Energy savings go up in gas

The state government’s energy reforms have failed to deliver the expected returns, after the government declined to accept any of the tenders for its own electricity purchases.

Treasurer Eric Ripper announced two years ago that the government expected to cut its annual $50 million power bill by putting a whole-of-government contract out to tender.

The tender process came to naught after the government decided it would not accept either of the bids from Synergy or Alinta for the interim supply period, to June 2009.

The government is hopeful the tender for the substantive supply period, from July 2009 onwards, will deliver savings.

The electricity tender outcome adds to the government’s mixed record on procurement and services reform.

Mr Ripper announced last week that the move to centralised purchasing had met the government’s targets.

After deducting $21 million in set-up costs, the government has achieved net savings of $146 million since 2003-04.

The establishment of shared services centres, to handle back-office functions such as payroll processing and accounts payable for government agencies, has been less successful.

“The ambitious timetable targets posed by the original business case have not been met and, as with many large and complex IT developments, there have been cost increases,” Mr Ripper said.

The delays mainly relate to the time involved in designing and building new IT systems, which Mr Ripper said stemmed in part from the shortage of skilled workers.

The increase in project costs is estimated to be $22 million, or 18 per cent above the initial budget.

The delays meant that expected savings over the period 2006-07 to 2008-09 have been reduced by $42 million.

The government is hoping that projected savings of $55 million per annum will start to accrue from 2009-10.

Meanwhile, the failure to award an electricity supply tender partly reflects the substantial increase in gas prices during the past 18 months.

Alinta spokesman Tony Robertson said partial deregulation of the energy market had delivered significant savings to larger ‘contestable’ customers.

This includes some government agencies, such as large hospitals, that have switched from Synergy to Alinta as their electricity supplier.

Mr Robertson said about 1,500 businesses bought their electricity from Alinta, representing about 30 per cent of the contestable market.

However, the market has changed during the past 18 months, with the wholesale price of power increasing by between 30 and 40 per cent.

A spokesman for the treasurer said neither Synergy nor Alinta offered savings on current contract and tariff rates for the interim supply period, and therefore the government could not justify awarding an exclusive contract.

Government agencies will continue to buy their own electricity, up to June 2009.

Five suppliers have been short-listed to bid for the government contract for the substantive supply period: Alinta; Synergy; Griffin Energy, which is building the Bluewaters coal-fired power station at Collie; Wambo Power, which is building a new gas-fired power station at Kwinana; and the WA Sustainable Power Consortium. Tenders will be sought from these organisations in February 2007.

The government believes the substantive supply period tender may underpin the development of new base load capacity.