Tribunal review of ACCC decision on GasNet Tariffs

The Australian Competition Tribunal handed down its decision today on its review of the Australian Competition and Consumer Commission's tariff determination for transportation services on GasNet's Victorian natural gas transmission system.   

The Tribunal's judgement will allow GasNet benchmark revenues of approximately $79 million a year on average for five years. This compares with benchmark revenues averaging $95 million a year originally proposed by GasNet to the ACCC and the determination made by the ACCC of $77 million. 

"In its application to the Tribunal for review of the ACCC's determination, GasNet contended that the ACCC should have approved GasNet's revised access arrangement of January 2003 rather than drafting and approving its own access arrangement", ACCC Commissioner, Mr John Martin, said today. 

"GasNet contended that the ACCC had made errors in the way it determined five aspects of GasNet's capital and non-capital costs.

"GasNet later withdrew its contentions regarding equity beta, the major item in its overall claim. During the course of the Tribunal hearing the ACCC agreed that there were grounds for additional allowances in relation to two of the smaller cost items. The Tribunal also accepted GasNet's approach to calculating the risk free rate".

Mr Martin said that the ACCC welcomed the clarification provided by the Tribunal of the requirements under the gas code and the gas access law.

"This legislation is still comparatively new, and there has been little legal precedent available. The ACCC will be guided by the findings in future decisions".

Background

On 28 March 2002, GasNet Australia (Operations) Pty Ltd submitted revisions to its access arrangements to the ACCC for approval under the National Gas Code. The ACCC originally approved the access arrangements in 1998 prior to privatisation of the Victorian gas transmission, distribution and retail sectors.

The revised access arrangement describes the terms and conditions on which GasNet offers transportation services on the GasNet System to parties wishing to transport gas through its pipelines. The terms and conditions include the benchmark price (known as the reference tariff) at which GasNet offers this service.

GasNet proposed a wide range of changes to its access arrangements that raised a variety of complex issues and would result in a substantial increase in its benchmark revenue. Following a process of extensive public consultation the ACCC decided to approve many, but not all, of GasNet’s proposals.

On 31 January 2003, GasNet applied to the Australian Competition Tribunal for review of five aspects of the ACCC’s decision that impacted on its benchmark revenue.  GasNet contended that the ACCC provided insufficient allowance for equity beta (by $2.2 million), risk free rate ($1.2 million), asymmetric risks* ($0.4 million), debt raising costs ($0.3 million) and inflation ($0.3 million).

Prior to the Tribunal hearings, GasNet withdrew its contentions regarding equity beta. 

During the course of the hearings, the ACCC agreed that there were grounds for some additional allowances in relation to asymmetric risks and debt raising costs.

Revised tariffs will apply for usage of the GasNet System from 1 January 2004.

*GasNet proposed for the first time cashflow allowances to accommodate a number of asymmetric risks, such as that its customers would fail to pay amounts owed to GasNet or that GasNet’s assets would be damaged as a result of a terrorist attack. An asymmetric risk is one where the probable negative outcome of an event is greater than the probable positive outcome.