Utility to pay $30m for breaking wholesale bidding rules and abuse of market power

Synergy, the state-owned energy utility that is the dominant player in Western Australia electricity market, is to pay $30 million for breaking market rules in a deal with the local regulator.

The Economic Regulation Authority said in a statement on Tuesday that the settlement is over bidding practices that caused an increase in the wholesale balancing market between April, 2016, and July, 2017.

It says that Synergy breached the market reviews by pricing its electricity in the balancing market above its reasonable expectation of short run marginal costs.

It said this behaviour related to market power. Synergy accounts for more than half of the electricity sold into the wholesale market in Western Australia.

The ERA alleged that Synergy had increased its estimates of costs for its gas-powered generators, specifically the gas fuel costs and start up costs. The ERA said those costs estimates were “not reasonable and the costs are overstated.”

Under a settlement agreed between the ERA and Synergy, the utility will pay $30 million, which will be distributed to eligible non-contestable residential customers. This means that households will receive a direct credit of approximately $28 off their Synergy electricity bill.

“The learning here is that electricity generators must ensure that the costs underpinning their wholesale market prices are consistent with the Market Rules,” ERA chair Steve Edwell said in a statement.

“This is especially the case for generators who have market power.”

Edwell said that the ERA sought that the $30 million be paid directly to Synergy’s eligible residential customers rather than back to the wholesale market participants. “This will provide some relief to current cost of living pressures,” he said.

The credit will be separate from and on top of the energy bill relief measure announced by the Western Australian and Commonwealth Governments in their respective Budgets.