Allocation between regulated and non-regulated services APA VTS has a robust process in place for allocating its costs and revenue between regulated and non-regulated activities to ensure that there is no cross subsidisation between regulated and non-regulated activities. All expenditures are directly coded to job numbers created for activities. These expenditures are directly allocated to those non-regulated activities and are not included in the capital and operating expenditure discussed in the following sections. All field personnel complete a timesheet which must be submitted to their leader for approval on a weekly basis. These timesheets accurately record time spent on non-regulated activities and all such time is not included in recorded expenditure on regulated assets. All capital expenditure is also directly allocated to the asset to which it relates based on actual capital spent. Procurement Policy and Procurement Guidelines Operating in conjunction with the key asset planning and management framework is the APA procurement policy. All APA purchases of goods and procurement of services must be undertaken in accordance with the APA procurement policy and guideline. APA’s procurement practices are designed to ensure: Financial, commercial, legal, operational, reputational, regulatory, environmental and occupational health and safety risks are determined, monitored, managed and reduced; and/or services meet specification and are delivered on-time at competitive prices from financially stable suppliers; Best value for money is realised, as evaluated on a total cost of ownership basis; and Effective procurement processes and procedures, including rigorous ongoing contract management and supplier relationship management are applied consistently.
– Approaches to estimating return on equity Wright approach (used by UK regulators) SL CAPM (used by APA VTS) AER foundation model Risk free rate Point estimate for rf estimate for rf Point estimate for rf Expected return on market Point estimate for E(rM) Point estimate for E(rM) - Market risk premium (MRP = E(rM) – rf) estimate for E(rM) minus point estimate for rf Point estimate for E(rM) minus point estimate for rf MRP is treated as a single parameter Estimated as a long term average of difference between return on the market and the risk free rate Relationship between rf and MRP rf and MRP are inversely related No assumption No inverse relationship between rf and MRP Real return on equity Relatively constant over time No assumption - Return on market Stable over time No assumption - MRP Varies over time No assumption Constant over time Risk free rate Varies over time No assumption Varies over time
by the COAG Energy Council, however the proposed market structure did receive in principle support at the August 2016 COAG Energy Council meeting. It is anticipated that the Victorian Government, and the COAG Energy Council, will make a policy decision on whether to develop new market arrangements in Victoria in 2017. If they do decide to develop new arrangements, there will be a significant period of policy and market development, including drafting and passage of new legislation, development or new market rules, procedures and arrangements, as well as the need to develop and test new market systems. It is also expected that there will be a period for the market before the new market arrangements (if agreed) are ultimately enacted. During the lead up to the commencement of new market arrangements, APA VTS expect to incur significant costs. As the service provider of the transmission system, new market arrangements are likely to require investment in new systems as well as the development of new procedures. In addition, the process of developing new market arrangements, in particular through representation on working groups and panels, is likely to be drawn out and costly for APA VTS. Indeed, this process can be expected to run for several years. These costs cannot be adequately forecast for the access arrangement period. Not only has no policy decision been made to proceed with developing or implementing new market arrangements, the scope of changes, if they are developed, are not currently known. Further, it is unlikely that they will be known before the access arrangement starts, even if a policy decision is made in early 2017 to develop new arrangements. This is because it is the detail of requirements for new systems, procedures and arrangements that drive costs, and these are only likely to be considered and confirmed late in the development process. APA VTS considers that the efficiently and prudently incurred costs associated with the development and implementation of new market arrangements in Victoria should be able to be passed through during the access arrangement period. This includes costs incurred in the development of new systems, process and procedures made necessary by a decision to develop a new gas market structure, which includes costs incurred prior to a decision to implement the new market arrangements, or the start of the new
Information required by the NGR and AER RIN of information This index of information provides cross-references to the documents that make up APA VTS’s revised access arrangement proposal, providing the location of information submitted in compliance with the National Gas Rules or the AER Regulatory Information Notice. Table A.1 – Index of information Source Requirement AA reference AAI reference Submission RIN template RIN template RIN 1.1 Provide the information required in each regulatory template in the Microsoft workbook attached at Appendix A completed in accordance with this Notice. B.1 Basis of information RIN 1.2 (a) Provide all financial information on a calendar year basis (with the exception of the 2013 calendar year) and set out whether the information is actual information, estimated information or forecast information. All financial tables in AAI All financial tables in submission All financial tables in template RIN 1.2 (a) For information in the nature of a forecast or estimate provide a statement of the basis of the forecast or estimate. relevant in submission RIN 1.2(b) Provide all financial information on a calendar year (with the exception of the 2013 calendar year) and set out the units of measurement for parameters or values used to derive or infer values All financial tables in AAI All financial tables in submission All financial tables in template NGR 73(2) The basis on which financial information is provided must be stated in the access arrangement information. All financial tables in AAI All financial tables in submission All financial tables in template
