WESTERN AUSTRALIA: by Richard EganNews Weekly
Electricity: half-way to privatisation?
, November 16, 2002
The Western Australian Government will consult with stakeholders - including the energy unions - over the next few weeks before adopting its final position on reforms to the State's electricity system proposed by an Electricity Reform Task Force, chaired by former UK oil and gas industry executive, John Hyslop.
The Task Force has recommended the disaggregation of Western Power, the State-owned electricity corporation, and the establishment of a new wholesale electricity market, as preliminary steps towards full retail contestability.
Western Power is to be split into four component parts with the South West Interconnected System being vertically disaggregated into three independent entities, State Generation, State Networks and State Retail.
The fourth new entity would be called the Regional Power Corporation which would be formed from the North West Interconnected System and non-interconnected systems operated by Western Power in the State's regional areas.Monopoly
Deputy Premier and Energy Minister Eric Ripper has reiterated the Government's opposition to direct privatisation pointing out that it would merely turn a public monopoly into a private monopoly.
He is, however, enthusiastic about the Task Force's disaggregation and market competition plan, and is eagerly touting the results of a cost-benefit study which claimed that the proposed reforms will result in an 8.5 per cent reduction in average electricity prices, leading to a boost in the state's economy of up to $590 million per annum and 3,900 additional jobs.
The reform package includes provision for arrangements between State Generation and State Retail for the supply of electricity to tariff customers until full retail contestability is achieved.
However, various provisions are proposed to prevent either State Generation or State Retail gaining 'unfair' advantages in the new electricity market. For example, State Generation will not be permitted to invest in additional fossil-fuelled generating plant, or even replace its ageing plant, unless the new Economic Regulation Authority advises the Government that these actions "would not hinder the development of a competitive generation sector".
State Retail (and the Regional Power Corporation) will be obliged to function as a "retailer of last resort" to supply customers whose alternative suppliers "exit the market".
Malcolm Macpherson, Chairman of Western Power, has opposed the plan to separate generation and retail functions in Western Australia, citing the experience of interstate and overseas utilities as indicating that this leads to increased costs and therefore lower profits and reduced payments to Government.
A report commissioned by Western Power and carried out by Deloitte Touche Tohmatsu has pointed out that there are no stand-alone electricity retail businesses operating anywhere in the world. Such entities usually form into large conglomerates with some generation businesses.
According to this report, the reform plans could slash Western Power's contributions to Government revenue by up to $410 million over the next ten years. The split alone will cost up to $60 million to implement.
It remains to be seen if Western Australia can avoid the problems apparent in energy reform in places like Victoria, New Zealand and California; the latter two suffering severe power disruptions as a result of 'competition' reforms.
Western Australia is not explicitly privatising, and is preserving the transmission and distribution network as a State corporation, while proposing some measures to ensure continuity of supply to all consumers and to cap prices - including a Tariff Equalisation Fund which will use funding from network access charges in the South West Interconnected System to subsidise tariffs charged to consumers by the Regional Power Corporation.
However, the reform plans insist on vertical disaggregation for reasons that seem have more to do with competition theory, and possibly the money offered by the Federal Government for implementing National Competition Policy in the electricity industry, than the practicalities of generating and providing power to Australia's largest State.
Mark Pownall, in an editorial opinion in Business News
(24 October), describes the reform package as "privatisation by stealth". He suggest the reforms leave "the weakened remnants of a State organisation to be whittled away slowly until there is nothing left but a few community service obligations no-one in the private sector wanted anyway".
He also points out that by giving away market share - by restraining State Generation and State Retail - the new entrants are being effectively subsidised by the community. However, unlike "real privatisation" there will be no "money put on the table as an asset sale".
Like the "corporatisation" of Victoria's State Electricity Commission undertaken by the State Labor Government in the 1980s, the plan of WA's Electricity Reform Task Force may turn out to be a half-way house towards the eventual privatisation of the power industry, as has already happened in some other states.