Access arrangement final decision: Envestra's South Australian gas distribution network

The Australian Energy Regulator has issued its final decision on Envestra’s access arrangement proposal for the South Australian gas distribution network for 1 July 2011 to 30 June 2016. The access arrangement sets out the tariffs and terms and conditions for access to Envestra’s pipeline.

The AER has not accepted Envestra’s access arrangement proposal which proposed an average increase in network charges over the access arrangement period of 16.2 per cent per year.

A typical residential customer in South Australia pays around $570 a year for natural gas. The increases approved by the AER will result in such a customer’s annual charges increasing on average by $37 each year. This increase would have been $56 each year if Envestra’s proposal had been adopted unchanged.

The AER’s final decision will result in an increase in network charges from 1 July of 15.3 per cent, and an average increase of around 10.0 per cent in subsequent years. These increases are largely driven by higher financing costs than in the previous five year period, which account for nearly a third of the increase in tariffs. The remainder is mainly due to mains replacement needed to reduce gas leakages and an increase in the allowance for depreciation.

“The AER recognises that Envestra will need a significant capital expenditure program to address network reliability, safety, and to reduce gas leakage,” AER chairman Andrew Reeves said.

The effect on retail tariffs, of which distribution network charges make up approximately 52 per cent, is an increase of around 8.0 per cent as at 1 July 2011. Increases in subsequent years would average around 5.2 per cent per annum.

The AER’s allowed rate of return of 9.77 per cent is lower than its draft decision due to the incorporation of the latest market forecasts.

“The AER always takes into account the most recent forecasts when deciding on an appropriate rate of return. In addition to this, the AER is not convinced that the parameters used by Envestra to determine the rate of return are appropriate,” Mr Reeves said.

In making this final decision, the AER took into account advice from independent experts and submissions from interested parties.

Envestra’s South Australian network delivers gas to approximately 396,000 residential customers in Adelaide and a number of regional centres. The network also supplies around 10,000 commercial and industrial customers.

An inflation rate of 2.55 per cent per annum was assumed in the calculation of the nominal price impacts above.

Issued date: 
17 June 2011
AER reference: 
NR 006/11
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