The Australian Energy Regulator has issued its final decision for Jemena Gas Networks (NSW) Ltd’s 2015–20 Access Arrangement. The new Access Arrangement will come into effect July 1, 2015.
Jemena Gas Networks (JGN) provides gas distribution services in NSW. It is responsible for the pipelines that deliver gas to homes and businesses in NSW. The final decision sets the revenue that will inform JGN’s charges over the next five years. Distribution charges represent about 50 per cent of a customer’s annual gas bill, with wholesale, transmission, and retail costs making up the remainder.
“This decision will lower JGN’s gas network charges. This is expected to result in lower gas bills for customers on JGN’s network. The average annual gas bill is expected to fall by around $96 for residential customers in 2015-16, and continue to fall over the following three years, before a small increase in 2019-20,” AER Chair Paula Conboy said.
“Our final decision will place downward pressure on bills during the 2015–20 period as distribution charges decrease. However, the wholesale gas price is forecast to increase over the next few years which makes price predictions difficult.”
“The AER expects that consumers should only pay what is necessary for an efficient gas distribution service. Consumers that shop around after 1 July may find a better offer that reflects these efficient prices.”
The AER has not accepted JGN’s proposal. While JGN’s proposal included real price reductions and was supported in many areas by constructive engagement with consumers, the AER decision has introduced a different rate of return and capital expenditure.
Table 1 - Per cent difference between JGN's proposal and AER decision
| JGN's proposal | AER decision | Per cent difference |
|---|---|---|
| $2605.2 million | $2229 million | -14.4 |
Note: These figures reflect total nominal revenue from 2015–16 to 2019–20.
“The AER decisions to apply a lower rate of return and corporate tax allowance, consistent with our rate of return guideline and recent market trends, are the main difference between JGN and the AER’s final decision,” Ms. Conboy said.
“The perceptions of risk which increased during the global financial crisis, when the AER made its last determination, are now decreasing. This means that the lower cost of capital for debt and equity translate into the lower financing costs necessary to attract efficient investment.”
While the final decision allows greater amounts for operating and capital expenditure compared to what the AER provided for in the draft, the rate of return on capital is lower.
The AER established an expert panel including consumer advocates to advise on how pricing proposals meet consumer expectations. The Consumer Challenge Panel (CCP) assists the AER to make better regulatory determinations by providing input on issues of importance to consumers.