The economic regulator says household electricity tariffs need to rise another 20 per cent if the price households pay for power is to accurately reflect production costs.

Such an increase would push up the average household's yearly bill $318 to $1916.

Despite a 62 per cent jump in power prices over the Barnett Government's first four State Budgets, the Economic Regulation Authority says there remains a sizeable "cost reflectivity" gap in power prices.

The ERA found the gap was exacerbated by a Government policy that had customers on the interconnected grid in Perth and the South West subsidising power bills of Horizon Power customers in other parts of WA. The ERA said the subsidy should be scrapped because it was not a cost associated with producing electricity in the South West but a levy.

The subsidy accounted for about $83, or 6 per cent, of the average household's annual power bill.

However, the Government does not support the abolition of the subsidy.

Energy Minister Peter Collier said the report confirmed the Government was subsidising electricity costs by hundreds of millions of dollars a year but abolishing the city-country subsidy required "due consideration" because of its "significant Budget impact".

The ERA's 175-page report, published yesterday after a 12-month inquiry, also said electricity price rises over the past four years needed to happen regardless of the split of Western Power, directly contradicting Premier Colin Barnett, who has blamed higher prices in part on the creation of separate network, generation and retail companies by Labor.

Mr Barnett yesterday appeared to back away somewhat from his announced intention to merge retailer Synergy and generator Verve.

"It may not be a remerger," he told ABC radio yesterday.

"There's a few different options but we have to reduce these points of pricing and cost that are in the system."

Asked later what those options might be, and whether the Government would detail its plans for the sector before the next election, a spokeswoman for Mr Barnett said: "The Government has no further comment to make at this time."

The West Australian

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