19/08/2014 - 05:06

Power play generates hope for change

19/08/2014 - 05:06

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Could Lyndon Rowe be an inspired choice to lead Synergy’s next phase?

Power play generates hope for change
STEPPING UP: New Synergy chair has an intimate knowledge of the challenges facing WA’s electricity sector.

The appointment of Lyndon Rowe as the new chairman of electricity utility Synergy could well prove to be a trumping move by Energy Minister Mike Nahan, after being confronted by potential governance disaster last month.Mr Rowe, who shares a similar background to Dr Nahan as an economic dry, has been executive chair of Western Australia's Economic Regulation Authority for more than a decade, having being installed at the birth of that entity by the then Labor state government.

Few people outside the operational electricity players would have as much knowledge as Mr Rowe of the market challenges the sector faces.

The ERA was established, in the main, to oversee the market after the disaggregation of former electricity monopoly Western Power, when Labor split the utility into generation, delivery systems and a retailer.

This was seen as a precursor to the arrival of more competition and, eventually, privatisation; but those developments have not really occurred.

Some competition exists in generation and retail, but the burden of the state generators as the providers of last resort proved to challenging and, recently, Premier Colin Barnett fulfilled his desire to reconnect the generation and retailing sides of the business to create a so-called gentailer under the Synergy name.

While this kind of re-aggregating might seem at odds with Dr Nahan's open-market ideology, he's gone along with it, presuming on the basis that this new electricity utility can be split again to provide a more competitive structure in the market before privatisation is again considered.

Who knows exactly what took place at the gentailer to spark the departure of chairman Michael Smith and several leading directors.

Reports suggest Dr Nahan wanted a full-time chair to focus on the changes he had in mind. While that might sound sensible to those of us on the outside, one can only imagine how challenging these break-ups can be, and it seems the changes were too much for those already there.

I can't yet judge whether either side is in the right or wrong here, or whether it was simply a case of agreeing to disagree.

What I can say, however, is that appointing Mr Rowe is a strong move to both fill the breach and ensure the government's agenda is being delivered.

As chairman of the ERA, his brief was pick apart policies that were economically inefficient. That included the re-merger of (then) retailer Synergy and struggling state generator Verve Energy.

The ERA, and Mr Rowe as its head, was a vocal critic of that idea. Nevertheless the state government went ahead with the merger, with the whisper in the background being that the new gentailer may be split up in a different way in the future to create competition at the consumer end. Currently Synergy represents about 70 per cent of the market.

So is Mr Rowe gamekeeper-turned-poacher or are we seeing a cat put among the pigeons? Apologies for the mixed metaphors but I suspect it is the latter.

Mr Rowe might have restrained his views for public consumption upon appointment, but he is most likely an advocate for busting up the state's near monopoly on electricity retailing – and is likely to do that best from the inside with a full-time effort. As a former CEO of the Chamber of Commerce and Industry WA at the introduction of WorkChoices, Mr Rowe is not bashful at putting his views forward forcefully.

In that respect, I can probably accept his $500,000-plus salary carrying over to the new role, although I hope that kind of fee is short-lived (for the duration of whatever public and internal fight is needed to crack this nut).

This is definitely a fight worth having.

WA has got itself in a bind. It allowed electricity prices to slip well below cost for too long, disconnecting the public from the real prices and creating a shock when they were increased. The state has also left itself vulnerable to coal and gas producers, because it hasn't locked in long term low-price contracts. Furthermore, it gifted thousands of households an expensive bonus for renewable energy production without managing the potential cost of that.

This is on top of that fact that the state's south-western portion, including its one and only metropolis, Perth, are spread out and hard to service efficiently with poles and wires.

As Dr Nahan pointed out this week, WA's electricity prices are well and truly above the rest of the country, despite having an abundance of gas and a local coal source that has little value outside of domestic use.

That is one problem the government has to solve. Dr Nahan wants to drive costs down, to both reduce the price to consumers and lower the subsidy cost to government. That is a major challenge that will take a lot of political will to pull off.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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