Synergy the bright spark in energy

23/10/2007 - 22:00

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Electricity retailer Synergy has emerged as the only one of the four disaggregated electricity corporations to exceed budget forecasts, reporting earnings before interest and tax of $64.9 million for the 2006-07 financial year.

Electricity retailer Synergy has emerged as the only one of the four disaggregated electricity corporations to exceed budget forecasts, reporting earnings before interest and tax of $64.9 million for the 2006-07 financial year.

In contrast, electricity generator Verve Energy, Western Power and Horizon Power all performed below budget forecasts.

Synergy managing director Jim Mitchell told an annual stakeholders’ briefing the company had realised just more than $1.5 billion in revenues, exceeding forecast electricity revenue by 2 per cent and gas revenue by 6 per cent.

Mr Mitchell said the increased revenues reflected the strong performance of the Western Australian economy, which resulted in higher electricity and gas sales.

Synergy is forecasting a reduction in EBIT for the 2007-08 financial year, as cost increases, tighter margins and business restructuring costs take effect.

The one-off $15 million worth of benefits for Synergy in the establishment of the wholesale electricity market this financial year, which weren’t accounted for in the forecast, are not expected to be repeated.

Mr Mitchell reinforced the call for tariff increases to more accurately reflect the increasing cost of supply.

With household tariffs frozen until 2009, tariffs for medium-to-large businesses were increased in July this year, the first rise in 15 years, to cover increased generation and transmission costs.

Mr Mitchell said any significant increase in household tariffs should be accompanied by transitional arrangements. This would allow the implementation of demand side management, greater energy efficiencies and the possible introduction of time-of-use and peak pricing to change consumer behaviour.

“We are strongly suggesting to government that if there are significant increases, please put it over a number of years. That gives both big business and householders the time to adjust.”

The government is due to release its review of tariffs in the first quarter of 2008.

Synergy’s 400-megawatt electricity supply tender, launched in August 2006, is still in commercial negotiations, with the successful tender to be announced before the end of the year.

The company intends to launch a second 400MW tender, and a second renewable energy tender of 100MW, in early 2008.

Its first 40MW renewable energy tender was recently awarded to WA Biomass, which is expected to begin supplying electricity from its yet to be approved Bridgetown biomass plant by the end of 2009.

Energy Minister Fran Logan this week released the combined financial position of the four electricity corporations, showing EBIT of $339.9 million, $121.6 million less than the budget forecast.

Electricity generator Verve Energy was substantially affected by limitations under its vesting contract with Synergy to supply most of its production to the state-owned retailer at fixed tariffs, reporting a $52.3 million loss.

Verve was also forced to buy expensive liquid fuel due to gas supply transport restrictions on the Dampier-to-Bunbury gas pipeline last year.

Mr Logan said Verve was forecasting an improved EBIT in 2007-08 of $33 million.

Increased costs also hit distribution and transmission company Western Power, whose overall financial performance also fell short of expectations.

In a year of challenging operating conditions, Western Power reported a net profit of $69.4, with EBIT down 17 per cent on budget forecasts at $240.4 million.       

Significant increases in maintenance costs, including corrective emergency work and pole maintenance, and greater investment in capacity expansion as a result of increased demand for connections affected its performance.

The performance of regional electricity supplier Horizon Power was affected by a number of extreme weather events, including tropical cyclones Isobel and George, and the severe storms in Esperance.

It also bore the brunt of higher costs associated with the failure of the Ord Hydro plant and delays in the West Kimberley Power Project.

On releasing the results, Mr Logan said that while cost pressures would continue to affect financial results, disaggregation was delivering greater transparency and promoting competition, which he said would ultimately place downward pressure on prices.

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