Upfront payments made to big electricity users such as the Water Corporation and brick makers to cut their consumption in peak demand periods will be slashed under a plan being pushed by generators and retailers.
In a move that is set to spark a brawl in WA's electricity industry, it is understood "demand side management" payments could be targeted by Energy Minister Mike Nahan as he looks for efficiencies in the market.
The payments are made to big electricity consumers that agree to switch off or pare back their usage at times of peak demand to relieve pressure on the system.
They are part of the south west grid's so-called capacity market, under which generators and DSM participants are given the same upfront payment, worth tens of thousands for every megawatt of back-up power they provide.
From a low of just $14 million in 2007, the payments have soared in recent years and will reach almost $90 million this year for a notional capacity of 500MW.
It is estimated costs will fall to about $65 million for each of the next three capacity years, which run between October 1 and September 30.
The rising costs come at a time of significant spare slack in the south west grid and amid claims that DSM participants have been "called" just seven times in the scheme's history.
Industry sources suggest Dr Nahan will soon be asked to consider a shake-up which would see upfront payments slashed.
Participants would instead receive a small initial payment to cover fixed costs such as software upgrades and a much higher price for any foregone consumption.
The plan's backers say such a move would be expected to reduce the cost of the scheme by up to 95 per cent a year.
But opponents say the proposal could see DSM participants flee the market and refuse to return unless consistent payments are guaranteed.
They say the scheme is the cheapest and most efficient way of providing capacity for the electricity grid, though proponents noted this was because DSM participants do not have the overheads of power plants.
Sources said calls to change the scheme had come from coal and gas-fired generators that stood to benefit from less competition in the form of higher capacity credit prices, which fall as surplus capacity grows.
They agreed there was too much slack in the system but said an easier way to strip it out would be to decommission inefficient and ageing power plants such the State-owned Muja AB and Kwinana C coal-fired stations.
Energy efficiency company EnerNOC, the biggest player in the DSM market, said the thermal generation industry's proposed changes were self-interested and "short-sighted".
EnerNOC's regional director of business development Pablo Campillos said forcing out DSM participants would only bring forward the need for a new power station, which would fall to the government to fund.
"We provide the same service as peaking plants and do it more efficiently," Mr Campillos said.