The Australian Energy Regulator today released a draft decision on APA GasNet’s access arrangement, including charges for use of its gas transmission network, for the 2013–17 period. APA GasNet is the owner and operator of the Victorian gas transmission system.
The AER has not accepted APA GasNet’s forecast revenue needs for this period. The draft decision is to accept $464 million of the $766 million ($nominal) proposed by APA GasNet. This represents a 39 per cent reduction compared to APA GasNet’s proposal. Reference tariffs would on average be approximately 34 per cent lower than they would have been under APA GasNet’s proposal.
If the decrease in transmission tariffs from the AER’s draft decision was passed through to consumers, a typical residential bill could be expected to reduce by up to $4 per year on average. APA GasNet’s proposal would have resulted in a $6 per annum increase.
The most significant drivers of the difference between APA GasNet’s proposal and the AER’s position are the allowance for the rate of return, the method of determining depreciation, as well as forecast capital and operating expenditure.
The rate of return relates to the cost of financing capital assets, such as providing a return on equity and paying interest on loans. In its draft decision the AER has used a lower return on equity than that proposed by APA GasNet. The AER considers that this better reflects current market conditions and risks. The AER will update the estimates of financial parameters when it makes its final determination.
The AER also has lower expectations of operating and capital expenditure over the five year forecast period. The AER found that a number of elements of APA GasNet’s proposed capital expenditure projects are not prudent or efficient expenditure.
APA GasNet proposed a significant project to increase pipeline capacity for exports to New South Wales through the south west pipeline and in the northern zone. APA GasNet’s proposed export volumes that drive the scope of the project were not supported by APA GasNet’s proposal and gas shippers. The AER’s draft decision allows funding for expansion of capacity on the south west pipeline and a smaller portion of pipeline works to the north of Victoria, reflecting lower expected export volumes.
APA GasNet also proposed a Western Outer Ring Main (WORM) project to enhance security of supply in the event of a major gas plant outage at Longford. The AER considers there are merits in the proposal, but that the investment is not required in the 2013–17 period. The purported security of supply benefits provided by the WORM project are not supported by APA GasNet’s proposal. Further, demand projections provided by the Australian Energy Market Operator (AEMO) suggest the project will not be required to cater for growing demand in the next 5 years. The AER’s draft decision is to approve $167 million of the $394 million of capex proposed by APA GasNet (a reduction of approximately 58 per cent).
APA GasNet can now provide a revised access arrangement proposal responding to the AER’s draft decision. Other stakeholders also have the opportunity to provide submissions in response to the AER’s draft decision. The AER will make a final determination on APA GasNet’s access arrangement proposal in March 2013.
This draft decision is part of the AER’s current assessment of access arrangements for all Victorian transmission and distribution service providers for the 2013–17 access arrangement period. A draft decision for SP AusNet was also released today; draft decisions for Envestra and Multinet are forthcoming.