Transcript Slide 1

AER draft decision on the Roma to Brisbane
Pipeline (RBP)
access arrangement proposal
12 April 2012 to 30 June 2017
Public forum
17 May 2012
Housekeeping matters
• Please sign the attendance sheet
• A record of this meeting will be made
• A queuing workshop, requested & chaired by
APTPPL, will be hosted after lunch
Purpose of the forum
This forum is being held to:
• assist users and prospective users to
understand the AER’s draft decision
• encourage submissions on the draft decision
The proposal
• APTPPL submitted its access arrangement (AA)
proposal for RBP on 12 October 2011
• The proposal was published on 16 November
and is available on the AER’s website
• AER received six submissions. These are also
available on the AER’s website
• The draft decision on the access arrangement
proposal was published on 30 April 2012
Consultants
• Opex and capex forecasts: Wilson Cook
• Capacity utilisation forecasts: SKM MMA
• Rate of return: McKenzie and Partington/ Handley
• PMA capex: Bird Cameron/Frontier Economics
• Labour cost escalation: Deloitte Access Economics
• Queuing: Frontier Economics
Total revenue
Total revenue continued
• APTPPL proposed total revenue of $296.4 m excluding Lytton
Lateral and RBP8
– 73 % increase over earlier AA period
• APTPPL’s proposed total revenue of $339.3 m including
Lytton Lateral and RBP8
• AER approved a total revenue of $263.4 m including Lytton
Lateral and RBP8
– $75.8 m (22%) below APTPPL’s proposed figure
• AER’s draft decision is expected to increase a typical
residential customer’s bill by around $2 in the first year of the
AA period
Impact on prices – transmission charges
Indicative reference tariff path for the RBP’s reference services ($/GJ, nominal)
Reference tariffs
• AER approved proposed reference tariff structure, comprising
95% capacity component and 5% throughput component
• AER decision results in reference tariffs 21.9 % lower than
APTPPL's proposal
APTPPL proposed reference tariffs and AER decision
Tariff Component
Previous
ACCC
decision
$(July 2006)
APTPPL
proposed
$(July 2012)
AER decision
$(July 2012)
Capacity reference tariff ($/GJ
of MDQ/day)
0.4243
0.5586
0.5149
Throughput reference tariff
($/GJ)
0.0283
0.0283
0.0344
AER’s draft decision & APTPPL’s proposal
Differences between the AER’s draft decision and
APTPPL’s AA proposal are principally driven by:
• Rate of return – WACC
– AER approved WACC 8.55% against 9.63% proposed by APTPPL
• Capital expenditure
– AER approved addition of Lytton Lateral and RBP8 and subtraction of
PMA buyout contract
• Operating expenditure
– AER proposed adjustment to opex mainly due to labour cost
escalation forecasts
AER’s draft decision – key issues
Key aspects of the AER’s draft decision:
• Rate of return – WACC
• Capital expenditure
• Operating expenditure
• Capacity utilisation
• Extension and expansion requirements
• Pipeline services
• Queuing arrangements
Rate of return
Key WACC
parameters
Previous ACCC
Decision
APTPPL
Proposal
AER Draft
Decision
5.70
4.25
4.21
Equity beta
1.0
1.0
0.8
Market Risk Premium
6.0
7.0
6.0
Debt Risk Premium
1.14
4.31
4.03
Inflation
3.21
2.62
2.60
Nominal Vanilla WACC
8.78
9.63
8.55
Risk free rate
Capital expenditure
APTPPL's proposed and AER approved capex ($m, nominal)
PMA contract buyout
AER did not approve capitalisation of the Pipeline Management Agreement (PMA)
contract buyout. AER requires APTPPL to remove $30.1 million ($nominal) from its
opening capital base
Issue
AER draft decision
Rule 69 of the NGR requires that capex be
costs and expenditure of a capital nature
incurred to provide, or in providing,
pipeline services.
It is not clear that expenditure on the goodwill of a
purchased business is incurred to provide or in
providing pipeline services. APTPPL has not
demonstrated that the submitted expenditure was
incurred for the provision of pipeline services for
the RBP.
Rule 79(1)(a) of the NGR requires capex to
be as incurred by a prudent service
provider acting efficiently, in accordance
with accepted good industry practice, to
achieve the lowest sustainable cost of
providing services.
AER calculations show expenditure on the PMA
contract attributed to the RBP is greater than the
cost of continuing with the PMA contract. It is
therefore not expenditure to achieve the lowest
sustainable cost of providing services. AER does
not accept the ‘terminal value’ attributed to the
PMA contract beyond 2020 when the contract
would have expired.
