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Issues
Paper

Revised Access Arrangement

Moomba to Adelaide Pipeline System (MAPS)

Epic Energy South Australia Pty Ltd

25 May 2001

	File No:  C2001/461

1.	Background
The Australian Competition and Consumer Commission (the Commission) released its Draft Decision on Epic’s proposed access arrangement for the Moomba to Adelaide Pipeline System (MAPS) on 16 August 2000.  In response to the Draft Decision and submissions from interested parties, Epic has substantially revised its access arrangement.  The revised access arrangement was submitted to the Commission on 18 May 2001 and is available on the Commission’s web-site at www.accc.gov.au under the gas/access arrangements subfolder.  All revisions made to the access arrangement since the release of the Commission’s Draft Decision have been marked using the Microsoft Word track changes/revisions mode.
2.	Call for submissions
Given the substantial amendments proposed by Epic, the Commission is seeking comment from interested parties on the revised access arrangement prior to making its Final Decision.  Some of the more substantial amendments are summarised below.
The Commission notes that Epic undertook to revise Schedules 2 and 5 to the access arrangement in response to amendments proposed in the Draft Decision.  The Commission has not yet received the revised schedules.  The Commission will advise interested parties when these have been received and placed on the Commission’s web-site.
The Commission is particularly interested in any views that parties may have on Epic’s proposed extensions and expansions policy (clause 10) in light of excess demand for capacity on the MAPS, and the options available to the Commission for incorporating part haul and back haul tariffs in the access arrangement.
Submissions should be forwarded to the Commission by 29 June 2001 and should be addressed to:
Ms Kanwaljit Kaur
General Manager
Regulatory Affairs – Gas
Australian Competition and Consumer Commission
PO Box 119
Dickson  ACT  2602

Fax: (02) 6243 1205
Submissions must be in writing, and preferably in electronic format.  They may be e-mailed to Warwick Anderson at ‘warwick.anderson@accc.gov.au’
3.	Key Amendments
3.1	Queuing policy and extensions/expansions policy (clause 10)
The original queuing policy has been replaced by a combined queuing policy and extensions and expansions policy.  Epic’s revised proposal states that requests for capacity would be dealt with on a first-come-first-served basis.  New facilities would be part of the covered pipeline, unless Epic elects otherwise.  Where new facilities do become part of the covered pipeline, they will not affect the reference tariff before the next revisions commencement date.
3.2	Incentive mechanism (clause 5.3)
Clause 5.3 has been revised to provide for a different rebate in respect of existing users who enter into an existing facilities access agreement with an IT User and those who do not.  The latter is designed to cover the situation where Epic provides an IT user with access to a lateral without the agreement of existing users.  A worked example of the incentive mechanism is provided in the Appendix to the access arrangement.
3.3	Extension of term (clause 11.3)
Under the previous access arrangement (lodged 2 March 2000), the user could extend an agreement for FT service for a minimum of two years at a time.  For an IT service, the term would automatically extend on a year by year basis.  The revised access arrangement now states that any extension is to be negotiated between the service provider and user.  Unless a right for the user to extend the term is included in the agreement, any subsequent negotiation and agreement to extend the term will be subject to the queuing policy.
3.4	Liability for fraud or wilful disregard (Clause 35.3)
Epic has inserted a new clause that places liability on any party who is fraudulent or who shows wilful disregard in respect of its obligations to another party under the agreement.  The party would be liable for all loss or damage caused by, consequential upon or arising out of the fraud or wilful disregard.
4.	Other Matters
In addition to the key amendments outlined above, the Commission is seeking further comment on two matters that have not been addressed in the revised access arrangement, prior to making its Final Decision.  These are discussed below.
4.1	Extensions/expansions policy – implications for future tariffs
The Commission is aware that significant augmentation of the MAPS may be required prior to the commencement of the next access arrangement period assuming a second pipeline from Victoria to South Australia is not constructed.  The MAPS is currently operating at close to capacity, and additional demand from gas fired electricity generation and prospective users of Timor Sea gas may place additional demands on the MAPS over the next five years. 
The Commission is concerned that Epic’s revised extensions/expansions policy may result in multiple tariffs for haulage on the MAPS because there is currently no provision for ‘rolling in’ incremental investment to the capital base.  In the absence of such a provision, users who are unable to acquire existing capacity may face a significantly higher tariff for haulage services (because of the higher cost of incremental capacity) than those customers with access to existing capacity.
Where incremental investment is rolled-in to the capital base, the reference tariff would be adjusted, such that all customers (new and existing) pay the same price.  The capital roll-in generally occurs once the investment has taken place, and only where it meets the criteria set out in section 8.16 of the Code.  Section 8.16 states:
The amount by which the Capital Base may be increased is the amount of the actual capital cost incurred (New Facilities Investment) provided that:
(a)	that amount does not exceed the amount that would be invested by a prudent Service Provider acting efficiently, in accordance with accepted good industry practice, and to achieve the lowest sustainable cost of delivering Services; and
(b)	one of the following conditions is satisfied:
(i)	the Anticipated Incremental Revenue generated by the New Facility exceeds the New Facilities Investment; or
(ii)	the Service Provider and/or Users satisfy the Relevant Regulator that the New Facility has system‑wide benefits that, in the Relevant Regulator's opinion, justify the approval of a higher Reference Tariff for all Users; or
(iii)	the New Facility is necessary to maintain the safety, integrity or Contracted Capacity of Services.

