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Court Government leaves Epic legacy

IF WA’s economy is to be internationally competitive, show marked growth and much-needed workforce diversification this century, it’s essential there be access to significantly cheaper energy.

WA’s major retarding feature is that it has higher power costs than any other Australian State.

It’s largely because of this that so many welcomed the privatisation of the Dampier-to-Bunbury Natural Gas Pipeline (DBNGP) in 1998.

Optimists felt the time had arrived for markedly lower gas prices. The DBNGP’s buyer was Epic Energy Australia, which raised eyebrows by paying $2.4 billion. Although what two other bidders offered wasn’t released, it’s generally believed each offered around the $1.5 billion mark.

At the time little consideration was given to the suspected marked disparities.

Everyone from Premier Richard Court down was elated at Epic’s $2.4m billion.

“The Government is very pleased to have realised such a significant price for the pipeline and that Epic Energy Australia is owned one third by Australian shareholders,” Mr Court said.

One exception was former Independent Labor MLC Mark Nevill, who said the $2.4 billion was commercially unsustainable because he believed Epic needed around $1.50/unit to get a return on its capital.

Some of the $2.4 billion paid was quickly earmarked by the Court Government for various vote-boosting ventures, including $100 million for the $290 million Perth Convention Centre.

But elation has recently soured, with the souring threatening lower DBNGP gas prices and the economy’s long hoped-for diversification into down-stream minerals, including pulp processing.

Before Epic purchased the DBNGP the Government announced it would adopt the national gas pricing code, which meant the establishment of an Office of Gas Access Regulation.

This office has an independent regulator who assesses pipeline owners’ applications to determine gas transmission costs per unit, somewhat similar to the way wages arbitrators once operated.

Last June, the regulator made a provisional decision on the DBNGP’s transmitted gas, setting an average price of $0.84c/unit.

As Epic had sought $1.00 to Kwinana Junction and $1.08 beyond, the company understandably baulked at this, and has even gone to the Supreme Court.

WA’s regulated gas pricing process, which is similar to how monopolies are regulated in US, Canada, and other Australian States, calls for submission from interested parties before a final price determination is announced.

Epic understandably backed its earlier call for the present higher transmission charges, while industrial consumers and several others have argued that the provisional, not current higher ones, be adopted.

The regulator must abide by quite specific statutory guidelines when setting transmission prices, which require him to consider replacement and depreciated cost of the pipeline.

Apparently, such a calculation comes out at about half the price Epic paid.

Those guidelines also require the Regulator to take cognisance of “the impact on the international competitiveness of energy consuming industries”, suggesting if buyers bid high for a pipeline, they bear regulated pricing consequences.

Now, an interesting aspect of the submission process has been the involvement of several conservative MPs whose submissions have, like Epic’s, queried the regulator’s lower provisional price level.

They’ve done this either by calling for retention of the current higher price or claiming expansion and extensions (laterals they’re called) of the DBNGP risk not being built by Epic.

Former Energy Minister Colin Barnett negotiated the sale. His submission said: “I expected the regulated tariff to be in the broad range of $0.90 to $1.05.”

Liberal Energy spokesman John Day: “Taking into account overall public interest, the Opposition would therefore be supportive of higher tariffs being established than indicated in the draft decision.”

Nationals leader Max Trenorden: “The transmission price must provide any prospective developer with incentive to build transmission capacity. This is imperative, as it is clear the State will not build infrastructure.”

Former Nationals Minister Murray Criddle: “The draft decision given by the regulator in the case of Epic Energy is an example where the enhancement of regional development is being negatively impacted upon.”

Liberal MLC Bill Stretch: “Epic has indicated to me that it will not be able to carry out any expansions or extensions to the capacity of the pipe at tariffs proposed because to do so would be unviable.”

Mr Nevill and former Labor Minister Julian Grill have countered this lobbying for retention of present higher prices.

“Demand for gas will depend on the price it can be delivered to the end user,” they wrote.

“Inflated transmission tariffs from Dampier to the South West under the Epic proposal will increase the land cost of gas to those in the regional South West who are complaining, and reduce the prospect of any gas laterals.

“Higher gas costs will only lower demand and delay the construction of these laterals.”

Watch over coming months to see which price level the regulator adopts.

After that, sit back and watch the impact of either the Barnett-Day-Trendorden-Criddle-Stretch path or that of Messrs Nevill and Grill on WA’s economy, especially across the South West.

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