The Australian Energy Regulator (AER) has released its draft decision on Jemena Gas Networks Ltd’s (Jemena) access arrangement proposal for the period 1 July 2010 to 30 June 2015.
The Jemena NSW gas networks provides gas to more than 1 050 000 of its users’ customers across Sydney, Newcastle, the Central Coast, Wollongong, and over 20 country centres including those within the Central Tablelands, Central West, Southern Tablelands and Riverina districts.
The draft decision requires Jemena to revise its access arrangement proposal for its NSW Gas Networks. Jemena has until 19 March 2010 to submit a revised proposal.
The AER’s draft decision results in an average increase in real network charges as at 1 July 2010 for small (volume) customers of 1.23 per cent. Small customers consume approximately 35 per cent of gas supplied by the network and contribute approximately 88 per cent of Jemena’s revenues. Network charges for large customers will vary according to their location on the network.
In making its draft decision, the AER considered Jemena’s access arrangement proposal to:
- restructure its reference tariff for demand customers, which has resulted in a change in the number and nature of tariffs and tariff class
- increase the level of its network charges reflecting a higher cost of capital and increased capital expenditure and operating expenditure.
Jemena proposed a higher cost of capital of 11.21 per cent determined by applying the Fama–French three-factor model (FFM). Previously IPART approved a cost of capital in the range of 8.14–9.03 per cent applying the conventional Sharpe–Lintner CAPM.
Jemena’s proposed capital expenditure increased from $556.6 million in the earlier access arrangement period ($2009–10) to $885 million ($2009–10) in the period 1 July 2010 to 30 June 2015.
Operating expenditure was also projected to increase from $634 million ($2009–10) in the earlier access arrangement period to $735 million ($2009–10) in the period 1 July 2010 to 30 June 2015.
Jemena’s access arrangement proposal included forecast total revenue in 2010-11 of $466.8 million ($2009-10) to recover the cost of providing haulage and meter services. This would have resulted in an average tariff increase of 34 per cent in 2010-11. The AER has approved total revenue for Jemena in 2010-11 of $390 million ($2009–10). The lower approved total revenue reflects reductions to Jemena’s proposed capital and operating expenditure and its proposed cost of capital.
The AER also requires Jemena to revise its demand forecasts. The AER has approved demand forecasts which include higher average gas consumption for small users. The forecast for large or demand customers has also been revised and takes account of the improved outlook for the Australian economy.
The combination of the total revenue and higher demand forecasts established in the draft decision will increase volume haulage reference tariffs by 1.23 per cent in real terms in 2010–11. In the remaining years of the access arrangement period, haulage tariffs will increase annually on average by 1.96 per cent in real terms. These increases do not include the effects of cost pass throughs over the access arrangement period.
The AER’s draft decision will increase the gas bills for retail customers in NSW as at 1 July 2010. The AER has estimated that the bill for the average customer using 23 GJ per annum is likely to increase by about $19 to $640 per annum as at 1 July 2010.
The AER has taken into account advice from independent experts. Relevant documents for the draft decision are available on the AER's website.
Submissions
Interested parties are invited to provide written submissions to the AER on its draft decision and Jemena’s revised proposal by 5 pm–A.E.S.T, Wednesday, 28 April 2010.
The AER may, but need not, consider a submission it receives after the consultation period has ended.
Written submissions can be sent electronically to: nswactgasaer [dot] gov [dot] au (nswactgas[at]aer[dot]gov[dot]au)
Alternatively, submissions can be mailed to:
Mike BuckleyGeneral Manager
Network Regulation North Branch
Australian Energy Regulator
GPO Box 3131
Canberra ACT 2601
Relevant information including the access arrangement proposal and the AER’s draft decision can be found on the AER website.
Public forum on the access arrangement draft decision
The AER will hold a public forum in Sydney on its draft decision. The details are as follows:
Date:
24 February 2010
Time:
10 am to 12 noon
Venue:
Angel Place Conference Centre, Palings Room
123 Pitt Street
Sydney
R.S.V.P by email to Sarah [dot] Curbyaer [dot] gov [dot] au (Sarah[dot]Curby[at]aer[dot]gov[dot]au) by 5 pm on 22 February 2010: the names of attendees, organisation and contact details.
Further inquiries
For any other inquiries about the gas distribution reviews 2009-2010, please contact the AER on (02) 6243 1233. Alternatively, inquiries can be sent electronically to nswactgasaer [dot] gov [dot] au (nswactgas[at]aer[dot]gov[dot]au).