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Andrew Staniford Commercial Manager

GETTING REGULATION BACK ON TRACK. Andrew Staniford Commercial Manager. Sept 2003. GETTING REGULATION BACK ON TRACK. Ralph Mignone ENVESTRA March 2004. March 2004. Regime - key deficiency. Cost of service approach costly & time consuming high regulatory risk

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Andrew Staniford Commercial Manager

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  1. GETTING REGULATION BACK ON TRACK Andrew Staniford Commercial Manager Sept 2003

  2. GETTING REGULATION BACK ON TRACK Ralph Mignone ENVESTRA March 2004 March 2004

  3. Regime - key deficiency • Cost of service approach • costly & time consuming • high regulatory risk • regulator focus on short term price reductions • heavy-handed – information requirements, reporting

  4. Draft Report - key outcomes • price monitoring option – cost effective, light handed, low regulatory risk • coverage test • Code objects clause • access pricing principles – change to 8.1 • greenfields projects mechanisms • full merit review

  5. Key Outcomes – Covered Pipelines with Access Arrangements • Code objects clause • access pricing principles • full merit review Are key deficiencies addressed? • costly & time consuming • high regulatory risk • regulator focus on short term prices • heavy-handed approach to information, reporting

  6. More work required ACCC (18/9/03), re objects clause clarification: “I just don’t think it would make a big difference, or make any difference at all to what we do or the processes that we are responsible for.” CHANGES ARE REQUIRED AT ‘COAL FACE’ Need to take into account outcomes of recent appeals, eg. change from “propose-propose” model to “propose-respond” model (GasNet decision)

  7. More work required Will current model continue? Distributor Regulator WACC report WACC report Demand forecasting Demand forecasting Capex report Capex report

  8. More work required Separation of regulator and licensor • conflict of roles – consumer protection • light-handed Code regime may be overridden by licensing powers • may not be addressed by move to national regulator • Licensing authority – codes, guidelines (eg distribution and metering codes) Incentive regulation • Cost of service – efficiency gains not shared fairly

  9. Restore Balance • Recognise regulation not always required – costs can exceed benefits • Move to heavy-handed regulation only where required • PC: “The Gas Access Regime is …at the more intrusive end of regulation” • Default for distribution networks price monitoring Access Arrangement uncovered

  10. Professor Littlechild: “Customers often have a choice whether or not to use gas …In such circumstances, the need for regulation is substantially reduced” PC Draft Finding 4.5: “Generally, regulation involving access arrangements with a reference tariff should be considered only where service providers have substantial market power” Networks do not have “substantial market power” - significant marketing required by networks • Envestra networking marketing: > $8m /yr (approved by regulators)

  11. Networks do not have “substantial market power” • transmission pipelines – usually rely on large foundation customers, e.g generators, large processing plants which must use gas • networks operate in an energy market • networks – most income generated by domestic customers • strong competition with electricity in all areas of market (heating, cooking, hot water) • Increasing competition with alternative energy policies, ie solar

  12. Administrative Issues Draft Recom 11.1 – backdating of reference tariffs • fraught with difficulty & risk Draft Recom 11.3 – removal of further final decision • not practical

  13. ACCC submission ACIL Tasman study shows that: “access regulation is likely to increase Australia’s GDP by between $2.2b and $11b” Fundamentally flawed: “This substantial benefit arises due to lower prices which stimulate greater usage of electricity and gas”

  14. ACCC submission On price monitoring: “the removal of a right of access at reasonable prices could substantially harm potential small entrants that do not have effective bargaining power. Particularly, as no enforceable right of access exists under the proposed price monitoring alternative.”

  15. Implementation Upcoming Envestra Access Arrangements: • SA & Qld – revisions due 1 Oct 2005 • Work now commencing

  16. Summary • well documented Draft Report • many positive recommendations for more efficient regime, notably price monitoring • price monitoring should be the default • need to incorporate recent appeal outcomes • need to address deficiencies in cost of service • need to ensure timely implementation for maximum benefits to be realised

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