WA's Energy Minister has declared an end to the age of across-the-board electricity subsidies, saying the cost of meeting them has come at the expense of the State's vaunted AAA credit rating.
Launching a review into WA’s biggest electricity market in Perth and the South West today, Mike Nahan bemoaned the amount of money that was being spent offsetting the electricity bills of people who could afford to pay.
Dr Nahan said the subsidy that was paid to Synergy – the State-owned electricity retailer and generator – would amount to about $2.2 billion over the next four years, or more than $500 million a year.
According to Dr Nahan, the money would be enough to pay for another hospital the equivalent size of the soon-to-be-commissioned Fiona Stanley Hospital or ensure the State’s budget was “in healthy surplus”.
He said efforts to bridge the gap between what it cost to provide electricity and what householders paid for it by increasing prices had failed and the Government would look at stripping costs out of the system.
Electricity tariffs have increased 86 per cent since the Government came to power in 2008 but Dr Nahan said they had not kept pace with spiralling costs, particularly those related to the network, over-capacity and renewable energy.
“This review is required to ensure the sustainability of the electricity market in the South West Interconnected System, while winding back the high levels of Government support, currently ballooning to more than $500 million a year and rising,” Dr Nahan said.
“It will look at ways to arrest increases in electricity costs that the community has borne for several years.”
As part of the review, a steering committee will look at six “streams” of work related to all aspects of the electricity market, including fuel types, competition, the market’s structure and governance.
Queensland-based utility executive Paul Breslin has been appointed to chair the committee, while Ray Challen, the head of WA’s Public Utilities Office, and Nicky Cusworth, the deputy director general of the Department of State Development, have also been given roles on it.
Criticising what he labelled the “failed” shake-up of the electricity system by the former Labor government, Dr Nahan said one of the review’s key tasks would be to examine ways of reducing the State’s exposure to the market.
Dr Nahan said even though the old Western Power was broken up into four separate utilities, the Government still directly or indirectly underwrote 81 per cent of the market – compared to 89 per cent at the time of the “disaggregation”.
He said this exposure left taxpayers, rather than private investors, on the hook whenever anything went wrong and needed to be addressed.
This afternoon, the Chamber of Commerce and Industry WA welcomed the review’s announcement and urged the Government to use it as a chance to encourage more competition in the sector.
“The current industry arrangements do not deliver the best outcomes for consumers and expose Government and taxpayers to unacceptable levels of risk,” the chamber’s John Nicolaou said.
“Ultimately, greater competition and private sector investment in the industry will help put downward pressure on costs over the longer term.”
The steering committee, which will be taking public submissions, is expected to deliver a report to Dr Nahan by the end of October 2014.