The Australian Competition Tribunal has affirmed a significant part of the Australian Energy Regulator’s decision from April this year to reject the substantial price increases sought by APA GasNet. APA’s proposal would have increased the cost to Victorian gas consumers by $123 million dollars over the next 5 years. APA provides gas to the Victorian market through its gas transmission pipelines.
APA sought a merits review from the Tribunal on several aspects of the AER’s decision. In doing so, APA asserted that the prices determined by the AER in April were too low for it to efficiently operate its pipelines.
The Tribunal affirmed the AER’s decision on two important aspects of the review: the proposed method of collecting regulatory depreciation on its pipeline assets ($87 million); and the rate of return that it could earn on these assets ($36 million).
“The Tribunal’s decision upholds the AER’s position on important aspects of network pricing, and is a significant result for consumers. The AER found that the investment needs of APA would be lower over the next five years, which would be expected to lead to lower prices. APA proposed a method of regulatory depreciation that would have led to increased rather than decreased prices over the five year period. The Tribunal’s decision confirms the AER’s view that prices should come down in these circumstances,” AER Chairman Andrew Reeves said.
“The Tribunal’s decision also confirms that the rate of return set by the AER is appropriate to meet the needs of APA over the next five years. The rate of return has been a heavily contested area of regulation and this decision supports the AER’s comprehensive approach”.
In respect of two other matters – the opening value of its asset base in 2013 and whether an adjustment should made to account for the delay in giving effect to new lower prices – the Tribunal determined that the construction of the particular legal provisions in question did not allow the AER to take the approach it did. Together, these represent around $14 million of revenue over the next five years.
“The Tribunal’s decision highlights problems with the current drafting of the National Gas Rules. It is our view that the current rules do not reflect good regulatory practice in respect of the opening value of the asset base. We will be considering this issue further with a view to proposing a rule change”, Mr Reeves said.
The parties have until 27 September 2013 to agree on the form of the orders on these matters. After this time, the AER will issue a new access arrangement in accordance with the Tribunal’s orders.