Text of letter received by the ACCC.

Energy User's Association of Australia
Energy Users Association of Australia 
Suite 1, Level 2 
19 - 23 Prospect Street 
Box Hill VIC 3128
8th February 2001
Ms Kanwaljit Kaur 
Acting General Manager 
Regulatory Affairs - Gas 
Australian Competition and Consumer Commission 
PO Box 1199 
Dickson ACT 2602
ACCC Review of Access Arrangements for the Roma to Brisbane Gas Pipeline 
Dear Ms Kaur, 
The Energy Users Association of Australia is pleased to comment on the Commission's issues paper on access arrangements for the Roma to Brisbane gas pipeline and the associated AA / AAI documentation provided by the applicants: APT Petroleum Pipelines Limited and Interstate Pipelines Pty Limited. 
The Energy Users Association of Australia was formed on 1st January 2001 by amalgamating the existing Australian Gas Users Group and the Energy Users Group of Australia. Interest in participating in the Commission's review was previously registered by the Australian Gas Users Group. 
The Energy Users Association of Australia is an association of major energy users (electricity and gas) formed to represent the interests of its members on a range of energy policy, regulatory, customer and industry issues. 
We have been unable to comply with the Commission's request for submissions by 29th January but trust that the following comments will be considered by the Commission and assist in arriving at a fair and equitable final decision on the matter. 
Our comments on this occasion are brief due to the very limited amount of information contained in the applicant documents that would invite comment from major gas users. 
1. INITIAL CAPITAL BASE 
The initial capital base is the single most important item of interest to customers in any access review not only because of its effect on authorised revenue but also as it forms the base for all subsequent reviews of particular pipeline systems. 
Initial asset base methodology and its determination remain a difficult issue for regulators and has been the subject of an immense amount of debate over the past three years. At this time considerable doubt exists as to the best methodology or combination of methodologies for fair and accurate estimation. 
When the National Gas Access Code was developed it was recognised that initial capital base determination was a difficult issue and that a fair and accurate estimate would lie between Depreciated Actual Cost (DAC) and the Depreciated Optimised Replacement Cost (DORC). Our preference is to use the Depreciated Actual Cost where this information is available and we would anticipate that this would not present a problem in the case of the pipeline under consideration. 
It is recognised that DAC methodology is not perfect methodology in all instances but it does have a fundamental advantage over DORC - it does provide a single, verifiable and accurate figure (a basic flaw in the use of DORC methodology). This aspect alone in our view should mean it is to be the preferred methodology where the necessary historical information is available for analysis. 
In respect of the application under review the effect of the use of derogation denies interested parties having access to any information enabling them to assess whether the initial capital base is reasonable or not. We would strongly recommend that the Commission refuse the application and request the relevant information to be provided. 
2. RATE OF RETURN 
Determination of the Weighted Average Cost of Capital (WACC) to be used is another key determinant of any access decision and has been the subject of much input to regulators over the past three years. It is of less importance than the initial capital base but only because it is re-calculated for any particular pipeline system at each access review. 
We remain strongly of the view that the assessment of risk associated with the class of business under review is crucially important. Regulated businesses are by definition low risk and this should be central to the determination of appropriate risk by the regulator. 
It is noted that the Commission estimated the return on equity for the Roma to Brisbane pipeline and found that the estimate "was higher than could reasonably be expected in the circumstances and may be inconsistent with the pricing principles of the National Gas Code". This assessment is of serious concern to us and in the absence of adequate information being made available by the applicant we would strongly recommend that the application be refused by the Commission. 
3. ATTACHMENT A INFORMATION 
Attachment A to the National Gas Code was one of the most debated issues during the formulation of the Code. It details what is to be disclosed to interested parties and defines the break-out of the data. Unless this information is available it is not possible to assess the full impact of the undertaking, the fairness of allocations nor the credibility of forecasts. Once again we would strongly recommend that the Commission refuse the application in the absence of full compliance by the applicant in respect of Attachment A information. 
4. OTHER COMMENTS 
While it is proposed that a negotiated service be available for capacity in the range of 101TJ/day and 118.5TJ/day the applicant has not provided information that would allow customers to understand the basis for negotiation. 
In respect of the term of the access arrangement we would recommend that the Revisions Submission Date be no later than 31st January 2006 and only in the event that the derogations affecting the issues covered above are withdrawn. 
We would be happy to discuss any of the issues addressed with your staff if this is considered appropriate and look forward to the Commission's draft decision when it is available. 
Yours sincerely 
Alan J Reichel 
Director - Gas Markets 
Energy Users Association of Australia