The focus of Phase 1 was to assess the strengths and weaknesses of the current industry structure, market institutions and regulatory arrangements and examine reform options to better achieve the Electricity Market Review objectives.
Stage 1
The first deliverable for Phase 1 was a Discussion Paper (PDF), released on 13 August 2014. This paper outlined some problems in the electricity industry in the south west of Western Australia, including a high level of excess capacity, wholesale electricity costs for residential customers that were higher than any other Australian jurisdiction and a lack of competitive pressures to put downwards pressure on prices. The paper also introduced some preliminary options for reform to combat these problems.
The Steering Committee received 51 submissions in response to the Discussion Paper, with varying levels of support for different types of reform.
Stage 2
The Steering Committee provided an Options Paper (PDF) to the State Government in December 2014. The Options Paper provided 14 recommendations that the Steering Committee saw as necessary to combat rising electricity costs and improve market efficiency as listed below.
- The generation assets of Synergy should be restructured or divested with a view to creating three competing generation portfolios each with a mix of baseload, mid merit and peaking generation assets.
- One or two of the restructured or divested generation portfolios derived from Synergy could be a combined generation and retail (gentailer) activity. The Review recommends against restructuring the generation portfolios to create gentailers for all restructured or divested entities as this may impede the development of a liquid and active wholesale energy market.
- When the generation portfolios formed from the restructuring or divesting of Synergy’s assets are operating in a reformed electricity market, the Western Australian Government should consider the full or partial privatisation of some or all of the asset portfolios. This would reduce government exposure to energy market risks, remove the need for the Western Australian Government to underwrite investments or provide other financial support and increase the likelihood that future generation is built by the private sector.
- Full retail contestability should be introduced as soon as is practical. The retail market should be open to dual retailing of both gas and electricity by all retailers.
- Subsidies and concessions currently paid to or through Synergy should be made available to all relevant customers across all retailers.
- The retail subsidy currently paid to Synergy (the Tariff Adjustment Payment) should be phased out as quickly as possible as wholesale electricity costs decline as a result of the reforms resulting from the Review.
- The Tariff Equalisation Contribution, which is levied on users of Western Power’s distribution network as a means of subsidising electricity services in regional (Horizon Power) areas should be paid directly as a Community Service Obligation from Western Australian Government revenue.
- The Western Australian Government should maintain its present approach of facilitating commercial outcomes in the market for generation fuels.
- The wholesale electricity market arrangements of the National Electricity Market should be adopted as these market arrangements provide the greatest opportunity to achieve the Review Objectives.
- The new market arrangements should also include the adoption of the network-regulation arrangements and retailing rules applying in the National Electricity Market under the National Electricity Law and the National Electricity Rules.
- Regulatory barriers to Western Power’s substitution of stand-alone electricity systems in place of network services in regional areas should be removed, subject to adequate consumer protection measures being established to ensure that regional customers continue to receive electricity services at acceptable standards.
- The Western Australian Government should support initiatives by EnergySafety to introduce a best practice regulatory regime through the proposed new Electricity (Network Safety) Regulations.
- Advanced meters should be rolled out across the South West Interconnected System. This will foster competition and innovation in the retail electricity market and more efficient pricing of network and retail electricity services. Metering services should be open to competition.
- The task of setting regulated retail electricity tariffs should be undertaken by the Economic Regulation Authority. Over time, as retail competition improves, price regulation should evolve from a tariff setting to a price monitoring function.
Governance
The Steering Committee appointed to oversee Phase 1 was comprised of Paul Breslin (Chair), Ray Challen and Nicky Cusworth.
The Steering Committee was supported by a Project Office based within the former Public Utilities Office.
