Vertical disaggregation key for Western Power

BREAKING up Western Power is still high on the agenda for the Electricity Reform Task Force.

The task force released its second discussion paper yesterday and one of its key points involves the vertical disaggregation of the utility by breaking into three Government-owned parts.

However, it does not support any horizontal separation of Western Power’s assets.

It also recommends creating a bilateral contract-based wholesale market for the South West Interconnected System supported by a residual trading market, rules to govern participation in the market, a licensing regime for market participants.

Other recommendations include broader support for renewable energy generators and separate arrangements for the North West Interconnected System, which serves parts of the Pilbara and the 29 non-interconnected systems that supply power to other regional areas.

Submissions on this discussion paper close on May 15.

The task force has also set out a schedule to ensure the Government can meet its goal of full contestability in WA’s electricity market by January 1, 2005.

The Court Government started increasing contestability in the WA marketplace and this Government is keen to take it further.

Experience shows the initial increases in contestability have brought some cost savings to business.

Task force chairman John Hyslop said the discussion paper reflected the task force’s current views.

“These current views are likely to remain our final views unless further submissions and analysis convinces us to change them,” he said.

That final view is due to go to Energy Minister Eric Ripper in October.

Industry players have been keen to see Western Power broken up but fear that any lack of horizontal separation of its assets will undo the benefits of full contestability.

Electricity retailer Perth Energy managing director Ky Cao said the UK and Californian experiences showed that, having a dominant player at any point within the marketplace undid the benefits of competition.

“If you leave generation in the hands of a dominant player you have to have strict regulations on how it behaves,” Mr Cao said.

“This has to be applied to the retail side as well. You need competition in generation to deliver cost savings and retail competition to ensure those savings are passed on.”

Chamber of Commerce and Industry manager industry and resources Bill Sashegyi said the lack of horizontal aggregation was a concern to the chamber.

“It is something we will need to give a lot of consideration,” Mr Sashegyi said.

However, he said the report was very welcome.

“It is something the CCI has been after for a very long time,” Mr Sashegyi said.

“This direction is clearly consistent with the position the chamber has adopted for the past decade.”

Mr Hyslop hopes the power procurement process Mr Ripper is expected to announce soon will send out the right message to any company contemplating entering WA’s generation market.

Another issue to be addressed lies in finding a transparent mechanism to address the cross subsidies necessary to maintain the uniform tariff for regional residential and small business customers.

Office of Energy coordinator of energy Les Farrant said customers in the South West grid were already paying for the cross subsidies, believed to be a $150 million burden.

Mr Sashegyi said the cross subsidies proposal was a concern because it might prevent customers below certain thresholds from negotiating better deals.

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