Premier Colin Barnett has again raised the possibility of a future re-merger of state electricity generator Verve Energy with retailer Synergy if other measures to reduce structural costs unfairly borne by Verve prove unsuccessful.
Premier Colin Barnett has again raised the possibility of a future re-merger of state electricity generator Verve Energy with retailer Synergy if other measures to reduce structural costs unfairly borne by Verve prove unsuccessful.
Announcing a staggered 17.5 per cent increase in household electricity bills by July today, the premier blamed the previous state Labor government's "disastrous" break-up of Western Power for the resulting $220 annual rise in the average Perth power bill.
The increase was less than the 26 per cent assumed in last year's state budget, but reflects a staged shift to cost reflective electricity pricing to help stem the massive losses being racked up by Verve following the 2006 break-up.
Last year, the government said it expected the rise in tariffs to return Verve to profitability this financial year, after the generator racked up almost $500 million in operating losses since disaggregation.
Mr Barnett today said though the government had so far decided not to re-aggregate the Western Power entities, it would reconsider remerging Verve and Synergy if that was needed to correct the systemic costs unfairly borne by Verve as a result of the split.
"If you like the egg has been scrambled and we are trying to do the best with what we have," he said.
"To re-aggregate now would impose another whole process and another range of costs, but that still remains an option if we cannot fix up the vesting contract."
Under a price cap associated with the vesting contract, Verve was prevented from passing on the true cost of generation to customers, and was also required to take on the responsibility of "balancing" the supply system. In times of excess supply, that means it must shut down some of its capacity to allow private generators to continue operating.
Verve's total generation capacity was also capped at 3000 megawatts, preventing it from fully utilising its existing power stations.
At the same time, Synergy was required to displace an increasing volume of supply from Verve with power from other private generators in a move to encourage greater competition and private sector investment.
But Mr Barnett said those arrangements were creating "all sorts of crazy results", including forcing the state to buy "relatively expensive power from private sector providers while the state's generators were basically sitting idle".
Mr Barnett and energy minister Peter Collier said a number of "significant" changes to the vesting contract were being considered to help address the problem.
Mr Barnett declined to confirm whether those changes would include the removal of the 3000 MW cap, enabling Verve to better utilise existing plant and potentially defer retirement of older units.
But he hinted that Synergy would no longer be allowed to displace supplies from Verve with private sector contracts.
"I think the cap has some merit, but there needs to be some commonsense," he said.
"When Synergy goes out and contracts to buy private energy, and a condition of that is that Verve's existing power stations are under utilised, then that flows through as a direct cost ... to electricity users and taxpayers."
"That is just not smart commercial practice. We are a Liberal government and more than anything welcome private sector participation, but not at the cost of cross subsidies from taxpayers and consumers."
Mr Collier said more details of the proposed changes to the vesting contract should be known in a couple of weeks.
