The Australian Competition and Consumer Commission today issued its draft decision on GasNet's revised 2008-12 access arrangement.
While the ACCC considers some increase in investment and tariffs is appropriate, it proposes not to accept a number of aspects of the proposed GasNet revisions to the access arrangement, which would have resulted in much more significant increases in gas transmission charges.
The decision sets out some 32 amendments GasNet must make to the access arrangement for approval by the ACCC.
"The ACCC has carefully considered GasNet's investment proposals to significantly expand the network, and is of the view this level of capital expenditure has not been justified," Australian Energy Regulator Chairman, Mr Steve Edwell, said today. "The ACCC considers the majority of GasNet's proposed augmentation expenditure to meet growing demand is not required until after the next access arrangement period.
"Nevertheless, the draft decision provides for refurbishment and replacement investment of $75 million in GasNet's gas transmission network over the next five years, to maintain the reliability and security of supply, which is 28 per cent above the amount approved for the current access arrangement period. This recognises the need to address ageing and obsolete assets as well as the need to upgrade assets over the next five years.
"In addition, GasNet has a further opportunity to justify some of its investments to expand the network, for example the Northern zone and Warragul loop on the basis of an economic feasibility test," Mr Edwell said.
The draft decision allows a nominal rate of return (WACC) of 9.38 per cent.
The ACCC's proposed amendments to the access arrangement will result in an initial real average tariff increase of 16 per cent to $0.34/GJ for 2008, as compared to a 36 per cent increase to $0.40/GJ proposed by GasNet.
The majority of this real average tariff increase, however, between access periods is due to users paying a lower than the forecast average tariff at the end of the current access period. As a result, users have paid lower tariffs that are not indicative of the long term sustainable tariff level. Whilst the initial average tariff is rising by 16 per cent, the ACCC's draft decision means that the average level of tariffs will be broadly similar over the two access periods.
"GasNet also proposed to amend its cost allocation methodology for deriving tariffs involving a re-allocation of costs between tariff zones, as well as changes to the way peak tariffs are set. This draft decision proposes not to approve these changes to GasNet's proposed cost allocation methodology on the basis it will result in reference tariffs which are not cost reflective in both the short run and long run. The ACCC considers ensuring tariffs are cost reflective will facilitate efficient usage and investment decisions by users and is consistent with the requirements of the code," Mr Edwell said.
GasNet and interested parties have until 14 December 2007 to respond to the ACCC's draft decision. After considering submissions to the draft decision, the ACCC will issue its final decision, scheduled for February 2008.
The ACCC is currently the regulator of the Victorian transmission network under the National Gas Code. However, it is anticipated that in 2008 this function will pass to the Australian Energy Regulator. In making this draft decision, the ACCC has been assisted by advice from the AER, and taken into account submissions from interested parties and advice from independent experts. These documents will be available on the AER website.
The ACCC's draft decision document will be made available on the AER's website or by contacting the Networks Regulation South Branch Administrative Officer on (03) 9290 1436.