Access Arrangement – Goldfields Gas Pipeline – Draft Decision

Access Arrangements & Price Determinations

Dec 17
Access Arrangement – Goldfields Gas Pipeline – Draft Decision

On 17 December 2015, the Economic Regulation Authority (ERA) published its draft decision on the Goldfields Gas Transmission Pty Ltd’s (GGT) proposed revised access arrangement for the Goldfields Gas Pipeline (GGP) for the regulatory period 1 January 2015 to 31 December 2019.

The ERA has decided not to approve GGT’s proposal and in the draft determination (all figures are nominal dollars unless stated otherwise):

  • reduced expected reference revenue from the proposed $393.76M to $199.54M, a reduction of 49.3%;
  • changed the cost allocation methodology so that joint costs of the covered pipeline and uncovered pipeline should be shared (and not solely recovered through reference services from the covered pipeline customers);
  • reduced the nominal post-tax cost of capital 6.32% compared to the proposed value of 9.64%;
  • reduced forecast capital expenditure from $13.997M to $9.254M (-33.9%) as a result of addressing concerns with proposed sustaining capital expenditure;
  • reduced forecast operating expenditure from $132.019M to $97.749M (-26%) due to adjustments to commercial operational expenditures, corporate cost expenditure and joint cost allocation;
  • amended GGT’s calculation of depreciation from $50.754M to $31.105M (-38.7%) and the forecast capital base via the application of straight-line depreciation with the Current Cost Accounting (CCA) approach;
  • varied the calculation of estimated cost of taxable income from $25.818M to $7.029M (-72.8%) based on smoothed tariff revenue rather than building block revenue and tax depreciation being based on assets recognised as commissioned rather than on an incurred basis; and
  • amended the reference tariff variation formulas and other sections of the reference tariff variation mechanism

GGT may submit revisions to its proposed access arrangement by 29 January 2016.  Interested parties have until 26 February 2016 to make submissions on the draft decision.

Background:
The GGP transports gas from gas fields in the Carnarvon basin and the North West Shelf to mining customers in the Pilbara, Murchison and Goldfields regions of WA for industrial use and power generation.  The GGP is a pipeline with covered (regulated) users and uncovered (unregulated) users.  Uncovered capacity consists of expansions that have not been covered by the access arrangement.  Expansions of the pipeline are additional assets which lead to increased capacity of the pipeline, as opposed to extensions of the pipeline which extends the geographic range of the pipeline.  The regulated users of the GGP use the mainline (1,378 km in length) running from Yarraloola to Kalgoorlie and a lateral pipeline 47 km in length extending from the mainline to Newman.  The GGP’s total gas transmission capacity is currently 200 TJ/day:

  • 109 TJ/day capacity provided by the covered portion of the pipeline; and
  • 91 TJ/day capacity provided by the uncovered portions of the pipeline.