Owners question ruling on pipeline tariffs

The owners of WA’s major gas pipeline and gas distribution networks are questioning recent decisions by the Economic Regulation Authority (ERA) that will affect the tariffs they can charge users of their infrastructure.

The ERA is the independent economic regulator for Western Australia, regulating monopoly aspects of the gas, electricity and rail industries, as well as licensed providers of gas, electricity and water services.

It released a decision for the Dampier to Bunbury Natural Gas Pipeline (DBNGP) this month and ruled on the Mid West and South West Distribution Systems in February.

The DBNGP was bought in 2004 by DBP Transmission, a company that is majority owned by ASX-listed owner of energy utility assets, DUET Group.

The DBNGP links gas suppliers in the north-west of WA with markets, principally in the South West of the state. The Mid West and South West Distribution Systems are owned by WA Gas Networks (WAGN), the owner of the majority of the reticulated gas infrastructure in WA, which is also controlled partially by the DUET Group.

WAGN has announced it will be seeking leave to appeal to the Australian Competition Tribunal against ERA’s decisions relating to the two distribution systems.

The application for leave covers a number of aspects of ERA’s final decision, including the treatment of working capital and certain network costs, and the estimates of the cost of debt and equity capital.

The ERA’s decision will result in an 11.7 per cent increase in WA Gas Network’s average annual real regulated revenue allowance compared to the 2005-09 regulatory period, and an increase in distribution tariffs of $28 instead of $112 as proposed by WAGN.

With regard to the DBNGP, the ERA determined the capital base of the DBNGP to be $3.75 billion, as opposed to the value of $3.44 billion as proposed by DBP.

In determining reference tariffs, the ERA said the appropriate rate of return should be 7.16 per cent, which was less than the 10.76 per cent return proposed by DBP.

There was also a discrepancy relating to the forecast of operating expenditure for the 2011 to 2015 access arrangement period.

The ERA determined the value of forecast operating expenditure to be $450 million as opposed to $542 million proposed by DBP.

The ERA stated that the difference was due to the fact that the ERA was not satisfied that the values of forecast operating expenditure proposed by DBP met the prudence and efficiency requirements of the National Gas Rules. DBP is required to respond to the ERA decision by April 18.