NSW Transmission Network Revenue Caps—TransGrid and EnergyAustralia
The ACCC, under the National Electricity Code, has the responsibility to set the revenue caps for TransGrid and EnergyAustralia. The ACCC is currently setting these revenue caps for the regulatory period of 1 July 2004 to 30 June 2009.
On 23 September 2003 and on 26 September 2003 EnergyAustralia and TransGrid, respectively, submitted applications for the ACCC to re-set their revenue caps under clause 6.2.4(b) of the code for the regulatory period. The ACCC issued its draft revenue cap decisions on 4 May 2004.
The draft decision's noted that the ACCC was in the process of developing a new framework for the regulation of capital expenditure to be applied in the final revenue cap decisions.
On 29 October 2004 and 18 November 2004 EnergyAustralia and TransGrid, respectively, resubmitted their capital expenditure forecasts to be consistent with the new framework. To assist it review the revised forecasts the ACCC appointed PB Associates and its reports on EnergyAustralia and TransGrid are available on the ACCC's website.
After considering the revised forecasts, submissions received, PB Associates' reports and other information received the ACCC released its supplementary draft decisions on 3 March 2005. EnergyAustralia and TransGrid have requested that the ACCC hold a public forum, which will be held on 18 March 2005 in Sydney. The ACCC expects its final revenue cap decision in April 2005.
Directlink’s application for conversion to regulated interconnection
On 6 May 2004 the ACCC received the Directlink Joint Venturers' (DJV) application for conversion from a market network service to a prescribed service and a maximum allowable revenue (MAR) for 2005–14.
In light of the proposed augmentations in south-eastern Queensland, the DJV made revisions to its original application and provided a revised application on 22 September 2004 for conversion from a market network service to a prescribed service and a MAR to 30 June 2015. To assist the ACCC in its consideration of the revised application, interested parties were invited to comment on any issues relating to Directlink’s conversion to a prescribed service and the determination of an appropriate MAR for its network service by 15 October 2004.
As part of the inquiry, a review of the DJV’s application of the regulatory test is required. After selecting the alternative that maximises the net market benefits, the ACCC will use that alternative to establish the value of the regulated asset base, operating expenditure and calculate the MAR.
The ACCC has engaged two separate consultancies to assist with the consideration of the DJV application. The first consultant (PB Associates) is to undertake a review which will establish a suite of feasible alternatives and the level of deferral benefits associated with the provision of network support. The second consultant (IES) is to review the market benefits of each alternative identified.
On 26 November 2004, the ACCC received a report from PB Associates setting out its views on the deferral benefits claimed by the DJV. A copy of the report was placed on the ACCC website and submissions were sought, including from the DJV. The DJV provided comments on the PB Associates’ report on 14 January 2005. Subsequently, on 8 February 2005, the DJV provided the ACCC with revised costing estimates for the alternative projects and recalculation of their network deferral benefits. These revisions raise issues of substance and alter the nature of the application.
The ACCC expects to receive the second consultancy report from IES in March. The ACCC is proposing to release a draft decision in the second quarter of 2005.
SPI PowerNet Pty Ltd (SPI) advised the ACCC it was seeking a waiver from the ACCC’s Transmission ring-fencing guidelines (guidelines) on 6 October 2004. A supporting submission from SPI was received on 19 October 2004. In its application SPI requested that the ACCC:
waive SPI’s obligations under clause 7.1(a)(ii) of the guidelines
clarify the application of clause 7.6(b) of the guidelines.
The guidelines require a transmission network service provider (TNSP) to ensure legal and operational separation of their transmission business from other related businesses. A related business under the guidelines includes the activities of generation, distribution and electricity retail supply.
Clause 7.1(a)(ii) of the guidelines provides that a TNSP that supplies ring-fenced services must not carry on a related business. SPI proposes to carry on its transmission business and distribution business within a single business entity.
Under clause 11 of the guidelines, the ACCC may, by notice to the TNSP, waive any of the TNSP’s obligations under clause 7, provided that the ACCC is satisfied that the benefit, or likely benefit, to the public is outweighed by the administrative cost to the TNSP and its associates of complying with the obligation. SPI submits that the potential synergies of an integrated business will ultimately result in cost savings and benefits to consumers.
