ACCC decision provides regulatory certainty for new gas transmission investment

 The Australian Competition and Consumer Commission today issued a final decision approving a significant gas transmission investment in Victoria.

The ACCC's final decision is to approve $61.7 million ($2005) and an additional allowance for financing costs, as prudent costs for the construction of the Corio Loop.

ACCC Commissioner, Mr Ed Willett, said the decision ensures that GasNet Australia has investment certainty and that Victorian gas users benefit from increased security of gas supply.

"This decision provides significant investment certainty to GasNet Australia by the ACCC providing an up-front binding agreement that the approved costs of the Corio Loop can be recovered in future transmission tariffs.

"It is in the interest of all users of the gas system to ensure adequate funding is provided in a timely manner to address system capacity and reliability issues when they are identified.

"VENCorp has forecast the need for this project pursuant to its system planner role for the gas industry in Victoria".

The investment provides system-wide benefits to all users through:

• addressing impending network constraints through increasing system capacity
• providing extra supply insurance in the event that there is an outage affecting flows into the system (i.e. such as occurred in the 1998 Longford gas explosion), and
• competition benefits due to stronger flows of gas from the Otway Basin.

"The Corio Loop provides the potential for increased competition in Victoria through increasing gas flow capability from the Otway basin fields to the west of Melbourne to compete with the currently much larger flow of gas coming from the Gippsland basin fields to the east of Melbourne", Mr Willett said.

The ACCC is currently the regulator of the Victorian transmission network under the national Gas Code. However, it is anticipated from January 2007 this function will pass to the Australian Energy Regulator. In making this final decision, the ACCC has been assisted by AER advice.

The ACCC's decision documents on this application for a new facilities investment are available on the Australian Energy Regulator website, www.aer.gov.au, or by contacting the Network South Branch Administrative Officer on (03) 9290 1436.

GasNet Australia (Operations) Pty Ltd have applied under the National Third Party Code for Natural Gas Pipeline Systems for an agreement that forecast new facilities investment near Geelong, Victoria, will be included in its capital base when future revisions to its access arrangement occur. The new facilities investment is an expansion of Victoria's primary high-pressure gas transmission system serving residential, industrial, commercial and power generation customers. The proposal is to expand the Southwest pipeline from Lara to Brooklyn.

GasNet's application seeks an investment approval under section 8.21 of the Gas Code. This section recognises that circumstances may necessitate investment within a covered pipeline within an access arrangement period that was not contemplated at the time the access arrangement was approved, and provides a mechanism through which such an investment can be accommodated consistently with the objectives of the Gas Code. As the new facilities investment for the Corio Loop is not included in GasNet's current access arrangement, before it commits funding to this project, GasNet is seeking the ACCC's agreement under section 8.21 of the Gas Code that its forecast new facilities investment in the Corio Loop meets the requirements for inclusion into GasNet's capital base at the time of the next access arrangement revision. The effect of such an agreement would be to bind the regulator's decision when it considers future revisions. GasNet's current access arrangement is for the period 2003–2008. In accordance with the Gas Code, revisions to GasNet's access arrangement for the 2008–2013 period will be considered in 2007.

In addition to approving $61.7 million ($2005) as prudent costs, the ACCC has also agreed to allow GasNet a return on construction costs (financing costs) over the investment period. The exact amount which will ultimately be allowed for financing costs cannot be determined in advance of the building of the Corio Loop as it is dependant on the timing of spending. Indicatively, based on the timeline of costs attached to GasNet's submission—allowable financing costs are unlikely to exceed $1 million.