Unions, academics at odds on power reform

Securing union support for his bid to introduce competition into the local electricity retailing market will be a major test of Ben Wyatt’s political and negotiating skills.

In his role as energy minister, Mr Wyatt signalled in May last year that the government was considering a plan that would allow private retailers to enter the market to provide power to all customers, including small businesses and households.

Under the existing rules, private providers can sell only to businesses using more than 50 megawatt hours of power a year, roughly the level of an independent supermarket, while state-owned Synergy supplies customers on the South West Interconnected System.

Governments of both stripes have promised to deregulate but the reform process has been slow, with opposition spokesman Dean Nalder arguing in March that the current government was dragging its heels to appease unions.

Gas markets are already open to contestability, with recent new entrants such as Origin Energy and AGL Energy driving prices down by as much as 35 per cent.

Speaking to Business News, Australian Services Union state branch secretary Wayne Wood said he was confident a similar move to open up the power market would not cut prices.

Mr Wood’s union represents about two thirds of the unionised workers at Western Power, which manages the network, and three quarters of the unionised workers at Synergy.

“I’ve not seen anything in the eastern states (to suggest it would reduce prices),” he said.

“If you could demonstrate that it’s worked in any other country, if you could show me where it’s worked in the eastern states, where it’s cheaper and more reliable, our members would have to look at it.

“Given what we’ve seen in the eastern states, the debacle that we see; I’m skeptical.”

Mr Wood said he had additional concerns, however, including jobs going offshore and a lack of government control over the market, with businesses following commercial interests.

More general points against private involvement in the electricity sector included safety concerns and an inability for government to plan generation capacity, he said.

“I don’t think it benefits the community, electricity is an essential service,” Mr Wood said.

Even if competition were introduced, he was confident that Synergy would be able to successfully compete against private providers, and produce power more cheaply.

Powering up

There are numerous voices in favour of introducing competition into the market, however.

Among them is the Grattan Institute’s Tony Wood, who told Business News last year the state government should proceed, cautiously, towards full contestability.

Mr Wood said Western Australia should learn from mistakes made interstate, potentially by regulating a basic-level service offering accessible for all consumers.

The state’s Economic Regulation Authority similarly called for contestability in the 2014 Microeconomic Reform review, while local independent power providers have argued they could reduce prices as much as 40 per cent.

Data from the US shows promising results from competition in electricity markets in the eight years to 2016, according to the ‘Restructuring Recharged’ report by the Retail Energy Suppliers Association.

Residential prices in the 35 states with retail monopolies increased 18.2 per cent in the period, while in states with competitive markets, prices rose only 0.84 per cent.

For industrial users, prices fell 21.7 per cent in competitive states, and were up 8.6 per cent in monopoly states.

A 2016 discussion paper by Netherlands-based Tilburg University found that retailing margins had fallen in the Dutch market since the introduction of competition, while consumer satisfaction was higher.

Appropriate, strong regulation was still needed in the market, however, the report said.