State growth contributes to power costs
Release Date: 08 October 2008
Western Power submitted its proposals for a second Access Agreement period (AA2) to the Economic Regulation Authority (ERA) on 1 October, which includes $6 billion for its capital and operating expenditure over the next three years and an increase in the network component of the electricity tariff.
Western Power's Managing Director, Mr Doug Aberle said the considerable increase in the business' expenditure plans reflected unprecedented economic growth which was driving up the requirement for substantial infrastructure investment.
"The demand for electricity infrastructure to meet the sustained high volume of new customer connections and increasing power use per customer is occurring at a time when much of the network is reaching capacity and the end of its lifespan and therefore needing major expansion and upgrading and when the cost of money, materials, land and skilled labour is increasing dramatically.
"Last financial year Western Power spent almost $1 billion upgrading and expanding the network, which is about four times the amount of investment in the network made in 2002 / 03, and estimates it will need to double that $1 billion expenditure to $2 billion a year for the next three years.
"The cost of building one major regional transmission line alone is more than $300 million.
"With this sustained increase in expenditure, a natural by-product is an increase to the network component of electricity tariffs that affect large customers," Mr Aberle said.
However, Mr Aberle pointed out that the increase to the network component to the tariff was substantially driven by the increased cost of money and a change in approach to capital contributions to provide a more equitable way of recovering the costs of network capital upgrades and expansion over time.
Electricity tariffs for residential and small business customers, which represent the vast majority of electricity consumers, are currently protected by the Government's cap on increases.
The State Government is responsible for setting retail electricity tariffs for general consumers supplied by Synergy. Large customers negotiate prices with their retailer of choice
The ERA will set the new network prices from July 1 2009.
Western Power's proposal to increase the network component of the tariff will affect large customers to varying degrees dependent on their private contracts with retailers.
"Western Power is recommending an initial 40% increase to the network component of the retail tariff, though the actual increase to each customer will be considerably less than 40% because Western Power makes up only about one third of the tariff. Generation and retail are the other components," he said.
Western Power is recommending further increases of around 30 per cent in each of the next two years.
"These increases are likely to flow through to retailers of electricity, large customers and generators.
Western Power has considered customer impacts in its proposals and is voluntarily staging price increases over time and delaying reaching the true cost of delivering power to reduce the impact of price increases.
"While we recognise our proposals are likely to have an impact on electricity prices for large customers, the risks to public safety, reliability of supply and ability to connect new generators and customers would be high if this investment were not carried out", Mr Aberle said.
As a corporation, Western Power receives a regulated return on investment in its network assets. The ERA, as part of evaluating the AA2 submission, ensures this return is fair and reasonable.
The ERA has set out a period of six weeks for initial public comment on Western Power's submission, in an overall review and approval process that will take six to nine months.
-ENDS-
Background on the ERA
The electricity reform process that led to the disaggregation of the former Western Power Corporation recognised the need for the monopoly network business to be regulated, and the role of the Economic Regulation Authority (ERA) was extended to perform this function.
Western Power develops detailed business proposals, including expenditure plans, for each regulatory period (currently 3 years) for approval by the ERA.
The ERA reviews Western Power's submission at arms length from government and, at the end of its review, will approve a new Western Power Access Agreement including the new electricity tariffs for large customers from 1 July 2009.
This regulatory process is the same as the ERA's role in the gas and rail industries and similar to regulatory models elsewhere in Australia (Australian Energy Regulator) and overseas.
Contact us
If you have any questions regarding this media release please email us: media@westernpower.com.au
