Western Power seeks price lift approval

08/10/2008 - 14:50

The state's economic boom could turn into substantially higher electricity prices next year as Western Power submits its proposals to the Economic Regulation Authority to increase tariffs.

Western Power seeks price lift approval

The state's economic boom could turn into substantially higher electricity prices next year as Western Power submits its proposals to the Economic Regulation Authority to increase tariffs.

The electricity provider said the proposals for a second Access Agreement period also include $6 billion for capital and operating expenditure over the next three years.

Additionally, Western Power is seeking approval for a 40 per cent increase to the network component of the retail tariff next year, which would affect larger customers.

The utility has also recommended further increases of some 30 per cent in each of the next two years.

Western Power managing director Doug Aberle said the actual increase to each customer will be "considerably" less than 40 per cent because the company makes up a third of the tariff. Generation and retail are the other components.

"These increases are likely to flow through to retailers of electricity, large customers and generators," Mr Aberle said.

Electricity tariffs for residential and small business customers are protected by the government's cap on increases, Western Power said.

The company will introduce the price increases, if approved, to customers through a staged process.

Mr Aberle added the price increases were necessary due to Western Power spending record amount upgrading and expanding its network due to the state's economic and population boom.

"Last financial year Western Power spent almost $1 billion upgrading and expanding the network, which is about four times the amount of investment in the network made in 2002 / 03, and estimates it will need to double that $1 billion expenditure to $2 billion a year for the next three years," Mr Aberle said.

"The cost of building one major regional transmission line alone is more than $300 million."

The ERA is due to set the new network prices from July 1 2009.

 

Below is the full announcement:

 

Western Power submitted its proposals for a second Access Agreement period (AA2) to the Economic Regulation Authority (ERA) on 1 October, which includes $6 billion for its capital and operating expenditure over the next three years and an increase in the network component of the electricity tariff.

Western Power's Managing Director, Mr Doug Aberle said the considerable increase in the business' expenditure plans reflected unprecedented economic growth which was driving up the requirement for substantial infrastructure investment.

"The demand for electricity infrastructure to meet the sustained high volume of new customer connections and increasing power use per customer is occurring at a time when much of the network is reaching capacity and the end of its lifespan and therefore needing major expansion and upgrading and when the cost of money, materials, land and skilled labour is increasing dramatically.

"Last financial year Western Power spent almost $1 billion upgrading and expanding the network, which is about four times the amount of investment in the network made in 2002 / 03, and estimates it will need to double that $1 billion expenditure to $2 billion a year for the next three years.

"The cost of building one major regional transmission line alone is more than $300 million.

"With this sustained increase in expenditure, a natural by-product is an increase to the network component of electricity tariffs that affect large customers," Mr Aberle said.

However, Mr Aberle pointed out that the increase to the network component to the tariff was substantially driven by the increased cost of money and a change in approach to capital contributions to provide a more equitable way of recovering the costs of network capital upgrades and expansion over time.

Electricity tariffs for residential and small business customers, which represent the vast majority of electricity consumers, are currently protected by the Government's cap on increases.

The State Government is responsible for setting retail electricity tariffs for general consumers supplied by Synergy. Large customers negotiate prices with their retailer of choice

The ERA will set the new network prices from July 1 2009.

Western Power's proposal to increase the network component of the tariff will affect large customers to varying degrees dependent on their private contracts with retailers.

"Western Power is recommending an initial 40% increase to the network component of the retail tariff, though the actual increase to each customer will be considerably less than 40% because Western Power makes up only about one third of the tariff. Generation and retail are the other components," he said.

Western Power is recommending further increases of around 30 per cent in each of the next two years.

"These increases are likely to flow through to retailers of electricity, large customers and generators.

Western Power has considered customer impacts in its proposals and is voluntarily staging price increases over time and delaying reaching the true cost of delivering power to reduce the impact of price increases.

"While we recognise our proposals are likely to have an impact on electricity prices for large customers, the risks to public safety, reliability of supply and ability to connect new generators and customers would be high if this investment were not carried out", Mr Aberle said.

As a corporation, Western Power receives a regulated return on investment in its network assets. The ERA, as part of evaluating the AA2 submission, ensures this return is fair and reasonable.

The ERA has set out a period of six weeks for initial public comment on Western Power's submission, in an overall review and approval process that will take six to nine months.

 

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