PMA contract buyout continued
Issue
AER draft decision
Rule 79(1)(b) of the NGR requires capex to
be justifiable on a ground stated in r. 79(2) of
the NGR. APTPPL justified the PMA contract
buyout capex using r. 79(2)(a) of the NGR,
requiring the overall economic value of the
expenditure be positive
PMA contract buyout does not result in a positive
NPV and is therefore not conforming capex for the
purposes of r. 79(2)(a) of the NGR
AER does not accept the approach for calculating
expected savings over the life of the PMA contract
as set out in the KPMG report
AER also considers that the PMA contract buyout
capex is not justifiable under any other test under
r. 79(2) of the NGR
Operating expenditure
APTPPL opex – historical and forecast ($’000, 2011–12)
Capacity utilisation forecasts
Extension and expansion requirements
• AER accepted the majority of APTPPL’s extension and expansion
requirements but did not approve the inclusion of fixed principles
in the AA
• APTPPL proposed that the capital investment, operating costs and
usage associated with extensions and expansions be excluded
from regulatory coverage for 20 years (through a fixed principle)
• AER considers offering developed capacity as a negotiated service
during the current AA period is sufficient to support APTPPL’s
investment
Pipeline services
• AER did not approve APTPPL’s proposal to restrict the capacity
and geographic reach of the covered pipeline to 2006 levels
• AER considers the AA applies to the entire covered pipeline as at
the commencement of the access arrangement
• The effect of the AER’s draft decision is that the Lytton Lateral
and the RBP8 expansion (if in operation before the AA
commences) form part of the covered pipeline
Pipeline services continued
• AER also examined the inclusion of additional reference services
such as intra-day renomination, as available and backhaul
services
• AER considers there is insufficient evidence to support the view
that these services should be defined as part of the reference
service, or as additional reference services in accordance with r.
101(2) of the NGR
Queuing requirements
AER did not approve APTPPL’s proposed auction-based queuing requirements and
requires APTPPL to revert to the existing queuing requirements, based on firstcome-first-served
Issue
The negotiate-arbitrate model established
by the joint operation of the NGL and NGR
Chapter 6 of the NGL and part 12 of the
NGR which provide the access dispute
provisions
Rule 103(3) of the NGR requires that a
process or mechanism for establishing an
order of priority between prospective
users must be established
AER draft decision
Auctions to allocate capacity and set terms and
conditions go beyond establishing positions in a
queue. Users should always be able to choose
the reference tariff and reference terms and
conditions. Role of the arbitration process may
not be maintained
An order of priority may not always exist. Lack of
clarity regarding when APTPPL will hold an
auction, the amount of capacity which will be
offered, the terms and conditions to apply and
when negotiations rather than auctioning will
take place
Queuing requirements continued
Issue
AER draft decision
Rule 103(3) of the NGR requires
prospective users to be treated on a
fair and equal basis
AER not satisfied users would be treated fairly and
equally. Unclear how APTPPL will determine bid
requirements and bid compliance. Insufficient detail
on NPV ranking and how users will be treated
Rule 103(4) of the NGR provides the
example of a publically notified auction
in which all relevant prospective users
are able to participate
Auctioning provided as example only. Queuing
requirements must satisfy other requirements of the
NGL and NGR
Rule 103(5) of the NGR requires
sufficient detail to enable prospective
users to understand the basis on which
an order of priority between them is
determined
Insufficient detail for users to understand the basis
for order of priority between them. Insufficient detail
to understand how the NPV ranking operates. Lack of
clarity in processes prevents understanding how
order of priority will be determined
Queuing requirements continued
Issue
AER draft decision
Section 23 of the NGL - National Gas
Higher tariffs and larger revenues may distort
Objective (NGO): efficient operation, use incentives for pipeline and related investment by
of, and investment in, the pipeline
APTPPL and users
Section 24 of the NGL - revenue and
pricing principles: efficient investment
in, or in connection with, a pipeline, the
efficient provision of pipeline services
and the efficient use of the pipeline with
respect to the reference service
Since NPV rankings would be determined by
APTPPL using unclear methods, an inefficient
outcome could result
One-shot irrevocable bids create information
asymmetry and negate effective negotiation
Users bid for unspecified non-homogeneous
product
Unclear what is being auctioned, as the capacity
and terms and conditions must be nominated by
the user. Bidders may face difficulty in forming
valuations for an imprecisely defined product. Bids
may not accurately reflect the relative valuations
of capacity across bidders - efficient allocation less
likely
Submissions
• Interested parties can forward submissions on the
draft decision and on APTPPL’s revised proposal to
[email protected], until
25 June 2012
• The AER’s access arrangement guideline provides
guidance on making submissions
• Timeframes under the NGL and NGR limit the AER’s
ability to consider late submissions
Indicative Timeline
AER’s draft decision released
30 April 2012
Revised proposals to be submitted
25 May 2012
Submissions due
25 June 2012
Release of final decision
August 2012