RIN 2.2 Explain and outline the methodology that has been used to support the demand forecasts, including the key assumptions and inputs that have been used and how demand for pipeline services is differentiated 3.2.1 RIN 2.3 Explain how the demand forecasts have been used to develop the service provider's capital expenditure and operating expenditure forecasts 5.3.1 RIN 2.4 Explain any trends of demand and volumes over the previous access arrangement period and current access arrangement period. 3.1.1 & 3.2.1 Pipeline capacity and utilisation NGR 72(1)(d) The AAI for a full access arrangement must include to the extent it is practicable to forecast pipeline capacity and utilisation of pipeline capacity over the access arrangement period, a forecast of pipeline capacity and utilisation of pipeline capacity over that period and the basis on which the forecast has been derived 4 3.2.3 B.1 RIN 3.1 Provide details of the key drivers behind the forecasts of pipeline capacity and utilisation 3.2.3 RIN 3.2 Explain and outline the methodology, including key assumptions and inputs used to prepare the forecasts of pipeline capacity and utilisation 3.2.3 RIN 3.3 Explain how the pipeline capacity and utilisation forecasts have been used to develop the service provider's capital expenditure and operating expenditure forecasts 3.2.3 & 5.3.1
RIN 4.1(a)(ii) Forecast conforming capital expenditure in the current access arrangement period, identify and explain the materiality threshold used to determine material forecast capital expenditure. 5.3 RIN 4.1(a)(iii) Forecast conforming capital expenditure in the current access arrangement period, identify the location of the proposed forecast capital expenditure. 5.3, D.1 & D.2 RIN 4.1(a)(iv) Forecast conforming capital expenditure in the current access arrangement period, provide: (1) relevant internal decision making documents including but not limited to business cases, feasibility studies, forecast demand studies and internal reports and the date of board resolution/management decisions relating to approval of the forecast capital expenditure; and (2) other internal or external documentation or models to justify the forecast conforming capital expenditure. NA RIN 4.1(a)(v) Forecast conforming capital expenditure in the current access arrangement period, explain whether the forecast conforming capital expenditure is to be funded by parties other than the asset owner. 6.3 RIN 4.1(a)(vi) Forecast conforming capital expenditure in the current access arrangement period, provide details of contractual agreements with parties where capital contributions are made by users to new capital expenditure pursuant to rule 82. 6.3
RIN 4.1(a)(x) Forecast conforming capital expenditure in the current access arrangement period, if Rule 79(2)(c)(iv) is relied on to justify new capital expenditure (1) quantify and explain the change in demand for existing services necessitating the new capital expenditure; and (2) provide reports or other information and documentation that supports how the forecast capital expenditure will meet the increase in demand for existing services. D.2.1 RIN 4.1(b)(i) Capital expenditure that is not conforming in the current access arrangement period, if the speculative capital expenditure account has increased at a rate different to the rate of return implicit in a reference tariff: (1) identify the differences in rates; and (2) explain why. NA RIN 4.1(b)(ii) Capital expenditure that is not conforming in the current access arrangement period, identify the mechanism (if required by Rule 82(3)) which prevents the service provider from benefitting, through increased revenue, from the user’s contribution to the capital base. NA 2.2.5 NGR 85(1) A full access arrangement may include (and the AER may require it to include) a mechanism to ensure that assets that to contribute in any way to the delivery of pipeline services (redundant assets) are removed from the capital base. NA RIN 4.1(c)(i) Capital redundancy policy in the current access arrangement period, if a mechanism to remove redundant assets is not proposed, explain why with reference to the relevant rules NA 2.2.4
NGR 72(1)(j) The AAI for a full access arrangement must include the proposed approach to the setting of tariffs including: (i) the suggested basis of reference tariffs, including the method used to allocate costs and a demonstration of the relationship between costs and tariffs; and (ii) a description of any pricing principles employed but not otherwise disclosed under this rule 10 10 NGR 72(1)(m) The AAI for a full access arrangement must include the total revenue to be derived from pipeline services for each regulatory year of the access arrangement period 12 10.1 RIN 4.6(a)(i) Total revenue allocation: provide an outline of the nature of the allocation method used to allocate cost pools to reference and other services and provide analysis and information to support this allocation 10.2 RIN 4.6(a)(ii) Total revenue allocation: if relevant, for rebateable services, provide a description of the mechanism that the service provider will use to apply an appropriate portion of the revenue generated from the sale of rebateable services to price rebates (or refunds) to users of reference services. RIN 4.6(b)(i) Tariffs- transmission pipelines: For each reference service and for each user or class of users for a reference service for transmission pipelines, outline the nature of: (1) costs directly attributable to each reference service (2) other costs that are attributable to reference services (3) where relevant outline the costs directly attributable and other costs attributable for the user or class of users and other users or classes of users. 10.2
Key asset management and planning documents APA VTS Asset Management Plan – Confidential Public version provided with confidential detail redacted Capital expenditure business cases Growth capital expenditure business cases SIB capital expenditure business Non-system capital expenditure business cases GPA Engineering, Commentary report: Victorian networks urban encroachment business case review – Public APA Enterprise Risk Management Plan – Confidential APA VTS Safety Case – Public List of outsourced expenditure – Confidential These documents are supplemented by the resource documents pack provided with the submission All provided as separate documents