Paul Murray, The West Australian, 2 January 2019
There are few things more important to West Australians than the cost of energy, both to their domestic budgets and the economic health of the State in which they live.
So a new report on our electricity system by the Economic Regulation Authority will create a major test by which electors will judge the McGowan Government in two years.
A new ERA discussion paper, which is leading an inquiry into WA’s wholesale electricity market, notes that power prices have risen 50 per cent in the past six years.
While most of that is not Labor’s fault directly, failure to do something to reverse the trend over the next two years most certainly will be.
As Daniel Mercer reported in The Weekend West, the ERA paper says consumers are likely paying too much for power because the government-owned Synergy is exploiting its market dominance.
If that idea takes hold in the community — and if the Government is not successful in doing something to bring down what the ERA says are inflated power prices — this issue will explode.
Just slowing the rate of increase won’t be enough, given the oft-repeated Labor canard that government ownership of power utilities lowers prices.
In this case, the ERA is suggesting Synergy’s control of most of WA’s generation capacity appears to be pushing them up — with government acquiescence.
Mercer recently exposed another interesting government document, the Public Utility Office’s evaluation of Federal Labor’s plans to lift the amount of green energy to 50 per cent by 2030.
The PUO estimated the policy would add an extra $946 million a year to WA energy costs compared with a business-as-usual approach.
Labor’s shadow energy minister Mark Butler unconvincingly responded that the modelling was flawed because it presumed WA would need the same benchmark as other States.
He asserted that some States such as South Australia and Tasmania would do much more of the heavy lifting under the policy.
Frankly that argument is nonsense. Neither of those States has the energy demand nor the economic capacity to affect the national outcomes much.
Butler claimed that not all States would have to meet the 50 per cent target by 2030, which if true would set up some vicious tensions between the various jurisdictions over discriminatory costs and burden-shifting.
The response to the PUO analysis was either naive or shifty — or both.
Aside from his Federal colleagues’ extreme policies, WA Treasurer Ben Wyatt is besieged by a nasty mix of local political and economic pressures. This is a precis of some of them as set out in the new discussion paper:
“The ERA has investigated the usual drivers of price increases, demand and fuel costs, and has found that these do not seem to be driving up prices.
“Overall demand is low, and the profile of demand is changing as consumers continue to install rooftop solar photovoltaics. The output from rooftop solar during the middle of the day lowers demand on the network, but demand then increases rapidly when the sun goes down and consumers turn on their appliances in the evening.
“Increased use of gas-fired generators to provide the quick ramp-up in generation to meet the evening peak could be driving higher wholesale costs, but the ERA’s initial analysis does not support this.
“Higher prices in the WEM (wholesale electricity market) may also result from the use of market power. Synergy is dominant in the WEM through owning or controlling around 80 per cent of electricity generation.”
What the ERA noted is that two mild summers weakened demand and should have led to lower prices. But it didn’t.
So here’s the ERA’s immediate bad news for power users:
“Current forecasts indicate that summer 2019 temperatures will be above average. When the temperature increases demand will increase, and electricity prices can be expected to rise further.
“While the current low level of demand appears to be putting downward pressure on wholesale electricity prices, a change in the profile of demand could drive balancing prices in the opposite direction.”
But the ERA points to an even bigger problem and one which will again pit Wyatt against the powerful unions in the energy sector:
“The ERA is concerned that Synergy’s dominance and the lack of competition in the WEM could enable Synergy to exercise market power and push up wholesale electricity prices.
“At the time of writing, Synergy was under investigation into its pricing behaviour.
“High wholesale prices are ultimately passed through to consumers, who may be charged more for electricity than would be the case in a competitive market.
“Competitive pressure also creates efficiency as firms seek ways to reduce their costs of production to remain competitive.”
And the ERA threw down the gauntlet to the Government to stop Synergy gouging its customers.
“Synergy’s dominance in the WEM is likely to persist for the foreseeable future,” the ERA said.
“In the absence of competitive pressure, Synergy’s market power needs to be reduced to limit the extent to which Synergy can misuse its market power to push up wholesale prices.
“Only when Synergy’s market power is curtailed will market participants have confidence that wholesale prices are efficient and reflective of underlying market characteristics, such as: changes in demand and supply costs.
“The ERA is still of the view that restructuring Synergy remains the best way to curtail Synergy’s market power in the wholesale or retail markets.
“However, restructuring Synergy has not been government policy.”
So now the rubber hits the road.
Will the unions allow Labor to introduce more competition to Synergy to drive down politically damaging high power prices?
Can Synergy be broken up and sold?
Or will the McGowan Government be held hostage to both green ideology and industrial bullying as power prices continue to soar?
And will the public finally wake up that they are being played for suckers?
The ERA’s final report, due midyear, is a ticking time-bomb for Labor. Its separate inquiry into Synergy’s pricing behaviour ends on January 25.