Gas pricing row fires up

A SHOWDOWN is looming over the price of gas to some of WA’s biggest players in the resource sector.

Epic Energy, the owner of the 1,540 kilometre long Dampier to Bunbury gas pipeline, has proposed access arrangements for the next five years which it claims will result in among the lowest tariffs in the country on a gigajoule per 100 kilometre basis.

However, a who’s who of WA’s resource sector has rejected the arrangements on the grounds they are unprecedented and leave Epic free to apply for significant tariff increases in the future.

They also suggest that, if tariffs are determined using arrangements adopted by other pipeline operators, gas prices would fall significantly below the rates set by the State Government when it sold the pipeline to Epic.

The list of critics include Robe River Mining, Worsley Alumina, Wesfarmers and all six North West Shelf joint venturers.

Hamersley Iron, which uses 9km of the pipeline, claims its annual gas transportation costs will increase from about $50,000 to $700,000 under the new arrangements.

Western Mining Corporation has dismissed the arrangements as “seriously deficient” and not in the public interest.

The arrangements are being reviewed by independent gas access regulator Dr Ken Michael.

Epic Energy CEO Jay Holm said the issue was “before the regulator and is well down the regulatory process”.

“We are awaiting the final decision which will be determined in due course by the regulator,” Mr Holm said.

The extent of opposition is revealed in a series of public submissions posted on the Regulator’s website, including several from the

pipeline’s previous owner, Alinta Gas, which claims the arrangements “could double” its costs.

Western Power has flagged the possibility of legal challenges if Epic’s arrangements are introduced.

Another opponent, Mark Nevill, an independent member of Parliament who holds the balance of power in the Legislative Council, has called for the arrangements to be amended and resubmitted “in an intelligible form”.

Alinta Gas, on behalf of the State Government, sold the Dampier to Bunbury pipeline to Epic Energy in 1998.

The sale price was $2.407 billion and the terms of the sale committed Epic Energy to progressively reduce prices for deliveries to Perth from the then rate of $1.19 per gigajoule to $1 per gigajoule this year.

It also agreed to reduce prices for deliveries to points downstream from Kwinana to $1.08 per gigajoule over the same period.

From January 1, 2000 the provisions of the National Access Code apply.

Under the Code, a critical factor in determining gas prices is a pipeline’s initial capital base.

Epic Energy wants to use its purchase price, plus various acquisition costs, to determine the Dampier to Bunbury pipeline’s ICB but its critics say this will create a reference tariff of $1.62 per gigajoule.

Epic Energy says it will voluntarily reduce the tariff to hold a $1 per

gigajoule average price at Perth, but it also wants to be able to carry forward any shortfall in revenue.

However, its critics claim this move is unprecedented, as is the use of a pipeline’s purchase price to determine the ICB.

According to the critics, Epic Energy paid too much for the pipeline and it should write off any losses in its balance sheet rather than pass them on to gas consumers in the form of higher prices.

They also claim that, if accepted methods of determining the pipeline’s initial capital base are used, gas tariffs would fall significantly, possibly to as low as 75 cents per gigajoule, for all gas users including those in Perth and downstream of Kwinana.

A spokesman for Dr Michael told Business News a draft decision is expected in October and will be followed by a further period of public consultation.

“Clearly this access arrangement is the one that has prompted the most

submissions and the most detailed submissions,” the spokesman said.

“Unquestionably it is the most contentious access arrangement we have dealt with.”