Public Forum Draft Decision Jemena (NSW) Gas Networks 1 July 2010 - - PowerPoint PPT Presentation

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Public Forum Draft Decision Jemena (NSW) Gas Networks 1 July 2010 - - PowerPoint PPT Presentation

Oct 23, 2022 179 likes •405 views

Public Forum Draft Decision Jemena (NSW) Gas Networks 1 July 2010 to 30 June 2015 24 February 2010 Mr Steve Edwell, AER Chairman 1 Overview of operating environment First access arrangement revision for JGN under the NGL Current

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Public Forum

Draft Decision Jemena (NSW) Gas Networks 1 July 2010 to 30 June 2015

24 February 2010

Mr Steve Edwell, AER Chairman

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Overview of operating environment

  • First access arrangement revision for JGN

under the NGL

  • Current access arrangement - 30 June

2010

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IPART approved access arrangement

$1905m Total revenue 8.59%* 8.14-9.03% Nominal vanilla WACC $556.6m $563.4m Capital expenditure $633.7m $683.8m Operating expenditure Estimated IPART Approved

* This is an estimate based on a tax rate of 30 per cent and gamma of 0.5.

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New developments

  • Change in operating environment

– Ownership changes – Operational changes

  • External, regulatory, and policy changes

– Global financial crisis – STTM – NCC approval of trunk pipeline reclassification – Climate change policy

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Key aspects of Jemena’s proposal

  • Building block components

– Capital expenditure – Cost of capital using FFM – Operating expenditure

  • Demand forecasts
  • Total revenue $2548m
  • Terms & conditions of access

59% 23% 16% 34% 1%

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Jemena’s proposal – operating expenditure

20 40 60 80 100 120 140 160 180 2010-11 2011-12 2012-13 2013-14 2014-15

Carbon costs Other costs Administration &

  • verheads

Operating & maintenance

Estimated Opex 2009/10

$2009-10 million

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Jemena’s proposal – capital expenditure

50 100 150 200 250 2010-11 2011-12 2012-13 2013-14 2014-15

Non system assets System reinforcement Market expansion

Estimated Capex 2009/10

$2009-10 million

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Jemena’s proposal – return on capital

5.60 5.70 RFR (%) 0.5-0.3 1.13-1.22 0.8-1.0 5.5-6.5 8.14-9.03 Past AA 11.21 Nominal Vanilla WACC (%) 0.20 Gamma 5.04 DRP (%) N/A* Equity Beta 6.5 MRP (%) Proposed

* JGN has proposed to use Fama-French three factor model (FFM) instead of standard Sharpe- Lintner CAPM. Equity beta is used in CAPM but not used in the FFM.

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AER’s consideration - operating expenditure

20 40 60 80 100 120 140 160 2010-11 2011-12 2012-13 2013-14 2014-15

Proposed Approved

$2009-10 million

Estimated Opex 2009/10

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  • AER approved total operating expenditure
  • f $612.5m which is 16.7% lower than

proposed

  • Reductions to operating & maintenance

costs and administration & overheads

  • Reductions to base & rejection of step

changes AER’s consideration - operating expenditure

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AER’s consideration - capital expenditure

20 40 60 80 100 120 140 160 180 200 2010-11 2011-12 2012-13 2013-14 2014-15

Proposed Approved

$2009-10 million

Estimated Capex 2009/10

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AER’s consideration - capital expenditure

  • Forecast capital expenditure:

– Margin and 6% overhead cost removed – Some of the capital expenditure approved on historical levels – Certain projects approved as forecast – Reclassification of capital expenditure as

  • perating expenditure
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AER’s consideration - WACC

9.0% 9.5% 10.0% 10.5% 11.0% 11.5% Proposal Change Approved

RFR DRP FFM Nominal Vanilla WACC

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AER’s consideration - WACC

5.52 5.60 RFR (%) 10.11 11.21 Nominal Vanilla WACC (%) 0.65 0.20 Gamma 4.18 5.04 DRP (%) 0.8 N/A* Equity Beta 6.5 6.5 MRP (%) Approved Proposed

* JGN has proposed to use Fama-French three factor model (FFM) instead of standard Sharpe- Lintner CAPM. Equity beta is used in CAPM but not used in the FFM.

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AER’s consideration - WACC

  • AER decision:

– FFM did not meet the requirements of the NGR that it be a ‘well accepted’ financial model – Directed JGN to use the (standard) CAPM instead – DRP based on CBA Spectrum fair value curve, not one bond.

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AER’s consideration – demand forecast

20000 40000 60000 80000 100000 2010-11 2011-12 2012-13 2013-14 2014-15

TJ

Proposed Approved

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AER’s consideration - tariff changes

  • 9.26%

3.73%

Year 1 Increase (Nominal, %) Volume Demand Tariff Type

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AER’s consideration - tariff variation mechanisms

  • Annual tariff mechanism

– Annually volume and demand tariff will on average increase in line with CPI plus 1.96 per cent

  • Cost pass through mechanism

– The access arrangement includes a pass through arrangement for certain events. If these events eventuate in the access arrangement, tariffs will increase or decrease as a result

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AER’s consideration - non-tariff terms & conditions of access

  • Reference services agreement approved

with amendments

– Extensions & expansions policy – Trigger events – Pipeline services

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Process – where to from here?

Draft decision Revised proposal Final decision Submissions 09 February 2010 19 March 2010 28 April 2010 May 2010

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Questions