The applicant and the following interested parties made submissions:
Victorian Energy Networks Corporation (VENCorp)
Essential Services Commission of Victoria (ESCV)
South Australian Department of Treasury and Finance (SA Treasury).
No submissions were received from interested parties or the applicant on the draft decision released on 21 December 2004.
On 2 March 2005 the ACCC decided to approve the application for waiver from the ring-fencing obligations set out in clause 7.1(a)(ii) of the guidelines.
The ACCC also decided to impose obligations on SPI under clause 9 of the guidelines. In summary, the additional obligations are that SPI’s transmission service activities relating to ring-fenced services will remain subject to all other aspects of the guidelines. Also, the decision provides for both a review of this waiver and the additional requirements that are imposed, in the event of a change in the role of VENCorp and Victorian distribution businesses in planning and directing augmentation of the Victorian transmission system.
Minor variation to the authorisation of the National Electricity Code—Tasmanian technical derogations
On 4 January 2005 the ACCC received an application for a minor variation to the authorisation of Tasmania’s derogations from the National Electricity Code (code) (Nos A90759–61). These applications were lodged by the National Electricity Code Administrator (NECA).
Further amendments to Tasmania’s derogations are necessary due to changes to the code and other developments subsequent to the Tasmanian derogations being authorised in 2001. In particular, the authorised derogations require amendment to:
update the references and terminology to be consistent with the amended code and other instruments
delete a number of derogations which are now irrelevant
address some unforseen outcomes of changes to the code made as a result of the review of technical standards by the Reliability Panel.
The previously approved derogations have not, as yet, been gazetted by NECA pending determination of a firm starting date for Tasmania’s participation in the National Electricity Market. This is expected to be 29 May 2005 but is subject to confirmation by Tasmania.
The ACCC has considered the minor variations and has decided, under subsection 91(2)(e) of the Trade Practices Act, to amend the existing authorisations of the code to encompass these minor variations. This determination was made on 2 February 2005 and expires on 31 December 2010.
Authorisation to amendments to the National Electricity Code—dispatching the market—interim arrangements extension
On 16 November 2004 the ACCC received an application for authorisation of a derogation to the National Electricity Code (Nos A90938–40). The application was submitted by the National Electricity Code Administrator (NECA) on behalf of the National Electricity Market Management Company (NEMMCO).
The original derogation concerning dispatching the market—interim arrangements was to expire on 31 December 2004. This date was originally agreed on the assumption that a final decision on network constraint formulation would be made before that time, through the Ministerial Council on Energy’s (MCE) consideration of the regional structure of the National Electricity Market (NEM). However the MCE is still in the process of considering this issue and for this reason NECA requested that the derogation be extended by one year to 31 December 2005.
On 9 February 2005 the ACCC released a final determination granting authorisation to extend the derogation relating to interim arrangements for dispatching the market, which give effect to proposals for the management of network limitations within the Snowy region and constraint formulation in the NEM.
Authorisation to amendments to the National Electricity Code—amendments to Victorian derogations—metering
On 6 April 2004 the ACCC received applications for authorisation of derogations (Nos A90915–17) from the National Electricity Code. These applications were lodged by the National Electricity Code Administrator (NECA) on behalf of the Victorian Minister for Energy, Industries and Resources.
The purpose of the applications for authorisation is to extend Victoria’s derogations from Chapter 7 of the code until 31 December 2006, and ensure that metering services for small electricity retail customers are exclusively provided by distribution businesses in Victoria.
On 2 March 2005 the ACCC released a final determination on Victoria’s application. The final determination authorises Victoria’s application for derogations, subject to a condition of authorisation. The effect of the final determination is that distribution businesses will continue to have exclusive responsibility for providing metering services to all small customers using types 5-7 metering installations.
The condition of authorisation ensures that the exclusivity does not include remotely read type 5 interval meters for small customers, irrespective of how frequently those meters are read. The condition will ensure that retailers can choose to be responsible for remotely read interval metering to small customers where this is efficient.
Authorisation of amendments to the National Electricity Code—amendments to NSW derogations—metering
On 27 August 2004 the ACCC received applications for authorisation of derogations (Nos A90928–30) from the National Electricity Code. These applications were lodged by the National Electricity Code Administrator (NECA) on behalf of the New South Wales Department of Energy, Utilities and Sustainability.
