1234	
Final
Approval

Access Arrangement by
APT Pipelines (NSW) Pty Ltd
for the Central West Pipeline

19 October 2000

File No:	Commissioners:	
CR99/3	Fels	Cousins	
Application No:	Asher	Martin	
GR9901	Shogren	Bhojani	
		Jones	

Contents
1.	Background	1
2.	Final approval	1
3.	Access arrangement information	2
4.	Documents	3
5.	Compliance with amendments	3
Inflation rate	4
WACC estimates and associated parameters	4
Initial capital base	5
New facilities investment	5
Redundant assets	6
Inflation index	6
Use of inflation outcomes	7
Adjustments for New Tax System	7
Price path	8
Incentive mechanism	9
Fixed principle	10
Standard service agreement	11
Prudential requirements	11
Non-discrimination	12
Gas specifications	12
Extensions and expansions policy	13
Revisions submission date	14

1.	Background
On 31 December 1998 APT Pipelines (NSW) Pty Limited (APT(NSW)) (formerly AGL Pipelines (NSW) Pty Limited) submitted a proposed access arrangement and access arrangement information for the Central West Pipeline (CWP) to the Australian Competition and Consumer Commission (the Commission) for approval under the National Third Party Access Code for Natural Gas Pipelines Systems (the Code).  The CWP extends from Marsden to Dubbo in NSW and links part of AGL Gas Networks Limited’s (AGLGN) NSW gas distribution network to the Moomba to Sydney Pipeline system (MSP).  The CWP, which is owned and operated by APT(NSW), became operational in 1998.
The access arrangement sets out the policies and terms and conditions on which APT(NSW) will make access to the CWP available to third parties.
The Commission’s assessment of the access arrangement has been conducted in accordance with the requirements set out in the Code and has been based on information provided by APT(NSW) and its advisers, and interested parties.  The consultation and assessment process undertaken by the Commission has included:
•	release of an Issues Paper in February 1999;
•	release of the Draft Decision (pursuant to section 2.13(b) of the Code) on the access arrangement on 10 September 1999 in which the Commission proposed a number of changes to the access arrangement in order for it to be approved;
•	a public forum held in Dubbo on 6 October 1999 to discuss issues raised in the access arrangement and the Draft Decision; and
•	the release of the Final Decision (pursuant to section 2.16(b) of the Code) on 30 June 2000 in which the Commission set out 19 amendments which would have to be made to the access arrangement for it to gain approval, and the Commission’s reasons for requiring those amendments. 

2.	Final approval
APT(NSW) submitted the revised access arrangement (pursuant to section 2.18 of the Code) to the Commission on 31 August 2000.  
The Commission is satisfied that the revised access arrangement incorporates the amendments specified in the Final Decision.  Compliance with these amendments is outlined in Section 5 below. 
The revised access arrangement also incorporates a number of changes which were not required in the Final Decision.  The Commission is satisfied that these changes are not material, and that the revised access arrangement complies with the requirements of the Code.
Pursuant to section 2.19 of the Code, the Commission approves APT(NSW)’s access arrangement for the CWP which will come into effect on 6 November 2000. 

3.	Access arrangement information
APT(NSW) submitted access arrangement information in conjunction with the access arrangement on 31 December 1998.  In response to a request by the Commission pursuant to section 2.9(a) of the Code, APT(NSW) submitted revised access arrangement information on 8 February 1999, and a further amended version on 12 February 1999.  APT(NSW) submitted supplementary access arrangement information on 25 June 1999 in response to concerns about the adequacy of the access arrangement information.  
APT(NSW) submitted further access arrangement information on 14 September 2000 with respect to the revised access arrangement.  It advised that this access arrangement information updates all relevant tables contained in access arrangement information previously submitted on 31 December 1998, 8 February 1999 and 12 February 1999, and is consistent with the revised access arrangement.  APT(NSW) also advised that the revised access arrangement information replaces in total all earlier access arrangement information.  
The Commission determined on 7 September 1999 that the access arrangement information provided up to that time satisfied the requirements of the Code with respect to the proposed access arrangement as it then stood, but noted that a final assessment would depend on any subsequent amendments to the proposed access arrangement.
The Commission has now assessed the full set of access arrangement information submitted, and concluded that it satisfies the requirements of the Code with respect to the revised access arrangement. 
In addition, APT(NSW) submitted a spreadsheet model (referred to as the residual value model) to the Commission on a confidential basis.  This model determines the value of the capital base for the second access arrangement period based on the methodology outlined in the Final Decision and the access arrangement and access arrangement information.  This model has been assessed by the Commission and has been found to be consistent with the access arrangement and access arrangement information.  

