Page 4291 - Week 13 - Thursday, 19 November 2015
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The Australian Energy Regulator is currently in the process of reviewing the revenue allowances for ActewAGL ACT gas distribution for the period 2016 to 2021. A draft determination is due this November, and then, after a period of public consultation, a final determination will be made in April next year. The period for the determination will commence in July 2016. The job for the AER is to determine how much revenue ActewAGL distribution is allowed to effectively charge gas consumers for the cost of the network and supply. The point of interest is particularly around the investment in the gas network across Canberra, especially given the changes in the gas market and the changes in technology that are emerging.
There are two markets at least where this could be in a state of flux: users who are already on the gas network but are looking to fuel switch to electricity for one of several reasons; and, secondly, new development areas where new gas infrastructure would ordinarily be installed and where new residents may not take up gas at such high rates as in the past, again for a range of reasons.
When new suburbs are developed in Canberra, currently there is no cost passed on to developers for the installation of gas network infrastructure. This means that developers are not asking themselves any questions about whether the future residents of an area are going to sign up to gas or how much gas they are going to use. It means that all developers are saying, “Yes; please install,” as there is still a public expectation that natural gas will be available to new residences in Canberra and it costs them nothing.
ActewAGL distribution generally retrieve the cost of that infrastructure over a long period of time—say 20 years—through domestic gas charges and connections charges paid by the people who sign up and are using the new infrastructure. But what happens if the take-up rates for gas in new developments are lower than expected? What happens if the take-up is not enough to pay for the cost of the infrastructure? Then the network development costs are equalised across all gas consumers in the ACT, so everybody who is on the gas network in Canberra will pay for it.
But imagine if it was done the other way around and ActewAGL had to raise the capital up front for the infrastructure, pushing the assessment of value for money onto the developer and, therefore, the consumer. It is likely that under such a scenario a developer might change their mind and decide not to have the gas network connected.
Of course, delaying and equalising the cost of infrastructure over many years for consumers can work if you know that the consumers are going to be there. But the risk we have here is that consumers may move away from the gas, the infrastructure will be underutilised and the cost will be pushed onto other gas customers.
What factors are going to push people away from gas? Firstly, gas prices are rising, which makes other electric technologies more competitive. Gas prices have been mooted to rise dramatically in the face of Australia’s opening up gas export markets. This is not so much an issue of there being less supply in Australia but rather that gas producers will be able to get around three to four times the price per gigajoule for their production in offshore markets such as Japan. Indeed, some market analysts
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