The purpose of the applications for authorisation is to seek amendments to New South Wales' derogations from Chapter 7 of the code, and ensure that metering services for small electricity retail customers are exclusively provided by distribution businesses in New South Wales.
On 2 March 2005 the ACCC released a final determination on NSW’s application. The final determination authorises NSW’s application for derogations, subject to a condition of authorisation.
The effect of the final determination is that distribution businesses will continue to have exclusive responsibility for providing metering services to all small customers using types 5-7 metering installations. The provision of type 5 meters for customers consuming more than 100 MWh per annum is currently contestable in NSW.
The condition of authorisation ensures that the exclusivity does not include remotely read interval meters for small customers. The condition will ensure that retailers can choose to be responsible for remotely read interval metering to small customers, irrespective of how frequently those meters are read.
Authorisation to amendments to the National Electricity Code—Tasmanian FCAS—chapter 8 derogation
On 22 December 2004 the ACCC received an application for authorisation of a derogation to the National Electricity Code (Nos A90948–50). The application was submitted by the National Electricity Code Administrator (NECA).
The derogation sets out that mainland NEM participants should not pay for Frequency Control Ancillary Services (FCAS) required locally for Tasmania and conversely Tasmanian participants should not pay for FCAS services required locally on the mainland. The derogation is needed as Tasmania will not be interconnected with the other NEM regions at the time of its entry to the NEM. The derogation expires on 31 December 2006 at the latest.
The changes proposed mandate for NEMMCO to calculate the costs of ancillary services needed locally in each region and globally across the market.
Local ancillary services costs in the Tasmanian region will be allocated to Tasmanian market participants, and likewise for local ancillary services costs on the mainland. Global ancillary services costs will be allocated between Tasmania and the mainland proportionately to the regions’ traded energy.
On 9 March 2005 the ACCC released a final determination granting authorisation to the code changes relating to limited regional recovery of regulation ancillary services costs following Tasmania’s entry to the National Electricity Market.
ACCC approves extension of time for the lodgment of access arrangement for the proposed Central Ranges pipeline
On 16 March 2005 the ACCC granted a request by Central Ranges Pipeline Pty Ltd that the lodgment date for the proposed access arrangement be extended from 31 March 2005 to 30 May 2005. The ACCC has previously granted two requests for extensions of time for the lodgment of the access arrangement. Section 7.19 of the National Third Party Access Code for Natural Gas Pipeline Systems does not limit the length or number of time extensions that can be granted to parties.
The pipeline became a covered pipeline under the gas code following approval by the ACCC in May 2004 of a competitive tender process conducted by the Central Ranges Natural Gas & Telecommunications Association Inc.
Tribunal determinations
Moomba to Sydney pipeline system—tribunal sets asset base
On 18 March 2005 the Australian Competition Tribunal handed down its decision on the regulatory asset base of the Moomba to Sydney transmission pipeline system.
Last July the tribunal rejected both the amount determined by the ACCC for the pipeline assets of $545 million and the $764 million proposed by the pipeline owner Eastern Australian Pipeline Limited (EAPL). Instead, the tribunal was of the view that the regulatory asset base should be set equal to the depreciated cost of an optimised new pipeline.
This required considering various approaches to depreciation. In doing so, the tribunal further rejected the alternative methodologies proposed by the ACCC and EAPL. Instead, it stated that the appropriate methodology required an assessment of the difference between the present value of the future costs of operating the existing pipeline and operating an optimised alternative pipeline.
The tribunal has now determined a regulatory asset base for the MSP of $834.66 million using this methodology. The tariff to be applied to regulated gas haulage services provided by the MSP will be set following further submissions to the tribunal.
The tribunal's earlier decision on the asset base methodology is already the subject of an application by the ACCC for review by the Federal Court. It is expected that the Federal Court will hear the matter later this year.
The Minister for Communications, Information Technology and the Arts, Senator Helen Coonan, released the ACCC’s report on price control arrangements that should apply to Telstra after 1 July 2005.
The ACCC’s recommendation is that price cap regulation should continue on the services to which it currently applies. However, the ACCC considers that services to businesses with more than five lines should no longer be subject to price controls.