4.	Documents
The Final Decision, released on 30 June 2000, detailed the Commission’s analysis of the access arrangement as originally proposed, the amendments required in order for approval to be granted, and its reasons for requiring those amendments.  This Final Approval sets out the Commission’s assessment of the revised access arrangement submitted by APT(NSW) in response to the Final Decision.
Copies of the Commission’s decision documents and the revised access arrangement are available on its internet site (http://www.accc.gov.au) under ‘gas’. 
Any requests for hard copies of the approved access arrangement and any inquiries regarding access to the CWP should be addressed to: 
Mr Mick McCormack
General Manager Commercial
Australian Pipeline Trust
PO Box 934
MASCOT   NSW   2020
Telephone:	02 9693 0000
Facsimile:	02 8339 0005

5.	Compliance with amendments 
The amendments required by the Commission in its Final Decision, in accordance with section 2.16(b) of the Code, are listed below.  Under each, the Commission identifies how the required amendment has been implemented by APT(NSW) in the revised access arrangement and provides an assessment of the adequacy of the revised access arrangement pursuant to section 2.19 of the Code.  
Inflation rate
Amendment A2.1
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, the revenue model must incorporate the observed inflation rate for the financial year 1998-1999 of 1.1 per cent where appropriate and an estimated rate of 3.0 per cent for 1999-2000.  In addition, APT must implement into its revenue model a forecast inflation rate of 2.84 per cent per year for each remaining year of the access arrangement period.  

Implementation of amendment in revised access arrangement
The specified inflation rates have been incorporated in the revised access arrangement through their inclusion in the revised access arrangement information (section 3.2).  The residual value model also includes these specified inflation rates.  
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A2.1.
WACC estimates and associated parameters
Amendment A2.2
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved the WACC estimates and associated parameters forming part of the access arrangement must be amended to more accurately reflect the current financial market settings.  In particular, the post-tax nominal cost of equity should be set at 15.38 per cent, the pre-tax real WACC should be set at 7.78 per cent and the associated inflation assumption set at 2.84 per cent.

Implementation of amendment in revised access arrangement
The specified WACC estimates and associated parameters have been incorporated in the revised access arrangement through their inclusion in the revised access arrangement information (section 3.2).  The relevant figures have also been incorporated into the residual value model where appropriate.  
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A2.2.
Initial capital base
Amendment A3.1
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, the value of the initial capital base must be adjusted to $28.48 million so that it reflects the impact of changes required in the Final Decision on APT(NSW)’s costs and revenues and the actual inflation rate to the June quarter 1999.

Implementation of amendment in revised access arrangement
The specified value of the initial capital base has been incorporated in the revised access arrangement (section 4.9) and in the revised access arrangement information (section 3.1).  It has also been included in the residual value model. 
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A3.1.
New facilities investment
Amendment A3.2
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, section 4.3 of the access arrangement (the reference tariff policy) must state that new facilities investment that does not satisfy the requirements of section 8.16 of the Code may be undertaken by APT(NSW) and may be included in the capital base to the extent to which this investment satisfies section 8.16 of the Code.  

Implementation of amendment in revised access arrangement
The revised access arrangement (section 4.4) states that new facilities investment that does not satisfy the requirements of section 8.16 of the Code may be undertaken by APT(NSW) and may be included in the capital base to the extent to which this investment satisfies section 8.16 of the Code.
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A3.2.
Redundant assets
Amendment A3.3
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, the reference tariff policy must be amended to allow the Commission, at the commencement of the subsequent access arrangement period, to review, and if necessary to adjust, the asset base for wholly or partially redundant assets, within the meaning of section 8.27 of the Code.  

Implementation of amendment in revised access arrangement
The revised access arrangement (section 4.7) states that, with effect from the commencement of the next access arrangement period, the Commission may remove an amount from the capital base so as to ensure that assets which cease to contribute in any way to the delivery of services are not reflected in the capital base and to share costs associated with a decline in throughput volumes between APT(NSW) and users. 
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A3.3.
Inflation index
Amendment A3.4
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, the inflation index referred to throughout the access arrangement must be the CPI (All Groups – weighted average of eight capital cities). 

