Regional utility Horizon Power has averted a threatened power crisis in the Pilbara, but has been forced to pay double the price for its electricity as it considers longer-term needs for the resource-rich region.
With mining giants who generate power for the area no longer having spare capacity, Horizon had asked the State Government for $400 million to build a new plant to supply electricity to growing towns such as Port Hedland. However Treasury was said to be opposed to the plan, because it would have added to the State's growing debt.
Instead, Horizon has managed to sign a temporary three-year contract with Alinta for spare electricity from one of its Pilbara plants, in addition to installing an extra small 20 megawatt gas-fired generator. This means Horizon will have to outlay less up-front capital, but spend a greater amount on its day-to-day operations over time.
With domestic gas prices surging, the deal has come at a cost.
Horizon managing director Frank Tudor told a parliamentary committee that its contract "over the three years . . . has probably gone up 100 per cent".
However he defended the deal as reflecting market conditions.
"The price has increased from what we were getting originally but there is competing demand for it so it reflects the market conditions," he said.
"It has come to a point where it now resembles a cost of new (plant) and that would be the alternative. People would price against the lookout. In the third year we are paying close to what we would expect to be paying for a new (plant)."
Alinta declined to comment, but it is understood the higher price reflects the short-term nature of the agreement, competition for the power, and higher gas prices.
The deal is one of the most high-profile trickle downs from increasing domestic gas prices.
Although the terms are confidential, in 2009 the North West Shelf project partners are understood to have won the legal right to charge Alinta up to three times the prevailing gas price, or about $8 a gigajoule, reflecting their higher costs.
Alinta has now sought to pass some of these on to Horizon.
Domestic gas users complain that these higher costs are deterring industry in the State.
However global petroleum giants say the costs of building new projects and exploring for gas have surged, and they should not have to subsidise WA businesses.