The Australian Energy Regulator today released a draft decision on SP AusNet’s access arrangement, including charges for use of its gas distribution network, for the 2013–17 period. SP AusNet is one of three gas distribution service providers in Victoria.
The AER has not accepted SP AusNet’s forecast revenue needs for this period. The draft decision is to accept $928 million of the $1 181 million ($nominal) proposed by SP AusNet. This represents a 21 per cent reduction compared to SP AusNet’s proposal.
The AER’s draft reference tariffs are approximately 23 per cent lower on average than they would have been under SP AusNet’s proposal. This represents a 7 per cent decrease on average over the 2013–17 period compared with the
2008–12 period.
If the decrease in distribution tariffs from the AER’s draft decision was passed through to consumers, a typical residential bill could be expected to reduce by up to $9 per year on average. SP AusNet’s proposal would have resulted in a $13 per annum increase.
The most significant drivers of the difference between SP AusNet’s proposal and the AER’s position are the rate of return, forecast capital expenditure and forecast 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 SP AusNet. 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 has lower expectations of capital expenditure over the five year forecast period. A substantial proportion of SP AusNet’s proposed capital expenditure is for distribution mains replacement (for example, for the replacement of aging cast iron pipelines). The AER recognises the importance of this to ensure a safe and efficient network. However, the AER considers that SP AusNet has not established the necessity or efficiency of some parts of its mains replacement program for the 2013–17 period. The AER’s draft decision is to approve $411 million of the $528 million ($2012) of capital expenditure proposed by SP AusNet (a reduction of approximately 22 per cent).
The AER’s draft decision also revises other aspects of SP AusNet’s proposed capital expenditure and operating expenditure. These revisions generally bring expenditure more in line with historic levels. The draft decision is to approve $238 million of the $273 million ($2012) of operating expenditure proposed by SP AusNet (a reduction of approximately 13 per cent).
SP AusNet is able to respond to the AER’s draft decision by submitting a revised regulatory proposal. Other stakeholders also have the opportunity to provide submissions in response to the AER’s draft determination. The AER will make a final determination on SP AusNet’s regulatory 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 APA GasNet was also released today; draft decisions for Envestra and Multinet are forthcoming.