The Commission acknowledges that the reference tariff established for the access arrangement period has the potential to impact on contract negotiations for transportation services post 2006.  It may therefore be desirable for the reference tariff for the access arrangement period to incorporate those capacity expansions likely to occur over the next five years that are necessary to satisfy requests for demand post 2006.
This would require forecast capital expenditure to be rolled-in to the capital base as it is scheduled to occur, generating a suite of reference tariffs for the access arrangement period that would apply as demand expands. Under such an approach, Epic would need to demonstrate that the forecast capital expenditure meets the requirements of section 8.16 of the Code, prior to it taking place.
The Commission is seeking views from interested parties on the merit of such an approach, and whether further consideration should be given to adopting a suite of ‘rolled-in’ reference tariffs for the access arrangement period. 
4.2	Part haul and back haul service – options under consideration
The Commission noted in the Draft Decision that the development of a new pipeline in South Australia as an alternative or complement to the MAPS, may render the existing range of services, constraints on service delivery and tariff structure out of date.  For example, this may create a demand for back haul or part haul services on the pipeline.  The Commission therefore proposed an amendment (A3.36) requiring Epic to incorporate in the access arrangement, pursuant to section 8.17(ii) of the Code, a trigger for early review in the event that a ‘significant major event’ occurs.  An example of such a trigger might be the irrevocable commitment of a pipeline developer to construct a new pipeline to serve customers in South Australia. 
Epic has not included a trigger mechanism in its revised access arrangement, nor has it proposed a back haul or part haul tariff as a reference or non-specified service.  Under the Code, the Commission now has a number of options available to it.  The Commission could require the inclusion in the access arrangement of:
•	a service description and a Reference Tariff for the back-haul service, see section 3.3(b) of the Code.  A reference Tariff Policy would also be required, as would terms and conditions;
•	a trigger mechanism for an early review, see section 3.17(b)(ii) of the Code and the Commission’s discussion in the Draft Decision (pp.184-6); or
•	a statement of principles to apply to the calculation of tariffs for back haul services, see section 3.5 of the Code.
If the later option were adopted, the principles would become binding on the arbitrator, in the sense that he/she must not make a determination that conflicts with those principles (see section 6.18(A) of the Code).  This could be useful in providing a framework for negotiations.  In assessing the principles, the Commission would be required to have regard to the criteria set out in section 2.24 of the Code.  The Commission would not be required to assess them against the Reference Tariff Principles of section 8 of the Code, however it could have regard to these principles if it considered that they were relevant to section 2.24 of the Code.
The Commission will be assisted in reaching a final position by submissions on the options outlined above.