Gas Week

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Consumers should not underwrite GasNet’s commercial credit risks; lack of planning report for Carisbrook Loop augmentation equals lack of GasNet support

Posted by gasweek on 19 September, 2007

TRUenergy had asked the Australian Energy Regulator’s (AER)  to get Victorian transmission provider, GasNet’s capital expenditure forecast justified and supported by expansion studies completed by VENCorp. TRUenergy  objected to a GasNet  plan to pass through any debts incurred by defaulting shippers, and other clauses.

Counter Party Default Event: TRUenergy  said “A Counter Party Default Event refers to the default of a Shipper in respect of an amount or amounts payable by the Shipper to GasNet under the relevant Gas Transportation Deed. The provision allows GasNet to pass through any debts incurred by defaulting shippers. Our view is that consumers should not underwrite GasNet’s commercial credit risks. Firms exposed to the reality of a competitive market place are generally not able to pass through bad debts. The bad debts will impact their profit. Accordingly, we see no reason why GasNet should be afforded special treatment in this regard”.

An Asbestos Event: “An Asbestos Event means any cost, expense or liability incurred by GasNet arising in connection with a claim by a third party in respect to an asbestos related disease. The risks of using asbestos in products resulted in a court related action against James Hardie. It was required to compensate those who had contracted asbestos related disease as a result of its products. In this case, consumers did not underwrite this risk. The company was required to fund the exposure from its profits. Accordingly, we see no reason why GasNet should be afforded special treatment in this regard”.

Review of forecast capital expenditure: “The Independent Engineer should review all of the capital expenditure forecast by GasNet in AA3 to determine that it is efficient and prudent consistent with Section 8.16 of the Gas Code.”. The Engineer’s Scope of Work should include:

• the priority of all the capital works;

• possible postponing of some of these works;

• accuracy of the cost estimates; and

• contingency allowances and system integrity requirements.

VENCorp studies:  For example, in dealing with potential constraints to major system capacity on the PTS for the winter of 2008, VENCorp undertook an independent study and determined that a minor system augmentation was required to increase the level of useable line pack to cover within day supply demand imbalances. A range of options was modelled by VENCorp who independently determined the augmentation that provided that greatest system benefits before choosing the most efficient option. TRUenergy would support simular detailed reports undertaken by VENCorp to justify expansions of the PTS. The reviewing Engineer should have access to these VENCorp justification studies for review and comment.

Publication of VENCorp studies: TRUenergy supports the Australian Energy Regulator’s (AER) decision to publish VENCorp’s expansion studies (planning reports) that justify GasNet’s capital expenditure for AA3. TRUenergy supports the augmentations justified by these planning reports on the basis that they have been justified by studies undertaken by an independent planner. However, TRUenergy notes that no planning report has been provided by VENCorp for the Carisbrook Loop augmentation which is to be commissioned and completed in winter 2010 at a cost of $24 million. TRUenergy does not support the augmentation on the basis it has not been justified by a VENCorp planning study.

Reference: TRUenergy, GasNet’s proposed Access Arrangement 2008.

Erisk Net, 10/9/2007


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