The Australian Energy Regulator has issued its draft decision on the access arrangement proposal for the APT Allgas gas distribution network for the period 1 July 2011 to 30 June 2016.
The APT Allgas network delivers gas to approximately 79,000 residential customers in Brisbane (south of the river) and a number of regional centres including Toowoomba and the Gold Coast. The network also supplies around 5,000 commercial and industrial customers.
APT Allgas proposed a substantial increase in operating expenditure and a higher cost of capital to apply in the access arrangement period. As a result, APT Allgas proposed a real increase in network charges for residential customers of 11 per cent as at 1 July 2011. The proposed average increase in real network charges over the access arrangement period was 6 per cent per year.
The AER has not accepted APT Allgas's access arrangement proposal.
"APT Allgas proposed a significant increase in capital and financing costs for this access arrangement period, which was a major driver behind the proposed tariff increases," AER chairman Andrew Reeves said today. "While the AER accepts that prevailing conditions in debt markets justify some increase in the cost of borrowing since the previous access arrangement period, the proposal put forward by APT Allgas was excessive. However, it should be noted that the AER has accepted forecast expenditure on network growth, augmentation and mains replacement that reflects a continuation of historical trends.
"Other aspects of the proposed expenditures are also not justified, particularly the proposed 22 per cent increase in operating expenditure. The AER considers operating expenditure of $93 million for the access arrangement period is efficient, which is $9 million (9 per cent) less than APT Allgas proposed. Capital expenditure of $129 million has been approved. The AER considers these allowances are sufficient for APT Allgas to continue to provide a reliable and safe service to customers."
The AER has also rejected APT Allgas's demand forecasts. APT Allgas proposed a decline in average residential consumption in the Toowoomba and Oakey region that appears overstated. The AER's draft decision provides for forecast residential demand which is, on average, 6 per cent higher than forecast by APT Allgas.
The AER has set a rate of return for APT Allgas of 10.0 per cent, which is lower than the 10.3 per cent proposed. In determining this value the AER did not accept APT Allgas's arguments regarding various parameters and also assessed the reasonableness of its overall rate of return.
Overall, the AER's draft decision would lead to a real increase in network charges as at 1 July 2011 of eight per cent, and average around three per cent per annum in subsequent years. The effect on retail tariffs, of which distribution network charges make up approximately 60 per cent, is a real increase of around five per cent as at 1 July 2011. Real increases in subsequent years would average around two per cent per annum.
A typical residential customer's annual bill is $460 in Queensland. The increases approved by the AER would result in such a customer's annual bill increasing on average by $20 each year. The increases would have been $28 each year if the AER had accepted APT Allgas's proposal in full.
APT Allgas now has until 23 March 2011 to respond to the AER's draft decision and submit a revised access arrangement proposal. Submissions on the AER's draft decision and any revised access arrangement proposal are invited from interested parties by 21 April 2011.
APT Allgas is part of the APA Group.
In making this draft decision, the AER took into account advice from independent experts and submissions from interested parties.