The Australian Competition and Consumer Commission today issued a final decision opposing roll-in of the Southwest Pipeline to the Victorian gas transmission system. Under GPU GasNet's proposal, transmission tariffs would rise on average by 12.8 per cent in net present value terms for all Victorians.
The Southwest Pipeline was constructed under direction from the Victorian Government following the explosion at Esso's Longford gas plant in September 1998. It was one of a number of measures undertaken in response to system security concerns at the time. Other measures included an expansion of the Interconnect Pipeline. Due to the circumstances the Victorian Government paid GPU GasNet compensation of $46.7 million for certain expenses and partly underwrote the required investments by initiating substantial take-or-pay contracts on favourable terms for GPU GasNet and some other parties.
GPU GasNet made its application under a provision of the Gas Code that can allow an investment that is not economically feasible to be rolled-in to the regulated asset base if it generates sufficient system-wide benefits to justify a higher reference tariff for all users. The ACCC approved a similar application by GPU GasNet in 2000 relating to the Interconnect Pipeline and the Springhurst compressor. However, the ACCC concluded that GPU GasNet failed to provide sufficient evidence that the Southwest Pipeline could also be rolled into the regulated asset base of the Victorian gas transmission system.
"The ACCC agrees that some system security benefits and competition benefits arise from linking the Victorian transmission system with the underground storage facility at Iona and with Otway Basin gas fields", ACCC Commissioner for energy matters, Mr Rod Shogren, said today. "However, the ACCC is not convinced that there are sufficient benefits to justify a higher tariff for all users that would recover the full investment.
"A major issue for the ACCC is that system security benefits may be limited. As the underground storage facility operates on a commercial basis supplying peak load gas in winter, it may contain little useable reserves for much of the year".
The ACCC recommends that GPU GasNet submit a revised proposal as part of the 2002 scheduled review of its access arrangement. The ACCC expects that there will be firmer evidence of the likely use of the pipeline and its benefits at that time. GPU GasNet will continue to earn substantial revenue on the pipeline in the interim.