FEBRUARY 18 – ‘hot Wednesday’ – clearly showed how reform of Western Australia’s energy sector has been bungled, for the time being at least.
Twelve years ago, WA’s longstanding high-energy cost problem looked fixable.
The Lawrence Labor Government showed foresight in its 1992 decision to convene an inquiry into WA’s energy sector (gas and electricity).
The Carnegie Report, so named for industrialist Sir Roderick Carnegie’s role as inquiry head, was the first major piece of economic advice the newly elected Court Government received.
Among other things it recommended “the separation of the electricity and gas segments of the State Energy Commission (SECWA) as the first step in the process of change.
“The board considers that while this is a necessary step, it is not a sufficient change to produce competition and lower energy prices in WA.
“Following the separation . . . the electricity industry should not be maintained as a single vertical monopoly controlling, transmission, distribution, generation and sale of electricity.”
What this meant was that SECWA, a monopoly, should be broken up so competitors could emerge, which its generating and sales divisions would separately compete against.
Interestingly, Mr Court had former under-treasurer Les McCarrey inquire into WA’s public sector. The McCarrey Report backed the Carnegie Report.
Unfortunately neither Mr Court nor his Liberal deputy Colin Barnett, doubling as energy minister, heeded the advice.
The pair split the gas and electricity sectors so we got a monopoly, Western Power – the former SECWA’s electricity transmission/distribution, generating and sales arms – and, initially, two separate publicly-owned monopolies, Alinta Gas, owners of the gas distribution across Perth, and the Dampier-to-Bunbury natural gas pipeline (DBNGP).
Unfortunately the pair was dazzled by the value of both gas transmission/distribution monopoly assets so sold them off, as was the case with BankWest.
But WA’s gas sector differed markedly from its banking one, where competition prevailed.
In the gas-energy sector WA industry and consumers therefore faced two public monopolies – Alinta and the DBNGP – after they were hived-off from SECWA.
By privatising DBNGP for $2.4 billion and Alinta for $971 million the Court-Barnett duo simply transformed them into private monopolies. WA was still without a competitive gas market, meaning things were worse, since government had lost control over the State’s gas sector.
Being dazzled by the understandably very tempting $3.37 billion meant the two
politicians disregarded Carnegie’s advice on the need for competition, in this case in gas.
For competition to occur the DBNGP and Alinta’s gas pipe transmission/distribution network should have remained publicly owned assets.
Thereafter the duo should have announced to the business community that government would allow private competing gas retailers to enter the market to sell gas each had bought from North-West Shelf suppliers to sell to southern consumers, using the DBNGP/Alinta gas transmission/distribution networks.
Instead Messrs Court and Barnett walked off with more than $3.37 billion (anyone can sell-off monopolies), leaving gas consumers facing two private monopolies with one, Epic Energy, refusing to expand its DBNGP’s capacity as required under its purchase agreement, since it overpaid for it by over $500 million.
Little wonder Epic, to meet its huge excessive borrowings, is cutting its losses and selling the DBNGP.
In the process, however, WA industry and consumers were left facing a Liberal-created privately controlled gas monopoly market.
The Court-Barnett duo therefore gets zip out of 100 for their failure here by retaining a gas monopoly market structure.
What about electricity?
Again, the short-sighted duo also failed to create a competitive market here – something new Energy Minister Eric Ripper was doggedly attempting to remedy but under tough odds, primarily because of Messrs Court and Barnett’s failure on the gas side and Epic’s bungled purchasing approach.
For a competitive electricity market to emerge it was necessary to split Western Power the way the Carnegie Report recommended – transmission, distribution, generation and sale of electricity – with the first two forming a separate arm called, say, networks.
That’s precisely what Mr Ripper’s now-canned legislation proposed, indicating he’d learned from the duo’s bungled gas sector experience.
His legislation sought to ensure Western Power’s entities remained publicly owned and that private electricity sellers and private coal or gas power station owners could emerge to compete against its hived-off separated sales and generating arms.
Everyone, including Western Power’s separate generating and sales arms, plus the newly emerged private competing generating and electricity selling companies, would have been treated equally by the independent publicly owned networks’ (transmission /distribution) arm.
However, Mr Ripper faced another problem over and above Epic Energy’s bungling of its monopoly DBNGP acquisition.
Labor doesn’t control the upper house, where the Liberals, Nationals, One Nation and Greens have 21 MLCs to Labor’s 12 voting ones.
Mr Ripper was at least five votes away from being able to create a competitive electricity market by breaking Western Power’s monopoly.
Clearly he concluded most of those five MLCs backed the Barnett-led Liberals who, in good old-fashioned socialist style, opposed Western Power being split, most especially its generating and sales divisions, as Carnegie recommended.
That plus losing his nerve over the ‘hot Wednesday’ ordeal means he’s dropped his far-sighted plan to introduce competition.
Ironically, a competitive power market would have averted ‘hot Wednesday’ by offering Perth multiple electricity suppliers with varied fuel sourcing arrangements.
So, 12-years on, we’re in much the same spot as when Labor lost to Mr Court – uncompetitive gas and electricity markets and much hot air from monopoly supporting politicians, like we endured during ‘hot Wednesday’.
© Business News 2018. You may share content using the tools provided but do not copy and redistribute.