ERA tightening to reduce power price pressure

State-owned Western Power will need to trim operating costs by about $100 million more than planned over the next five years under the Economic Regulation Authority’s latest draft access arrangements released last night.

Business News revealed in November that Western Power planned to spend about $1 billion less in the five years to June 2022 than it had in the five years covered by the previous access arrangement.

The access arrangement is the regulatory instrument capping Western Power’s spending and revenue for operating the south west electricity grid, which covers the area from Geraldton to Kalgoorlie to Albany and includes Perth.

Western Power had planned operational spending of $1.8 billion for the next five year period, down from around $2.5 billion under the last arrangement.

The ERA wants costs ratched down further, however, to be $1.7 billion, or about 6 per cent less than Western Power’s submission.

Revenue will also be much less than requested, with a target level of $7.4 billion.

That would be 5.6 per cent below Western Power’s proposed level, and only marginally higher than under the previous arrangement.

ERA Chair Nicky Cusworth said the access arrangement was the first in which Western Power has forecast a decline in energy consumption.

That highlighted the changing nature of the electricity industry as consumers adopt new technologies, Ms Cusworth said.

“The ERA’s draft decision will maintain average network service charges at the current level in real terms.” she said.

“While the Government, not the ERA, sets electricity prices, network charges make up around 45 per cent of total electricity costs for residential customers,” Ms Cusworth said.

“This draft decision creates no further upward pressure on prices for Western Australians.

“The ERA has also made changes to Western Power’s price control which will see Western Power take on more of the risk of fluctuations in demand, rather than this falling on customers.”

Also contained in the access arrangement is detail about the state government mandated tariff equalisation contribution, effectively a tax paid by metropolitan power users to subsidise services in the regions.

Nearly $780 million will be redistributed through the mechanism over the five years to June 2022.

The payment will be about $164 million this financial year, falling to be $147 million in the final year of the arrangement.