12/08/2015 - 15:09

Western Power ahead of target

12/08/2015 - 15:09

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Western Power has reported a substantial reduction in operating expenditure for the third year in succession, and says it is on target to deliver $1.4 billion in savings across its current five-year access arrangement.

Western Power ahead of target
Western Power chief executive Paul Italiano.

Western Power has reported a substantial reduction in operating expenditure for the third year in succession, and says it is on target to deliver $1.4 billion in savings across its current five-year access arrangement.

The state-owned energy utility has cut staff numbers from 3,725 to 3,572 over the past three years and is understood to have engaged consulting firm McKinsey to help it achieve further efficiency improvements.

Chief executive Paul Italiano said the business had been able to cut costs while also meeting or exceeding its service targets.

These included reduced interruptions per customer, lower workplace injury rates, more residential connections and replacing more wood poles (70,000 last year).

The utility cut operating expenditure by $28 million to $510 million in 2014-15 – down from $570 million in 2011-12.

Contributors included savings in entertainment, travel and consultancy fees, reduced duplication in administration by defining clearer accountabilities, and lower procurement costs.

Mr Italiano said there had been a shift away from the traditional expectation there would be annual increases in operational spending.

Western Power has also substantially reduced capital expenditure below the level approved by the Economic Regulation Authority for its current five-year access arrangement, which runs to June 2017.

Western Power originally requested total spending (opex and capex) of $11 billion over the five-year period.

The ERA approved spending of $8.9 billion and the utility is currently on track for $7.5 billion.

Within this total, capital expenditure totalled $1.03 billion in 2014-15 – it’s budgeted to lift slightly this year before dropping to $929 million in 2016-17.

Mr Italiano acknowledged lower-than-forecast growth was a significant contributor to this outcome, but said the utility had also introduced a more sophisticated approach to asset management, which meant it was better able to prioritise spending.

“The risk approach helped us to better identify what to do, and then the execution/delivery focus helped us execute that at a lower cost, and those two in combination produced quite a significant improvement in the capital program,” he said.

Mr Italiano praised the efforts of staff to work more productively and said the utility had also been disciplined in not diverting savings to other areas of spending.

The restructuring over the past three years has included a marked shift in the utility’s staffing mix.

The number of contractors has been slashed from 449 to 125, while the number of salaried employees has increased from 3,276 to 3,447.

Mr Italiano said Western Power was facing up to future challenges, including an electricity market review, higher performance expectations and rapidly changing technology.

“As much as we’re producing year-on-year opex reductions, and that’s great for us during this regulatory period, it means that gets locked in as the new normal at the next regulatory reset,” he said.

Western Power has engaged McKinsey to help review its priorities and prepare for the next five-year access arrangement.

“While we have achieved strong successes, we plan to continue to meet our customers’ expectations by operating even more affordably and seeking greater productivity gains,” Mr Italiano said.

 

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