Energy review recommends urgent changes

10/09/2009 - 08:58

Electricity sector expert Peter Oates has recommended a string of changes to electricity market rules and the contracts between generator Verve Energy and retailer Synergy to stem Verve's ongoing financial weakness and encourage investment in the sector.

Electricity sector expert Peter Oates has recommended a string of changes to electricity market rules and the contracts between generator Verve Energy and retailer Synergy to stem Verve's ongoing financial weakness and encourage investment in the sector.

In his long-awaited report on Verve and the WA electricity market, Mr Oates also said re-amalgamating Verve and Synergy would address Verve's financial problems and give the state greater control over the industry, but would also discourage private investment in the sector and lead to reduced competition, thereby exposing the state to greater financial and supply risk.

Furthermore, the report found that restructuring Verve and Synergy into vertically integrated "gen-tailers" competing head to head in both generation and retailing would involve significant restructuring and was not an option worthy of detailed examination at this point.

Mr Oates' report, commissioned by the state government earlier this year, was tabled in parliament late yesterday.

The key recommendations included:

- Setting tariffs and charges at commercial levels that fully reflect actual costs

- Widespread changes to the wholesale electricity market to enhance reliability

- Developing a whole of sector "vision" and strategy as a basis for all regulation rules, regulation and policy, incorporating climate change issues; gas availability and price; likely impact of development options on the system as a whole; and availability of investment capital

- Broad industry involvement and consultation in devising strategy and vision

- Revising market rules to place greater emphasis on the acquisition of new capacity

- Urgent revision of the contract arrangements between Verve and Synergy, including replacing the vesting contract with a simplified bilateral contract

The government has already formally scrapped plans to reamalgamate Verve with retailer Synergy, based on the findings of the Oates report, and is expected to use the report as the basis for further widespread changes to the rules governing competition and relations between the two key former divisions of Western Power.

Industry will be especially keen to examine the detail of the report, having been vocal in demanding the opportunity to comment on its findings before any further reforms of the local energy market are implemented.

State energy minister Peter Collier last week pledged that industry would be able to comment on the Oates report and provide input to the government's recently announced plans for a strategic energy initiative before any further policy initiatives or reforms are announced.

The energy initiative is aimed at ensuring there is a coordinated approach towards delivering secure and reliable long term energy supplies for the state.

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