State denies Verve merger backflip

STATE Energy Minister Peter Collier has denied the government is preparing to abandon Premier Colin Barnett's mooted re-amalgamation of Verve Energy with Synergy.

However, it appears unlikely that the merger will be recommended when former Western Power executive Peter Oates hands down the findings of his controversial review of the state electricity generator later this month.

Such a turnaround would be considered a victory for common sense by industry, but also an embarrassment for Mr Barnett, who has personally championed a merger since taking office last year.

Mr Barnett has consistently blamed the previous government's break-up of Western Power for Verve racking up huge losses, and pushed re-amalgamation with electricity retailer Synergy as a partial cure.

But tariff caps - backed by the then Barnett-led state opposition as a condition of the break-up - which have prevented Verve from recouping the full cost of generation from its customers are broadly accepted as the true culprit.

Mr Collier told WA Business News that a merger was still an option, but that the government would only make a decision on how to resolve Verve's problems after considering Mr Oates' review.

"It (the merger) remains an option but I'm very conscious of the arguments against it, just as we are of finding a viable solution to Verve's financial haemorrhaging," Mr Collier said.

That approach was entirely consistent with the premier's stated position, he said.

"The premier has been on the record as saying that (a merger) is what he thought was necessary, but if after we've done the study we find ... that it is not the best solution, well he certainly is not going to corner himself," Mr Collier said.

"As soon as (Mr Oates' report) has been ticked off, our position will be quite clear."

Other options thought to be in the mix include freeing Verve and Synergy to compete in both the generation and retailing markets, and raising the cap on Verve's gas and coal-fired capacity to allow optimum use of its existing generation facilities.

WA business groups and the Economic Regulation Authority have unanimously opposed any re-amalgamation as anti-competitive, but they continue to demand further reform to encourage greater competition in the wholesale electricity market.

Chamber of Commerce and Industry WA chief executive James Pearson said disaggregation had already delivered significant benefits by "breaking up anti-competitive power monopolies, providing greater transparency in the electricity market, and encouraging new private sector investment in power generation and retail".

He also welcomed the government's easing of Verve's tariff caps to enable more "cost reflective pricing" as a major step forward.

Last month, parliament heard the changes would enable Verve to again start generating dividends, rising from $8.7 million in 2009-10 to $67.6 million in 2012-13.

Verve managing director Shirley Int'Veld said Verve had been pleased with the opportunities to provide input to the Oates review and applauded the looser tariff restrictions, which "have eased the pressure on Verve Energy's finances so that the position now is not so dire".

However, she warned Verve still faced significant long-term issues such as "stranding of our assets, our balancing responsibilities, the vesting contract and market design and rules needing attention".

WA Sustainable Energy Association chief Dr Ray Wills said the demerger had already facilitated the development of 200MW of renewable energy supply. But he also urged the government to urgently lower contestability thresholds in the retail market, in order to encourage greater take-up and investment in renewable energy supplies.

"To see market competition grow in the retail space is essential if we are going to see market diversification, new projects and new jobs," he said.

Reform was also needed to encourage small-scale and single site renewable power supplies, Dr Wills said.