Access arrangement final decision Envestra Ltd 2013–17 Part 2: Attachments

Revisions

1. Envestra Victoria

815. 
     The AER proposes the following revisions to make the revised access arrangement proposal acceptable:
     
816. 
     Revision X.1: Make all necessary amendments to reflect the AER’s final decision on the proposed opex allowances for the 2013–17 access arrangement period, as set out in Table 7 .55.
     

1. Envestra Albury

817. 
     The AER proposes the following revisions to make the revised access arrangement proposal acceptable:
     
818. 
     Revision X.1: Make all necessary amendments to reflect the AER’s final decision on the proposed opex allowances for the 2013–17 access arrangement period, as set out in Table 7 .56.
     
819. 
     
     

8Incentive mechanism

820. 
     Incentive mechanisms are an important tool to provide service providers continuous incentives to reduce costs and increase efficiency in the provision of pipeline services. Incentive mechanisms provide a financial reward (or penalty) for efficiency gains (or losses) achieved compared to expenditure benchmarks for the access arrangement period. Any rewards (or penalties) for efficiency gains (or losses) are added to the service provider's total revenue and carried forward for five years after the year in which the efficiency gain (or loss) is made. Five years corresponds to the length of the access arrangement period.
     
821. 
     This attachment presents the AER’s assessment of Envestra's proposed:
     

• 
  carryovers from the operation of the incentive mechanism in the 2008–12 access arrangement period, namely the benefit sharing allowance
  
• 
  incentive mechanism for the 2013–17 access arrangement period.
  

37. Final decision

    1. Carryover from the 2008–12 access arrangement period

Envestra Victoria

822. 
     The AER approves Envestra Victoria's proposed carryover of zero from the 2008–12 access arrangement period.
     

Envestra Albury

823. 
     The AER approves Envestra Albury's proposed carryover of zero from the 2008–12 access arrangement period.
     

2. Incentive mechanism for the 2013–17 access arrangement period

Envestra Victoria

824. 
     The AER does not approve the opex incentive mechanism in Envestra Victoria's revised access arrangement proposal. A table of opex benchmarks should be inserted to clarify the values to be used to calculate efficiency gains. This will encourage efficiency in the provision of services by Envestra Victoria⁷⁷⁴ and provide more effective incentives in order to promote economic efficiency with respect to those services.⁷⁷⁵
     
825. 
     The AER does not approve Envestra Victoria's proposed capex incentive mechanism. This is because it would not encourage efficiency in the provision of services by the service provider contrary to r 98(1). It would provide an incentive to overinvest in the network and would not act as an effective incentive that promoted economic efficiency, contrary to the RPP.⁷⁷⁶ For these reasons the AER also considers that it is not consistent with the national gas objective.⁷⁷⁷ The AER does not propose to include any alternative capex incentive mechanism.
     

Envestra Albury

826. 
     The AER does not approve the opex incentive mechanism in Envestra Albury's revised access arrangement proposal. A table of opex benchmarks should be inserted to clarify the values to be used to calculate efficiency gains. This will encourage efficiency in the provision of services by Envestra Albury⁷⁷⁸ and provide more effective incentives in order to promote economic efficiency with respect to those services.⁷⁷⁹
     
827. 
     The AER does not approve Envestra Albury's proposed capex incentive mechanism. This is because it would not encourage efficiency in the provision of services by the service provider contrary to r 98(1). It would provide an incentive to overinvest in the network and would not act as an effective incentive that promoted economic efficiency, contrary to the RPP.⁷⁸⁰ For these reasons the AER also considers that it is not consistent with the national gas objective.⁷⁸¹ The AER does not propose to include any alternative capex incentive mechanism.
     

1. Revised proposal

   1. Carryovers accrued in the 2008–12 access arrangement period

828. 
     Envestra Victoria's and Envestra Albury's revised proposals excluded the negative carryover amounts accrued in the 2008–12 access arrangement period from the calculation of total revenue for the 2013–17 access arrangement period. Envestra submitted that the incentive mechanism in its current access arrangement does not operate to result in revenue decrements. In addition, based on an ESCV appeal panel decision, it considered section 8.44 of the Gas Code makes no statutory provision for such decrements.⁷⁸²
     

1. Proposed incentive mechanism for the 2013–17 access arrangement period

829. 
     Envestra adopted the revisions to the opex incentive mechanism in the AER's draft decision in its revised access arrangements for both Envestra Victoria and Envestra Albury.⁷⁸³
     
830. 
     However, despite adopting the revisions, Envestra submitted that a separate/additional incentive mechanism is not required given the existing efficiency incentives included in its agreement with APA. It submitted that these incentives provide the main drivers of continuous improvement in the company.⁷⁸⁴
     
831. 
     Envestra proposed the capital expenditure efficiency mechanism that applied in the 2008–12 access arrangement period be applied again in the 2013–17 period.⁷⁸⁵
     

1.