In particular, the ACCC recommends that:
a basket containing line rental, local calls, domestic and international long-distance calls and fixed-to-mobile calls should decrease in price by 4 per cent per year in real terms, that is, subject to a price cap of CPI - 4 per cent
the price of connection services should not increase by more than the CPI.
In relation to line rental prices, the ACCC recommends a price control over Telstra’s most basic local access products, currently branded HomeLine Part and BusinessLine Part. The ACCC recommends that the price of line rental in these products should not increase by more than the CPI. The ACCC also recommends that it assess proposed line rental increases before implementation to ensure Telstra complies with the price controls.
The ACCC’s recommendations would promote the long-term interests of consumers by encouraging Telstra to make productivity improvements and pass on the benefits to consumers as lower prices.
In preparing its report, the ACCC consulted with a wide range of interested parties through two stages of written submissions and in 12 public meetings in metropolitan and regional areas of Australia.
The ACCC’s recommendation is that the next price control arrangements should apply for three years.
ACCC issues report on Telstra’s compliance with its price controls
The ACCC issued its annual assessment of Telstra’s compliance with the price control arrangements.
This is the second report prepared under the government’s latest price control arrangements which apply for the years 2002–03 to 2004–05.
The ACCC is satisfied that Telstra has adequately complied with its price control arrangements. The ACCC is concerned, however, that changes in Telstra’s pricing of services to pensioner customers has permitted further increases in line rental prices. The ACCC considers that this practice by Telstra is inconsistent with the structure and objectives of the price control arrangements.
Telecommunications access disputes—mobile terminating access service
Three more access disputes relating to the declared mobile terminating access service were notified to the ACCC under Part XIC of the Trade Practices Act 1974. Hutchison Telecommunications (Australia) Limited and Hutchison 3G Australia together notified the ACCC of access disputes with Optus Networks Pty Limited and Vodafone Network Pty Limited while Primus Telecommunications Pty Limited notified the ACCC of an access dispute with Vodafone Network Pty Limited. These three access dispute notifications are in addition to the seven access dispute notifications received in relation to the mobile terminating access service in previous months.
The ACCC has commenced the arbitration process for all of these access disputes.
The mobile terminating access service is a wholesale input used by providers of fixed-to-mobile and mobile-to-mobile calls to allow their customers to call mobile phone users. It allows consumers (either fixed line or mobile) to call mobile users connected to another network.
Broadband Internet service monitoring: 15 million services connected
The take up of broadband services has passed the 1.5 million mark, according to the latest ACCC Snapshot of broadband deployment issued in March on the ACCC website.
The report shows that as at the end of December 2004, there were 1 548 300 broadband services connected across Australia. This represents an increase of 121.6 per cent on the December 2003 take-up figure of 698 700 services connected.
The significance of ADSL services was also highlighted in the December 2004 quarter, with the number of ADSL services connected passing the one million mark.
The ACCC issued a record keeping rule (RKR) and a disclosure direction to 20 leading internet service providers (ISPs) as part of a three-year monitoring regime of the internet industry.
The monitoring program is aimed at identifying how interconnection of internet networks works in practice, and what effects that has on the markets that rely on interconnection.
Internet interconnection allows customers—business, residential or others—that are connected to one Internet network to send and receive emails, access websites and exchange information with users connected to other internet networks. Internet interconnection also enables business and other customers to make the content they store on the internet accessible to other users.
The ACCC’s RKR follows its final report on whether to declare an Internet interconnection service, which found that a case has not been made for regulation at this stage, but that there are sufficient concerns to warrant the implementation of a rigorous but carefully targeted monitoring program.
ACCC issues discussion papers on Telstra’s ULLS and LSS undertakings
The ACCC issued two papers on Telstra’s unconditioned local loop service (ULLS) and its line sharing service (LSS) undertakings.
The two services, which allow access to the basic elements of Telstra’s customer access network, are considered key inputs into the development of facilities-based competition in Australian telecommunications, providing greater benefits for end users.
Telstra has submitted four separate undertakings relating to once off connection related charges and monthly access charges for each service. The discussion papers give interested parties the opportunity to comment both on the proposed prices and Telstra’s supporting arguments justifying them.
