Western Power, Verve face off

WESTERN Power and Verve Energy are shaping for a fight over increases in electricity network charges recommended by the independent market regulator last week.

Western Power, which serves almost 900,000 residents and businesses connected to the South West Interconnected Network, fears the Economic Regulation Authority's draft tariff ruling will hinder its ability to maintain the network and keep up with demand growth.

But any move to soften the ERA ruling is likely to be fought by Verve Energy as the state electricity generator battles to stem its ongoing financial losses.

The ERA last week ruled that transmission and distribution tariffs could rise by an average of no more than 8.5 per cent per year over the next three years.

The ERA said Western Power could increase annual transmission charges by 12 per cent, and distribution charges by 6 per cent. If passed on in full to customers, retail tariffs would rise about 3 per cent per year, on top the increases already flagged by the state government to bring charges more into line with actual cost of power.

Western Power had sought to raise annual charges by more than 30 per cent, and increase its annual revenue base to over $1.6 billion by 2011-12, 33 per cent more than the $1.15 billion maximum allowed by the ERA.

The ERA also excluded $200 million in forecast operating costs, and $474 million of recently incurred spending, from being included in the calculation of tariffs.

Western Power's general manager strategy, Phil Southwell, told WA Business News the corporation was concerned about the resulting impact on the corporation's capacity to invest sufficiently to maintain the network.

Consequently, Western Power would be challenging the ruling before submissions close on August 13.

"We have an opportunity to challenge this ... so we will certainly be going back on any areas we don't agree with," Mr Southwell said.

"Hopefully we will come to a landing that is mutually acceptable."

However, any changes are unlikely to be acceptable to its state-owned generation stablemate, Verve.

Verve managing director Shirley Int'Veld told WA Business News the generator was sympathetic to the investment requirements of the network but had to consider the potential added impact on Verve.

"Verve Energy recognises that significant expenditure is required to ensure network capability and reliability is maintained," she said.

"However, it is cognisant of the fact that any increase in network-related charges will directly impact Verve Energy's financial performance under the vesting contract netback arrangements.

She said Verve supported the ERA's role in ensuring Western Power invested funds in an "efficient and effective manner".

Electricity retailer Synergy said it supported the ERA ruling.