Implementation of amendment in revised access arrangement
The revised access arrangement (section 3.1) defines the CPI as ‘the Consumer Price Index (All Groups – Weighted Average Eight Capital Cities)’.
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A3.4.
Use of inflation outcomes
Amendment A3.5
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, the access arrangement must include a mechanism to replace forecast inflation in the revenue model with actual CPI outcomes prior to the determination of the residual value at the end of the access arrangement period.

Implementation of amendment in revised access arrangement
The revised access arrangement (section 4.10) states that actual CPI outcomes will be used in the determination of the capital base at the commencement of the next access arrangement period.  While the residual value model currently contains the expected inflation rate, provision has been made to use actual CPI outcomes in the calculation of the capital base for the second access arrangement period.  
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A3.5.
Adjustments for New Tax System
Amendment A3.6
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, the access arrangement must state that the projected level of economic depreciation will be adjusted prior to determining the residual value of the capital base at the end of the initial access arrangement period to correct for additional revenue collected during the initial access arrangement period due to the NTS component of the CPI.

Implementation of amendment in revised access arrangement
The revised access arrangement (section 4.10) states that the impact of the New Tax System (NTS) on the CPI will be recognised through an adjustment to economic depreciation (referred to as backended depreciation by APT(NSW)).  The residual value model accommodates the implementation of this amendment. 
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A3.6.
Amendment A3.7
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, APT(NSW) must incorporate the NTS cost pass through of 9.73 per cent in the tariffs from 2000-2001 to 2009-2010.  

Implementation of amendment in revised access arrangement
The revised access arrangement (section 4.10) states that APT(NSW) will include the allowed cost pass through in relation to the implementation of the NTS. 
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A3.7.
Price path
Amendment A3.8
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, the pre-NTS reference tariffs must be specified in terms of a price path commencing with $2.17/GJ and $2.37/GJ for the years ending 30 June 2001 and 2002 respectively, with the tariffs for the remainder of the initial access arrangement period determined each year in accordance with CPI-X as defined in the Final Decision and where X has the value of 0.06 per cent.  This tariff path is consistent with the parameters specified in Amendment 2.2.  
The access arrangement must be amended to state that APT(NSW) will notify the Commission of its proposed tariff for the forthcoming year at least 30 business days prior to the intended commencement of the tariff.  The Commission must determine if the proposed tariff complies with the CPI-X formula within 20 business days.  If the Commission does not notify APT(NSW) of its decision within 20 business days the Commission will be taken to have approved the proposed tariff with effect from the 21st business day after lodgement with the Commission.  The tariff may not be varied unless the Commission either approves the proposed tariff or does not notify APT(NSW) within 20 working days of its decision.
Section 3 of the access arrangement must be amended to remove the reference to CPI adjustment of APT(NSW)’s proposed reference tariff for the year to 30 June 2004 of $2.78/GJ.  In the event that there is a gap between the reference tariff years specified in the access arrangement and the revisions commencement date, the interim reference tariff will be determined by adjusting the final year’s reference tariff in accordance with CPI-X.  

Implementation of amendment in revised access arrangement
The revised access arrangement (section 3.1) specifies a price path commencing with the tariffs nominated by the Commission for the years ending 30 June 2001 and 2002 (adjusted for the NTS).  For subsequent years, tariffs will be adjusted in accordance with the CPI-X formula specified in the Final Decision where X has the value of 0.06 per cent.  
Section 3.2 of the revised access arrangement establishes an annual tariff adjustment process consistent with Amendment 3.8.
Section 3 has been amended to remove the reference to CPI adjustment of APT(NSW)’s proposed reference tariff for the year to 30 June 2004.  The CPI-X tariff setting mechanism specified in section 3.1 is not limited to the expected duration of the initial access arrangement period and so would determine the interim reference tariff if necessary. 
Section 3.3 of the access arrangement information also sets out the expected price path for the initial access arrangement period.  
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A3.8.
Incentive mechanism
Amendment A3.9
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, the reference tariff policy must be revised to remove the second clause in section 4.6 relating to the incentive mechanism. 
In addition, the reference tariff policy must state that the prospect of retaining improved returns over the initial access arrangement period provides APT(NSW) with an incentive to increase sales and minimise the cost of providing the reference service.  
It must also state that in determining reference tariffs for the subsequent access arrangement period APT(NSW) will ensure that users and prospective users will benefit from the increased efficiencies achieved by APT(NSW) during the initial access arrangement period. 

