ERA recommends changes to improve competition in WA electricity

ERA – Economic Regulation Authority

Nov 09
ERA recommends changes to improve competition in WA electricity

On 21 October, the ERA published its report to the Minister on the effectiveness of the electricity generation and retail corporation regulations and scheme.  In this report, the ERA focussed on market participants’ access to forward energy contracts on ‘fair and reasonable terms’.  The ERA notes that currently, STEM prices (and Balancing market) are being suppressed by excess capacity in the WEM.  As EMR reforms remove excess capacity from the market then the ERA suggests that the STEM/Balancing prices will become more volatile.  At this time, electricity retailers are expected to enter into contracts to hedge the risks associated with this market volatility.

As Synergy’s standard products signify the ‘forward price curve’ for such contract negotiations, the ERA’s recommendations seek to ensure that future standard products are competitive benchmarks.  The ERA recommends that:

  • Synergy’s spread between the price at which it buys electricity and sells electricity be reduced from 20% currently to 10% for 12-24 months after which the spread is gradually tightened; and
  • increased transparency around Synergy’s financial performance reporting to show information for each of the segmented business units.

Background:

The ERA is responsible to annually review operation of the Electricity Generation and Retail Corporation regulations and scheme.  These regulations were established at the merger of Synergy and Verve Energy to impose requirements on Synergy, including ring-fencing, business segregation, transfer pricing and non-discriminatory wholesale electricity trading.  This is required because Synergy provides three quarters of the energy supplied into the WEM.  The ERA prepares a report for the Minister, which is subsequently published on its website.