On 6 April 2004 the ACCC received applications for authorisations (A90915, A90916, A90917) of amendments to the Victorian derogations. These applications were lodged by the National Electricity Code Administrator (NECA) on behalf of the Victorian Minister for Energy Industries and Resources.
The stated purpose of the applications for authorisation is to extend the existing Victorian derogations contained in chapter 9 of the code. The existing derogations relate to chapter 7 of the code and grant exclusivity for the provision of metering services by distribution businesses in Victoria.
The ACCC has considered this request and has decided, pursuant to subsection 91(2) of the Trade Practices Act, to grant interim authorisation to the application. Interim authorisation was granted due to the expiry of the current derogations on 30 June 2004. The ACCC has not yet formed a view on the competitive impacts of Victoria's applications. These aspects will be more fully considered in the ACCC's draft determination.
The interim authorisation became effective on 17 June 2004 and will lapse when the ACCC’s final determination comes into force. Under subsection 91(2) of the Act the ACCC may revoke an interim authorisation at any time.
On 18 June 2004 the ACCC received applications under s. 91A of the Act for minor variations to the existing authorisations of the code (no. A40074, A40075, A40076, as amended). NECA lodged the applications on behalf of the NSW Minister for Energy and Utilities. A request for interim authorisation was made at the time of lodgement of the application.
The applications relate to derogations governing the network pricing arrangements to apply in NSW. The derogations are designed to mitigate risks that may arise from the timing of the ACCC’s revenue cap decisions for TransGrid and EnergyAustralia. The proposed derogations replace similar derogations put in place at the time of the ACCC’s first revenue cap decisions for TransGrid and EnergyAustralia.
The ACCC considered this request and has decided, pursuant to subsection 91(2)(e) of the Act, to grant interim authorisation to the derogations as submitted on 18 June 2004. This interim authorisation came into force on Wednesday 23 June 2004 and will lapse when the ACCC’s final determination in regard to each application comes into force, unless revoked.
On 6 May 2004, the ACCC received an application from the Directlink Joint Venture (DJV) requesting it determine that:
the network service provided by Directlink is a prescribed service for the purposes of the National Electricity Code
for the provision of this prescribed service, and subject to the performance incentive scheme proposed in s. 6.5 of the application, DJV be eligible to receive the maximum allowable revenue (MAR) from transmission customers through coordinating network service providers, for a regulatory control period from the date of effect of the ACCC’s final decision on the application to 31 December 2014.
As part of the inquiry, a review of DJV’s application of the regulatory test is required. The ACCC has engaged two separate consultancies to assist with the review. The first consultant will establish a suite of feasible alternatives. The second consultant will assess the market benefits of each alternative identified.
After selecting the alternative that maximises the net market benefit, the ACCC will use that alternative to establish the value of the regulated asset base, operating expenditure, capital expenditure and calculate the MAR.
The ACCC invited interested parties to comment on the issues raised in DJV’s application by 4 June 2004. The ACCC received five submissions. The ACCC is proposing to release a draft decision at the end of 2004.
The ACCC released its Service Standards Guidelines on 12 November 2003. Subsequent to the release, the ACCC formed a working group of relevant industry participants. Their task is to provide input into a sound and practical market based performance incentive scheme by developing market impact measures to the service standards guidelines.
The working group has met on four occasions and suggestions have been put forward for various ways of measuring a TNSP’s impact on the market. The ACCC is considering whether these measures are appropriate for a financial incentive. As part of this longer term consideration the ACCC intends to develop a framework to collect information for transparency purposes in the first instance. The draft proposal for a transparency measure was released on 28 July 2004.
Revisions to the South West Queensland Pipeline access arrangement
On 9 July 2004 Epic Energy Queensland Pty Ltd (Epic) submitted to the ACCC proposed revisions to its access arrangement and access arrangement information for the Ballera to Wallumbilla Pipeline (also known as the South West Queensland Pipeline or SWQP). The access arrangement and access arrangement information describe the terms and conditions on which Epic will make access to its pipeline available to third parties.
The ACCC will assess the proposed revisions against the principles in the gas code. However, the current review relates to secondary services only. A review relating to the primary reference service in the access arrangement is not scheduled until 2016 in accordance with the legislative exemptions contained in the Queensland Gas Pipelines Access Law. This means that the reference tariff policy for the forward haul service will not be reviewed by the ACCC at the present time.
