05/10/2011 - 11:20

Power brings responsibility to act

05/10/2011 - 11:20

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Colin Barnett is running out of time to make some tough decisions on the state’s power system.

COLIN Barnett is backing himself into a corner over the structure of Western Australia’s power system. Sooner rather than later he will have to make a decision, or face criticism for vacillating on the issue.

With his background as a former energy minister in Richard Court’s government, Mr Barnett was initially a fierce opponent of the Gallop Labor government’s plan to break up Western Power. 

Eventually, and reluctantly so it appears, he fell into line when the Matt Birney-led opposition decided to endorse the restructuring legislation being guided through parliament by the then Labor treasurer, Eric Ripper. 

If you thought the changes would become dead and buried you’d be wrong. One sensitive issue exposed by the breakup was the financial fragility of some of the entities, especially Verve Energy, which became responsible for power generation in the South West grid. Its generation capacity was capped at 3,000 megawatts.

The other new entities to came into being on April 1 2006 were: the Karratha-based Horizon Power, which was to take responsibility for regional electricity needs; Synergy, to buy electricity from a range of providers and on-sell to customers, as well as sending the bills; and the rebranded Western Power, with the job of effectively managing the distribution system.  

The new structures created three extra bureaucracies, all doing various tasks performed for years by the old Western Power and its predecessor, the State Energy Commission. The rationale was that, in the brave new world of deregulation, the government power utility monopoly could no longer be justified.

The supporters of change claimed new energy providers from the private sector were lining up to enter the market, at competitive prices. There was one snag, however. Both sides of politics had agreed that prices would remain pegged during the term of government which ended in 2008, robbing the new entities of much-needed extra revenue to keep abreast of costs. It was also less attractive for all those private energy providers said to be hovering in the wings.

It was one of the issues Mr Barnett seized on when he became premier to justify the savage increase in charges. In fact during the past three years prices have increased by more than 50 per cent as part of the ‘user-pays principle’ to ensure all the entities operated profitably, and help cover the cost of expansion to meet a rapidly growing demand. 

One of Labor’s justifications for the restructure, supported by sections in business such as the Chamber of Commerce and Industry WA – a rare Labor ally – was that competition in the electricity market would bring downward pressure on electricity prices. It’s frightening to think just where power prices would be today without this so-called downward pressure.

Consumers have been promised some reprieve over the next two years. The government has been talking about annual increases of between 5 and 6 per cent, which, incidentally, would still be above the expected inflation rate. Given that the period covers the next state election, in March 2013, the ‘reprieve’ for consumers can be seen in some context.

But it’s far from the end of the road. The federal government’s carbon price legislation will impose extra costs on electricity producers, especially those using ‘dirty’ coal-fired power stations; and coal accounts for more than half the power generated in the South West grid.

In fact Mr Barnett says that the carbon price will add 8 per cent to household power bills. That’s an extra burden the premier will be keen to ensure is pinned on the federal government, especially in a state election climate, even through Canberra says most consumers will be fully compensated.

There are more cost pressures, including Western Power’s recent submission for $8.7 billion between 2012 and 2017 – $1.5 billion more than budgeted – to meet capital and other costs associated with the growing energy demands. 

One source for the funds is obviously profit that can be ploughed back, maintaining the pressure on prices. But the government will still have to dig deep to meet the growing pressure to support a modern and efficient power system. 

The fact that WA has four separate power entities, courtesy of Mr Ripper’s legislation, still rankles with the premier, who says it’s all about efficiency.

Mr Barnett told Geoff Hutchison on ABC 720 last week that “hundreds of thousands of electricity consumers ... are paying more for electricity than they should” because of the breakup, which had reduced the value of the businesses by half a billion dollars. 

“What we are getting is inefficiency because one agency is going out and setting up contracts for power supplies in the private sector, and meanwhile the state-owned electricity generators are sitting there with an expensive plan paid for by the people of WA, sitting there idle,” Mr Barnett said. 

“That contributes to higher electricity prices.

“So we are seriously looking at putting Verve and Synergy back together. And look, you don’t encourage competition by having inefficiency in the main generator of the state.”

He gave this commitment: “It is to have reliability of power supply at as low a possible cost …  as we can achieve. And if that means putting Verve and Synergy back together, then so be it.”

The premier said “most Liberal and National Party members of parliament realise this thing has not worked well,” adding that “we are looking at how it would be done, when it could be done, and once that work is done, yes, we will consider it (possible mergers) as a government.”

So Mr Barnett believes the current structure is inefficient and that householders are paying more for power as a consequence. And he also believes this is the majority view within government ranks.

The question, then, is: after more than three years in power, what is holding him back? It is almost as if he is now honour bound to move in the best interests of consumers, and the state.

If he fails to act to improve efficiency – and Mr Barnett as a trained economist is a great advocate of efficient use of resources – there can only be two conclusions.

The first is that he can’t take the cabinet and the party room with him on the need to merge Synergy and Verve, to “right the wrong” of the previous government, which the Liberals in opposition supported.

The second is that the premier finds it more convenient to continue to blame the “upward pressure” on power prices due, in part, to the inefficient structures introduced by Labor in government. 

You can’t have it both ways. Any leader worth his salt who genuinely believes the current power structure is inefficient, would move to correct it. 

Time is running out for Mr Barnett. The power ball is in the premier’s court.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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