Energy re-merger fuels controversy

A new report by international economic consultancy Frontier Economics has found that a potential re-merger between WA state-owned power utilities Verve Energy and Synergy would hardly reduce electricity costs and could create significant barriers to further private investment.
The research was commissioned by the newly-formed WA Independent Power Association (WA IPA), an organisation that currently represents the interests of six independent power generators and retailers operating in the state: Alinta Energy, APA
Group, Collgar Wind Farm, ERM Power, Griffin Power and NewGen Power. The WA IPA believes that the key to addressing rising energy costs is to have increasing competition and an open market. Speaking at its launch on April 23 and as reported in a statement the same day, WA IPA chairperson Richard Harris said that independent power companies had invested more than $2 billion in the WA energy market since 2006, providing 40 per cent of the overall power generated in WA’s main grid.
“Through innovation and utilising new technology, these companies have developed efficient, cost-effective generation. This, coupled with the increase in competition in the market, has lowered the wholesale price of energy to commercial customers in Western Australia,” Mr Harris said.
He said that the WA IPA was keen to address the recent speculation spurred by the Barnett Government concerning the possibility of a re-aggregation between Verve and Synergy.
“There is a misperception that merging the two back together would bring down electricity costs. According to the Frontier economic report, this would not be the case,” Mr Harris said.
“The savings, if any, would amount to less than 0.4 per cent of a typical residential electricity bill, or around $5 per customer per year.”
Frontier found that the main cause of an under-utilisation of Verve’s generation capacity was its ageing power stations and not the break-up of Western Power in 2006 during an electricity reform that saw the company split in to four utilities that included Verve, Synergy and Horizon Power.WA Premier and State Development minister Colin Barnett labelled the break-up a complete failure, stating that it was unsuccessful in lowering power prices and had caused the opposite effect.
The Frontier report also examined claims that the disaggregation of Verve and Synergy had contributed to increased electricity tariffs, finding that a four-fold rise in gas prices and significant increases in network charges had been key factors.
“The findings of the report support our association’s message that it is imperative that an open and competitive marketplace is maintained and encouraged by the State Government for the benefit of all West Australians,” Mr Harris said.
“We believe that increased competition in power generation and retailing will place downward pressure on costs and prices. It will also lead to innovative market-based solutions to address rising fuel costs.”
An extract from a Hansard transcript recorded on May 1 clearly indicates that WA Labor Party leader Mark McGowan tried to obtain answers from Mr Barnett about whether Verve and Synergy would be re-merged before the next election, and if so, what mechanism would be used for a re-merger.
Mr Barnett said that if any decisions were made, Mr McGowan would be the first to know.
“We, as a government, are looking at Verve and Synergy. It was a mistake to split Verve and Synergy, but it was not a mistake to split off Western Power with the power lines,” Mr Barnett said.
“The Labor Party was told clearly in a number of independent reports that it [splitting Verve and Synergy] would have a catastrophic impact. Not only did the Labor Party as a government ignore that, but [it also] failed to go out and be honest with the public of Western Australia.”
Mr Barnett said that his Government had given the split three and a half years to see if it would work but that it had not, and that the energy system Labor introduced allowed private generators to “pick the eyes out of the market” by taking the most profitable
contracts off the government utility. “As the Energy minister said only a few weeks ago, over summer something like 1500 megawatts of taxpayer-funded generation that was paid for sat idle while Synergy was buying expensive electricity off private generators that the former Government awarded contracts to.
“If we are to control, and hopefully stabilise, electricity prices, we cannot do it unless the cost of production is addressed. The split of Verve and Synergy has added massively to the cost of production in the system. That is why we are looking at a re-merger,” Mr Barnett said.
The WA Chamber of Commerce and Industry has expressed views opposing a re-merger, with chief executive James Pearson stating that it would be a backwards step and would severely damage the development of a competitive energy market.
“The re-merger of Verve and Synergy is unlikely to result in lower prices. If the Government is concerned about higher energy costs for consumers in the short term, then, where social and regional objectives need to be addressed, this should be done transparently through direct subsidies,” Mr Pearson said in a statement late last year.

By Jaimee Conn

One Response to Energy re-merger fuels controversy

  1. Elza

    May 21, 2012 at 8:20 am

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