Interested parties are invited to make submissions to the ACCC on any issues raised by, or relevant to, these revisions by 11 August 2004. The ACCC will issue its draft decision after considering these submissions.
On 20 February 2004 the Retail Energy Market Company (REMCo) applied to the ACCC for authorisation of only chapter 5 (Allocation, Reconciliation and Swing) and chapter 6 (Disputes) of its Retail Market Rules (RMR), and associated ancilliary Deeds under Part VII of the Trade Practices Act.
The RMR are designed to facilitate the implementation of full retail competition in South Australia and Western Australia natural gas markets. The rules provide efficient arrangements for customer transfers between retailers and metering and balancing.
REMCo sought interim authorisation which was granted by the ACCC on 19 May 2004. The ACCC issued a draft determination on 2 June 2004 proposing to grant authorisation for the RMR for a five year period.
The ACCC issued a final determination on 28 July 2004 granting authorisation. The ACCC is satisfied that there are net public benefits from the RMR which are essential to the implementation of full retail competition in gas markets in South Australia and Western Australia.
The final determination was released following a draft determination and public consultation process with interested parties.
If no application for review is made to the Australian Competition Tribunal, this final determination will come into effect on 18 August 2004 and will remain in force until 31 May 2009.
The ACCC issued its final approval in relation to the terms and conditions of gas transportation services for the Moomba to Sydney pipeline (MSP) on 8 December 2003.
On 19 December 2003 East Australian Pipeline Ltd (EAPL) lodged an application with the Australian Competition Tribunal (the tribunal) for review of the ACCC decision to draft and approve its own access arrangement. The tribunal concluded hearing this matter on 22 April 2004 and handed down its decision on 8 July 2004. The issues determined by the tribunal were:
the initial capital base for the whole of the MSP, and
the benchmark credit rating to be applied when determining the rate of return.
The tribunal decided that the value of the initial capital base should be set at the depreciated optimised replacement cost (DORC) of the pipeline. The optimised replacement cost will include a 7.5 per cent contingency factor. This was despite submissions by both the ACCC and EAPL that the value of the ICB should not be set at DORC on this occasion.
The tribunal rejected, however, the traditional straight line approach for deriving the DORC from the optimised replacement cost (ORC) in favour of a new approach. Under this new approach DORC is the net present value of the difference in future costs between the existing pipeline and a hypothetical new pipeline.
The tribunal did not calculate a value for DORC using this approach, but referred the matter back to the ACCC.
The ACCC is currently considering the implications of the tribunal decision, including the appropriate value of the initial capital base for that part of the pipeline that remains regulated. (In November 2003 the Minister for Industry, Tourism and Resources decided that the part of the pipeline between Moomba and Marsden would no longer be regulated.)
The tribunal decided that a benchmark credit rating of BBB, instead of the BBB+ applied by the ACCC, was the appropriate rating to calculate the debt margin. This will result in a small increase in EAPL’s weighted average cost of capital.
The Productivity Commission Review of National Competition Policy Arrangements
On 16 July 2004 the ACCC provided a submission to the Productivity Commission Review of National Competition Policy Arrangements. The submission highlights that National Competition Policy and other competition based reforms have assisted in improving Australia’s economic performance leading to both sustained productivity and higher economic growth combined with rising living standards.
A key theme of the submission is that after a decade of reform it is now time to invigorate and refine the current competition framework. The reforms have exposed most sectors of the economy to the rigours of competition, but competition in some industries is held back by legislation or the structure of the industry. These barriers to competition cannot be addressed by the Trade Practices Act and require policy responses from governments.
Despite the introduction of full competition in 1997, the telecommunications sector remains highly concentrated. Further, regulations currently restrict competition within the broadcasting sector. Consideration should be given to the costs and benefits of removing these barriers to competition.
Reforms to the electricity and gas industries have introduced competition into the parts of those industries where competition is feasible. Regulation applies to the natural monopoly parts of those industries. The ACCC is concerned by recent mergers in the electricity industry and sees merit in the policy objectives of the Parer Review of national energy markets.
Finally, transport is an industry that has received significant attention over the last decade. However, these reforms have lacked an integrated and national focus. A review of the reforms from an industry-wide perspective is likely to identify inconsistent pricing of road and rail infrastructure and bottlenecks as areas requiring a policy response.
A copy of the ACCC submission can be obtained from the ACCC and Productivity Commission websites.