Implementation of amendment in revised access arrangement
The clause relating to the incentive mechanism has been removed from the access arrangement.  Section 4.8 of the revised access arrangement and section 2.5 of the access arrangement information include the reference tariff statements specified by the amendment. 
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A3.9.
Fixed principle
Amendment A3.10
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, APT(NSW) must remove the fixed principle from the access arrangement.  

Implementation of amendment in revised access arrangement
The fixed principle has been removed from the access arrangement.
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A3.10.
Standard service agreement
Amendment A4.1
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, APT(NSW) must clearly specify that schedule 2 of the access arrangement prevails over the standard service agreement.  

Implementation of amendment in revised access arrangement
Section 2.2 of the access arrangement has been amended to state that the terms and conditions of the service agreement will be consistent with the access arrangement including schedule 2.
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A4.1.
Prudential requirements
Amendment A4.2
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, APT(NSW) must include in the access arrangement the prudential requirements relevant for users and prospective users.  

Implementation of amendment in revised access arrangement
Section 1.3 of the revised access arrangement sets out APT(NSW)’s prudential requirements as below: 
The “Prudential Requirements” applicable to Prospective Users of the Pipeline are: 
•	The Prospective User must be resident in, or have a permanent establishment in, Australia;
•	The Prospective User must not be under external administration as defined in the Corporations Law or under any similar form of administration in any other jurisdiction;
•	The Prospective User may be required to provide reasonable security in the form of a parent company guarantee or a bank guarantee or similar security. The nature and extent of the security will be determined having regard to the nature and extent of the obligations of the Prospective User under the Service Agreement. 
Commission’s assessment of revision for compliance with required amendment
The Commission considers that the prudential requirements specified by APT(NSW) are reasonable.  It is satisfied that the revised access arrangement incorporates Amendment A4.2.
Non-discrimination
Amendment A4.3
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, the words ‘or the Australian Pipeline Trust’ must be inserted after ‘AGLP’ in sections 2.3(a) and (c) of the access arrangement.

Implementation of amendment in revised access arrangement
Section 2.3(a) of the access arrangement has been amended to substitute ‘APT(NSW) or Australian Pipeline Limited CAN 091 344 704 (the Australian Pipeline Trust)’ for ‘AGLP’.  ‘APT(NSW) or the Australian Pipeline Trust’ has been substituted in section 2.3(c).
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A4.3.
Gas specifications
Amendment A4.4
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, APT(NSW) must amend the access arrangement to state that APT(NSW) will, if recommendations by the AGA Gas Specification Working Group to adopt more flexible gas specifications in south-eastern Australia are approved, substitute that specification for the specification currently set out in schedule 3 of the access arrangement, subject to obligations under existing service agreements.  

Implementation of amendment in revised access arrangement
Schedule 3 of the access arrangement has been amended to state that APT(NSW) will substitute a revised gas specification in the event that such a revision is recommended by the AGA Gas Quality Specification Working Group or introduced through legislation, subject to obligations under existing service agreements.
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A4.4.
Extensions and expansions policy
Amendment A4.5
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, section 7.1 must be revised to state that should APT(NSW) proceed with the Central Ranges Pipeline it will decide, after consultation with the Commission, whether to include the Central Ranges Pipeline in the access arrangement through the extensions/expansions policy. 

Implementation of amendment in revised access arrangement
Section 7.1 of the access arrangement has been amended to remove reference to the Central Ranges Pipeline and to state that, in the event that APT(NSW) undertakes a geographic extension to the CWP it will elect, after consultation with the Commission, whether the extension forms part of the pipeline for the purposes of the access arrangement.
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A4.5.
Amendment A4.6
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, APT(NSW) must specify in the access arrangement that it will notify the Commission of the commencement of services provided through expansions and extensions to the Central West Pipeline.  

Implementation of amendment in revised access arrangement
Section 7.3 of the revised access arrangement states that APT(NSW) will notify the Commission when it commences providing services through any expansion or extension to the pipeline.
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A4.6.
Revisions submission date
Amendment A4.7
In order for APT(NSW)’s access arrangement for the Central West Pipeline to be approved, section 9.2 of the access arrangement must be amended such that the revisions submission date is 9 years and 6 months after the commencement of the access arrangement. 

Implementation of amendment in revised access arrangement
Section 9.2 of the revised access arrangement states that ‘APT(NSW) will submit revisions to this Access Arrangement on the date being 9 years 6 months from the commencement of this Access Arrangement.’
Commission’s assessment of revision for compliance with required amendment
The Commission is satisfied that the revised access arrangement incorporates Amendment A4.7.