Regional power prices to go up most if Western Power is privatised

Tuesday 13 Sep 2016

With Colin Barnett’s hold on the Liberal leadership appearing to strengthen in the wake of the Dean Nalder fiasco, the good-cop bad-cop routine he has been recruiting his Cabinet colleagues into over the privatisation of Western Power is set to continue.

What makes things more interesting now is the re-emergence of Brendon Grylls, and his apparent enthusiasm for selling Western Power to embark on another spending spree around the State.

What neither Mr Barnett nor Mr Grylls want to discuss is the likelihood that regional power prices will go up the most if Western Power is privatised. 

Mr Barnett has previously said that the charge for electricity in WA is 30 per cent lower than the level it would need to be to cover the cost of producing and distributing electricity. 

No rational profit seeking company would invest in a business subsidising its product at such a loss. Obviously, any potential private purchaser would be banking on being able to charge what they want for electricity, assuming that the State Government would no longer regulate electricity prices.

Rod Sims, the Chairman of the Australian Competition and Consumer Commission, recognised the impact privatisation had on electricity prices in a recent speech.

“When you meet people in the street and they say I don’t want privatisation because it boosts prices, and you dismiss them, no, no, they’re right.  Recent examples suggest they’re right.”

Rod Sims, Tuesday 26th July 2016

Maybe Mr Barnett thinks the public will just assume privatisation might be a better alternative for electricity prices after eight consecutive years of price increases above the inflation rate. Since the Liberals were elected, the average household power bill has gone up by 85 per cent.  Of course, these increases have been a blatant attempt to make our publicly owned electricity businesses more profitable and attractive to potential purchases. Even the mere prospect of privatisation has cost consumers dearly.

If we recognise the certainty of big price increases under a privatised Western Power, we also need to acknowledge the likelihood that prices will go up the most in regional WA. 

Under the current system, Western Power profits fund the Tariff Equalisation Fund, which subsidises regional power prices. The cost of producing and distributing power in regional areas is understandably higher than in Perth.

Western Power contributed $136 million to the Tariff Equalisation Fund for the 2014/15 year. It’s highly unlikely that a private operator of Western Power would continue to fund the Tariff Equalisation Fund, as it would be a significant drain on their profits.

Of course, it’s possible that the Government could step in and fund regional subsidies from other revenue sources. However, this would mean taking $136 million from health, education and other important community services.  With privatisation, the community always pays.

This is the big issue that neither Barnett or Grylls want to talk about.  They want the public thinking about the projects a privatisation-fuelled spending spree might deliver.  This is understandable.  They are politicians and this is an election year.

However, before anyone gets too excited, we need to reflect on whether we want to pay higher electricity prices and see funding cut from health and education to pay for the proposed projects.

Will regional Western Australians really be happy to accept skyrocketing electricity prices as the cost of seeing more projects like Elizabeth Quay built in Perth?