28/09/2017 - 12:15

Utilities face financial flux

28/09/2017 - 12:15

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Across the state’s major government-owned utilities, more money goes in through subsidies than out through dividends, according to the latest batch of annual reports.

Western Power paid a dividend of $101 million, without receiving a subsidy. Photo: Attila Csaszar

The state’s four major utilities paid about $635 million in dividends to the government in the past financial year, but received nearly $900 million in subsidies from taxpayers amid continuing pressure for government trading enterprises to tighten their belts.

The relationship between the state government and the enterprises is complicated, with a variety of operating subsidies and equity injections that flow into the enterprises, while dividends and income tax equivalent payments, which go to the state rather than federal government, are paid out.

Water Corporation

Water Corporation paid the biggest dividend, at around $483 million for the year to June 2017, down from $567 million the previous year.

Net profit was $645 million for the 2017 financial year, about 12 per cent lower than the previous period, with revenue, excluding subsidies, down 4 per cent due to reduced water consumption.

Costs were also up, driven by greater use of recycling and desalination.

The company’s operating subsidy was also reduced from $547million in 2016 to $464 million, with most of that money going towards provision of regional water services.

That annual subsidy is set to fall a further $31 million in the 2018 financial year, and a further $100 million by 2021, according to the state budget’s forward projections.

Western Power

Western Power, which operates the state’s South West Interconnected System, is another highly profitable entity, although not a major contributor to the state’s coffers.

The company’s revenue fell about 3.5 per cent in the year to June partly on the back of lower developer contributions, while the company predicts its revenue base will continue to shrink driven by the take up of solar panels, batteries and changes in consumption patterns.

Net profit was down 8 per cent, to $327 million.

Western Power paid a dividend of $101 million, without receiving a subsidy.

One number in Western Power’s balance sheet stands out, however.

Over time, the utility has accrued a very large income tax liability, which at the end of June this year was around $763 million, an increase of about $146 million on the same point in 2016.

It means that although the enterprise nominally pays company tax, it does not have an impact on the state’s consolidated revenue.

The liability was the topic of discussion in the March state election, with (then) treasurer Mike Nahan arguing that government money had flowed into the business for most of the past decade.

Horizon Power

Horizon Power, an integrated electricity provider for regional areas, offers up a different scenario again.

The utility paid a dividend of $16.9 million during the year, and received a subsidy of $150 million through what is known as the ‘tariff equalisation fund’, where a charge is levied on electricity users in the SWIS and passed on as a subsidy for regional consumers to keep their prices down.

That subsidy, however, has been dramatically tightened in recent years after the company undertook a strategic review.

For example, Horizon had originally forecast the subsidy would be $273 million for the 2018 financial year, with that number now to be around $167 million.

The entity said it had passed its target – to reduce the annual subsidy by $100 million – more than a year ahead of schedule.

Part of the reduction had been achieved through introduction of smart meters, which the company expects will save $7 million per year.

Further work is being undertaken through the rollout of microgrids in places such as Onslow.

Synergy

Synergy, which is an electricity generator and retailer in Perth and surrounds, made an after-tax loss of $12.6 million this year, down from a profit of $33.7 million in the year to June 2016.

The entity paid a dividend of $33 million and received a subsidy of $281 million.

That subsidy is to be reduced to zero in the coming four years, according to the state budget, while the company’s dividend will also be lifted.

Synergy chief executive Jason Waters summed up the environment for the company when he said there were significant challenges faced by the energy sector.

 “Never before in my 27 years in the industry have the forces of policy and regulation, consumer interests, broader economic conditions and new technologies conspired to make a once reliable and stable industry so difficult,” Mr Waters said.

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