14/03/2012 - 11:18

Energy merger doesn’t stack up

14/03/2012 - 11:18


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Energy policy has long been a weak spot for the Barnett government and the re-merger of utilities Verve and Synergy would make it worse.

Energy policy has long been a weak spot for the Barnett government and the re-merger of utilities Verve and Synergy would make it worse.

IN August 2009, Western Australia’s main business groups breathed a sigh of relief when Energy Minister Peter Collier issued a statement that stated categorically: “The government would not remerge Verve and Synergy”.

That statement followed protracted speculation over the possibility of a remerger, fuelled primarily by Premier Colin Barnett.

If nothing else, Mr Barnett is consistent on this topic. He vigorously opposed the 2006 break-up of the old Western Power and has repeatedly asserted that the current disaggregated structure is inefficient and a major contributor to higher energy tariffs.

Mr Collier’s statement also came just a few months after the government installed another opponent of disaggregation – former Western Power chief executive David Eiszele – as the chairman of Verve.

Many people thought Mr Collier’s statement was the end of the matter, but not so.

Since then, the premier has repeatedly suggested a remerger of generator Verve and retailer Synergy would be a good outcome, though he hasn’t offered much detail.

The debate stepped up this week when his energy minister publicly voiced his support, telling ABC radio “the prospect of a remerger is very palatable”.

It also emerged this week that Verve’s highly regarded managing director, Shirley In’t Veld, will be leaving the job when her contract expires next month. Mr Eiszele, meanwhile, continues as chairman.

These developments add more significance to the premier’s January announcement that the Office of Energy is to be abolished, and replaced by a new Public Utilities Office.

The premier said at the time that the new office would initially focus on energy policy, and would “ensure the government is able to draw on independent, high quality advice to inform its provision of essential services”.

Evidently, he hasn’t been happy with the advice he has been getting to date, nor would he be happy with the stance taken by the independent regulator, the Economic Regulation Authority (ERA), which favours a deregulated structure.

While all this has been happening, the government has continued to plug away at its Strategic Energy Initiative, which is supposed to provide a blueprint for the next 20 years. 

After two years of review, the energy industry is still waiting for tangible results.

The latest developments have been greeted with dismay by the state’s main business groups, which say a remerger would be a retrograde step.

“The suggestion that re-merging Verve and Synergy will put downward pressure on prices has not been demonstrated,” Chamber of Minerals & Energy of WA chief executive Reg Howard-Smith said.

“No independent analysis of the economic impact of re-merging Verve and Synergy has been undertaken. 

“The idea also makes a mockery of the State Energy Initiative process that has engaged industry and government for the past two years as no mention of a remerger has even been raised.”

Chamber of Commerce and Industry WA chief executive James Pearson was also disappointed, saying he didn’t understand why the government felt the need to act now.

“Any decision to remerge would come just weeks ahead of the government’s own independent inquiries by the ERA into Synergy and Western Power, which will provide important information to guide future decisions on energy utilities,” Mr Pearson said.

Mr Pearson reminded the government that its own Oates report into Verve in 2009 concluded that a remerger would discourage activity with the private sector.

He noted that the private sector has invested billions of dollars to provide 40 per cent of the state’s electricity supply, and said further investment would be discouraged by a merger.

Mr Pearson also sought to disabuse the notion that the break-up of the old Western Power was a major factor in higher electricity tariffs.

“What’s driving electricity prices higher are fuel costs (gas, coal and diesel) and network costs (poles and wires),” he said.

This fundamental point often gets lost in the debate over energy policy.

The break-up of the old Western Power did not cost billions, as some suggest, nor has it driven tariff increases.

What it has done, in tandem with other changes, is put WA on the path towards a competitive energy market, with much more transparency than ever existed with an integrated monopoly.

Policy needs to keep on driving towards that goal, and a remerger would not help.



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