consumers is unclear, because a range of variables are impacting revenue for Synergy.

The company is facing dramatic pressure to reduce costs as the state government gradually abolishes subsidies.

Network access is just one expense.

Over time, Synergy's revenue mix will change to be less reliant on government support, and more reliant on higher power prices.

At the same time, the level of power used is decreasing.

The reduction in network costs will enable Synergy to reduce its operational spending, to compensate for the removal of government subsidies.

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