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

The relevant requirements of the NGL and the NGR

23. 
    The elements of Envestra's revised access arrangement proposals have been assessed against the relevant NGL and NGR requirements specific to each element. These assessments are set out in separate attachments in this final decision.
    
24. 
    Under the NGR, the AER has a certain type of discretion—full, limited or no discretion—when making decisions on particular elements of an access arrangement proposal. These forms of discretion are set out in rule 40 of the NGR as follows:
    

No discretion

(1) If the Law states that the AER has no discretion under a particular provision of the Law, then the discretion is entirely excluded in regard to an element of an access arrangement proposal governed by the relevant provision.

Limited discretion

(2) If the Law states that the AER's discretion under a particular provision of the Law is limited, then the AER may not withhold its approval to an element of an access arrangement proposal that is governed by the relevant provision if the AER is satisfied that it:

(a) complies with applicable requirements of the Law; and

(b) is consistent with applicable criteria (if any) prescribed by the Law.

Full discretion

(3) In all other cases, the AER has a discretion to withhold its approval to an element of an access arrangement proposal if, in the AER's opinion, a preferable alternative exists that:

(a) complies with applicable requirements of the Law; and

(b) is consistent with applicable criteria (if any) prescribed by the Law.³

25. 
    Apart from the specific criteria that applies to any one element of an access arrangement proposal, there are two overarching requirements that apply to the assessment of an access arrangement proposal as a whole.
    
26. 
    First, the AER must make an access arrangement decision that is in the long term interests of consumers. Specifically, the AER must do so in a manner that will or is likely to contribute to the NGO.⁴ The NGO in section 23 of the NGL relevantly provides:
    

The objective of this Law is to promote efficient investment in, and efficient operation and use of, natural gas services for the long term interests of consumers of natural gas with respect to price, quality, safety, reliability and security of supply of natural gas.

27. 
    Rule 100 of the NGR further provides:
    

The provisions of an access arrangement must be consistent with:

(a) the national gas objective; and

(b) these rules and the Procedures as in force when the terms and conditions of the access arrangement are determined or revised.

28. 
    Second, the AER must take into account the revenue and pricing principles (RPP) when exercising its discretion in approving or making those parts of an access arrangement relating to a reference tariff, or otherwise where it considers it appropriate to do so.⁵ Section 24 of the NGL relevantly provides:
    

(1) The revenue and pricing principles are the principles set out in subsections (2) to (7).

(2) A service provider should be provided with a reasonable opportunity to recover at least the efficient costs the service provider incurs in-

(a) providing reference services; and

(b) complying with a regulatory obligation or requirement or making a regulatory payment.

(3) A service provider should be provided with effective incentives in order to promote economic efficiency with respect to reference services the service provider provides. The economic efficiency that should be promoted includes-

(a) efficient investment in, or in connection with, a pipeline with which the service provider provides reference services; and

(b) the efficient provision of pipeline services; and

(c) the efficient use of the pipeline.

(4) Regard should be had to the capital base with respect to a pipeline adopted-

(a) in any previous-

(i) full access arrangement decision; or

(ii) decision of a relevant Regulator under section 2 of the Gas Code;

(b) in the Rules.

(5) A reference tariff should allow for a return commensurate with the regulatory and commercial risks involved in providing the reference service to which that tariff relates.

(6) Regard should be had to the economic costs and risks of the potential for under and over investment by a service provider in a pipeline with which the service provider provides pipeline services.

(7) Regard should be had to the economic costs and risks of the potential for under and over utilisation of a pipeline with which a service provider provides pipeline services.

29. 
    Interlinkages between different elements of an access arrangement must be taken into account in order to ensure that all of the elements of an access arrangement work together as a whole. This is so that the terms and conditions, including prices, will, among other things, contribute to achieving efficient investment in, and efficient operation and use, of Envestra's gas distribution networks for the long term interests of consumers, in accordance with the NGO. Further, in providing reference services, Envestra should, amongst other factors, be provided with a reasonable opportunity to recover at least its efficient costs and with effective incentives in order to promote economic efficiency.
    

1. Access arrangement proposal to be approved in its entirety or not at all

30. 
    The AER's approval of an access arrangement proposal implies approval of every element of the proposal.⁶ It follows that, if the AER withholds its approval to any element of an access arrangement proposal, the proposal cannot be approved.⁷
    
31. 
    The AER’s final decision is not to approve Envestra’s revised access arrangement proposal for its Victorian and Albury networks. This is because it does not approve a number of elements of Envestra’s proposals.
    

1.