WA: PEOPLE TO PAY RISING COST OF THE POLITICS OF POWER
31 January 2009
The politics of power in WA can be complex and obscure but the consequence is straightforward: whatever happens, West Australians pick up the bill as both consumers and taxpayers. Householders have known for the best part of a year that they face big increases in electricity costs after an artificial, politically inspired freeze.
Now they have been told that electricity bills could more than double over the next three years after an Office of Energy recommendation to the Government to lift tariffs to recover the true cost of producing power. That would result in an increase in the average residential electricity bill from about $930 a year to nearly $2000 by 2011-12.
The move towards cost recovery makes economic sense but will have worrying consequences for families battling on tight budgets. The alternative is continuing increases in what are in effect government subsidies to keep struggling electricity generator Verve going. That in turn would lead to a rise in the State’ debt and put an increasingly disproportionate burden on the taxpayer.
The extent of the problem was exposed last year when the Carpenter government announced that it would put $780 million into Verve to keep it afloat. With increasing costs of energy production, Verve was floundering and reduced to habitual borrowing. It has now revealed that its losses have continued to increase and are expected to reach nearly $300 million this financial year.
Clearly, this can’ be allowed to continue. The Government, faced with a steep drop in revenue associated with the financial crisis that has engulfed the world, has no alternative but to look at significant increases in electricity charges for households.
Energy Minister Peter Collier has said that the former government held prices artificially low for too long. The Opposition’ rejoinder is that the Liberals insisted on the freeze on electricity prices as a condition of their support for electricity reform in 2006. When the former government split Western Power, it undertook not to increase the residential tariff until after the following election.
If its reforms were guaranteed to result in a reduction in the cost of power, then there might have been some justification for this political deal. However, even while the former government was spruiking its expectations of benefits from the four-way split, it stopped short of promising lower charges. It was prepared to say only that the reforms would create “ownward pressure”n electricity prices.
One of the consequences of this politicking is that Verve has been hobbled, destabilised and placed in need of financial rescue. Another is that consumers now face the probability of a big hit with a steep rise in the cost of electricity this year, instead of smaller increases in line with the rising costs of production over the past few years.
The remedies proposed by the Office of Energy will be criticised by some people as being harsh. However, the Government has to start to reinforce the user-pays principle and move towards full cost recovery for Verve, because the present haphazard arrangements simply are not sustainable.
At the same time, it should be prepared to show some flexibility and compassion in dealing with people for whom big increases in tariffs could cause genuine hardship.
(c) 2009, West Australian Newspapers Limited
The West Australian
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