29/10/2008 - 22:00

Wrong on energy again, Colin

29/10/2008 - 22:00


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SO far there have been two unwelcomed signals from the Barnett-Grylls alliance.

Wrong on energy again, Colin

SO far there have been two unwelcomed signals from the Barnett-Grylls alliance.

Firstly, Treasurer Troy Buswell went off holidaying at the height of the global credit crisis, suggesting he may make a better tourism minister.

Far more worrying, Colin Barnett has signalled he intends merging Verve (the old Western Power's electricity generating arm - the power stations) and Synergy (the old Western Power's electricity sales arm) to again being a single electricity provider.

So, it's back to the past.

To grasp the full implications of this move it's worth reflecting on the early 1990s, and the Labor government of Carmen Lawrence.

She initiated an inquiry into the state's then single energy conglomerate - the State Energy Commission of WA (SECWA) - which was more like a Soviet-style entity than an open market competitive enterprise or sector of competitive enterprises.

SECWA was a huge and intricate web of cross-subsidisation, hidden costs, and monopoly pricing, all helping to disguise the real cost of electricity and gas, and their transmission and distribution to consumers.

Because the Soviet economy was dominated by such monopoly entities, Mikhail Gorbachev moved, belatedly in the 1980s, to institute across-the-board glasnosts (openness) and perestroika (restructuring).

Fortunately, WA only had one such debilitating entity.

But because cheap energy is paramount for WA's economy, which is so open (meaning vulnerable) to internationally competitive markets, we can't even afford that; something Dr Lawrence fully appreciated.

Her inquiry, headed by Sir Roderick Carnegie, wisely recommended that SECWA's gas and electricity arms be split, after which their respective supply chain components - generation, transmission/distribution (networks) and sales - should also be broken-up.

This was so that competitiveness could be instituted across the board - between gas and electricity, between several electricity generating entities, and between retailers of both abundant energy sources.

In other words, a new competitive broom should sweep away decades of costly cobwebs created by the monopoly.

Then, in early 1993, Richard Court and energy minister-to-be Mr Barnett took over government; soon after they received the Carnegie Report.

And soon after that, things began unfolding.

Unfortunately the way they unfolded showed Mr Barnett was determined to ignore the Carnegie Report, which envisaged competitiveness emerging supreme right across WA's energy sector - contrary to what had prevailed until then.

Thankfully, however, Mr Barnett split SECWA, as advised, into Western Power (electricity generation, networks and sales) and Alinta (transmission, the Dampier-to-Bunbury pipeline, and distribution network, plus sales.)

Gas output, like coal, was privately produced.

Unfortunately his next step showed his first major energy sector disaster.

Rather than keeping the Dampier-to-Bunbury pipeline and gas distribution network in public hands - like WA's roads and electricity transmission and suburban distribution lines - Mr Barnett sold the first for $2.4 billion to Epic Energy, which went belly-up because it had overpaid (due to its belief that gas transmission rates from the Pilbara would remain stable).

The newly created independent regulator ruled against that.

Getting his hands on to Epic's $2.4 billion - thereby transforming a public monopoly into a private monopoly - was too tempting for Mr Barnett.

He compounded that disastrous error by merging Alinta's gas distribution network and sales arms, and sold this combined entity for nearly $1 billion.

Here was another case of foolishly opting for a short-term dollar gain ahead of long-term benefits for gas consumers.

If Alinta's sales arm had been sold-off separately, it would certainly have fetched less but - and this is crucial - other gas retailers would have begun entering the market as competitors.

The reason such competitive players never surfaced in the marketplace was because Mr Barnett had sold-off the publicly-owned gas distribution network with Alinta's sales arm, which meant potential competitors were permanently disadvantaged by having to compete with Alinta sales (new owner of the distribution network) while renting access to the network from it.

Put otherwise, Alinta sales would know all its competitors' cost structures.

No gas retailer is so silly as to enter a market in which its competitor - Alinta sales here - also owns the distribution network.

Consequently, Mr Barnett had effectively denied consumers the competitive market Carnegie envisaged.

Another botch-up was made by the Gallop Labor government, which actually subsidised, for more than $80 million, Alinta's (distribution networks and sales arms) purchase of a huge slice of the once Epic-owned Dampier-to-Bunbury pipeline, thereby making privately owned Alinta an even bigger private monopoly.

That meant the original publicly owned Alinta - something economists call a vertically integrated public monopoly - in just two deals had become a vertically integrated private monopoly.

Both those deals meant it was back to the non-competitive past.

Mr Barnett seemed incapable of understanding the simple fact that pocketing $3.4 billion for the gas transmission and distribution assets had only come about because he'd handed monopoly businesses into private hands, with the costly ongoing consequence of no competition for future consumers.

Those Barnett gas market disasters mean WA remains with a non-competitive gas sector.

Consumers now face a single privately owned conglomerate - Alinta transmission, distribution network, plus sales - that was once publicly owned.

What of the Barnett approach to SECWA's electricity arm, renamed Western Power, with its generation, transmission and distribution and sales arms.

In two words - nothing happened.

And it's this that Mr Barnett now wants to re-merge, showing he again refuses to heed Carnegie's advice, which paved the way for competitiveness to be instituted across the electricity sector.

Fortunately a new energy minister, Eric Ripper, had emerged in 2001 and soon after did precisely what Carnegie recommended.

In a way, Mr Ripper had little choice but to split the old single Western Power, given that it was being hammered by the Office of Energy Safety over a string of network disasters, including fatal ones.

Who remembers the summer 2003-04 blackouts because Western Power was without adequate generation capacity to support the South West load?

Mr Ripper's split-up has meant the emergence of Verve (generation), with transmission/distribution remaining a public enterprise (and retaining the name Western Power), so no links to anyone (public or private) and Synergy (sales arm), which would face other, meaning private, electricity sellers to bring about competition.

Since that split-up, the electricity sector has had 1,700 megawatts new private investment generation capacity added - one-third of total capacity - to the entire South-West Interconnected System.

That's about $2 billion taxpayers haven't had to borrow and outlay.

True, some power disruption has occurred, but that's been due to gas pipeline or supply disruption, not lack of power generation capacity as Mr Barnett was recently reported claiming.

And Verve's losses have been caused by unchanged electricity tariffs for 15 years, not the Ripper-initiated split-up.

What have we heard from Mr Barnett since he narrowly won power on September 7?

Yes, he plans to remerge Verve and Synergy; so back to Soviet-style anti-competitive thinking.

If Liberal MPs, who allowed him to create a non-competitive gas sector in 2000, repeat this with electricity in 2009, their party should be wound-up.

Getting the gas sector so disastrously wrong because he couldn't resist government getting its hands on to nearly $3.4 billion is one thing.

Recreating another non-competitive energy sector, without even a dollar coming in, and potentially causing mayhem to private investment in energy assets, is quite another.


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