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Energy horror tales show way for WA

CALIFORNIA'S electricity crisis is providing valuable lessons for WA decision makers as they consider the possible privat-isation of the State's electricity industry.

Electricity has remained one of the unsung issues of the WA election. Business wants lower power prices and wants more competition introduced into the market.

The privatisation of Western Power was once held to be the answer.

Until recently speculation was rife that Energy Minister Colin Barnett would announce the sale of the utility if the Coalition won a third term in office.

But sources within the electricity industry now feel this is unlikely.

Labor insists it will keep Western Power in public hands.

At this stage the greatest deregulation mooted is allowing customers drawing up to 0.034 megawatts to choose their electricity supplier of choice.

This is expected to open a 2,500-strong market to competition.

Given what has happened in California and, to a lesser extent, the eastern states, not rushing into privatisation could prove to be good policy.

California's power crisis has been attributed to a botched attempt at electricity industry privatisation in 1996.

The Californian Government was forced to take control of the industry again because the power shortages have created havoc with the State's businesses.

Example of the impact include the Miller brewery moving its beer production to Texas and laying off 200 workers in the process.

The US west coast's largest steel plant California Steel Industries was recently forced to tell most of its 1,000 workers to stay at home.

The power shortages have also had a devastating effect on Silicon Valley.

The valley was one of the global hubs of the high technology boom. Power is its lifeblood and its lack is causing some of the "new economy" giants to rethink their location.

Intel Corporation has announced it will not be building any more plants in California because of the unreliable and expensive power supplies.

The problems striking the Californian electricity market read like a how-not-to-do-it manual for electricity industry dereg-ulation.

The Government allowed California's wholesale electricity market to be dereg-ulated but capped the electricity retail price.

California's two major electricity pro-ducers, Pacific Gas & Electricity and SoCal Edison, are on the verge of bankruptcy and blame the retail price cap for their woes.

The State now faces a major electricity shortage exacerbated by a lack of generation plant and transmission difficulties.

Environmental constraints means it takes twice as long to build a power plant there than it does anywhere else in the US.

Former Pacific Gas & Electricity WA manager David Marchant said the crux of the Californian issue was transition to the open market.

California was one of the first US states to deregulate its electricity markets.

"If other markets had opened up quicker, the problem would probably have never happened," Mr Marchant said.

"The problems hitting California happened at a time when there were extreme weather conditions plus the grid problems."

Surrounding States such as Nebraska, Colorado and even as far north as Canada could provide the answer to California's woes because power is plentiful there.

However, California lacks the transmission infrastructure to make use of the power available in those states.

Similar problems are being felt in Australia's eastern states.

Both Victoria and South Australia are facing power shortages as summer temperatures soar, yet abundant power is available in New South Wales and Queensland.

The eastern states energy market operates on a compulsory pool system. All power generated is put into a pool and the lowest bidder gets the customer's business.

However, the South Australian Government reduced its access to that pool in an attempt to prop up the prices for its generation assets.

This means it cannot get easy access to the plentiful power available from New South Wales and Queensland.

History shows propping up Government assets to get good prices for them only hurts the public later on.

WA could do well to learn from the UK example.

That country also operates on a compulsory pool system but only has a few generators supplying power to it.

Perth Energy managing director Ky Cao said WA needed several companies generating power before it should consider deregulation.

He said Western Power's generation and retail arms would also need to be completely separated to allow proper competition.

"In the UK they did not split their generation ownership enough. After that country's power market was privatised it was found the Government had transferred a public oligopoly to a private oligopoly," Mr Cao said.

"Why did they need to cap the retail prices in California if the generation was really competitive?

"You need true competition in generation to bring electricity cost savings."

Even Western Power managing director David Eiszele said competition was crucial to keeping electricity costs down in WA.

"We're in a competitive market. There's no way the market place would accept a price increase," Mr Eiszele said.

Why did they need to cap the retail prices in California if the generation was really competitive? You need true competition in generation to bring electricity cost savings.

Ky Cao

He believes consumers will be better of if Western Power was floated.

"The Government has clearly said it has no plans to privatise Western Power but we believe the best way for us to operate is as a private company."

But Mr Cao said privatising Western Power right now would lead to a combination between the problems faced in California and in the UK.

It would leave Western Power with a virtual monopoly on generation and a very strong hold on the retail market.

Only Perth Energy and WA Consolidated Power compete with Western Power's retail arm.

And only Alcoa and TransAlta compete in the generation side.

Labor has suggested splitting Western Power's generation and distribution arms into two separate business but insists it wants the utility to stay in public hands.

Mr Cao said a non-compulsory pool system was needed to ensure proper electricity market competition in WA.

A non-compulsory pool is one where generators supply their power directly to the grid or to customers they already have contracts with.

"Without a pool marketplace it is not feasible for people to set up. Otherwise they would have to come in and try and win customers from Western Power one-by-one," Mr Cao said.

"Western Power doesn't have to pay for its stand-by power or have to load follow. Load following is the killer."

Independent generators selling power into the South West Interconnected System are required to "load follow" by making sure the amount of power they are putting into the grid matches their customer demand every half hour.

The equipment required to do this costs several million dollars and proves a significant disincentive for an electricity retailer or generator to enter the market.

Stand-by power is also a big issue for generators if there is no pool system. If a generator failed, how would it's customers be served? With the pool system, other generators would take up the slack.

Mr Cao said Western Power did not have to load follow because of the size of its market.

"We need to have an independent market operator to load follow for everyone," he said.

"That's the only way an independent power producer can come in on an equal footing with Western Power."

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