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Vic regulator bans too-clever management fees: investigates SP AusNet’s payments-spaghetti, and refuses SPIMS fee paid to Singapore Power

Posted by gasweek on 20 September, 2007

In a frightener to the clever “management fees” model so popular with boom-market listings the Essential Services Commission has refused to accept an SP-Ausnet fees model. It made an adjustment to the SP AusNet cost benchmarks to remove an amount representing the allocation of part of the SPIMS payment to SPL to the SPI Gas business. The reason why: It said “The Commission is not satisfied that;

• a fee paid by SPI Management Services (SPIMS fee) ;

• to Singapore Power Limited (SPL) a proportion of which is included in the gas distribution regulatory accounts for SP AusNet;

• is for activities undertaken in the provision of Reference Services.

Just a new way monopoly money-grab?” For the purposes of this draft decision, the Commission considers that these payments are above the actual costs of operating and maintaining the network and as such, the reported operating expenditure of SP AusNet exceeds that required to operate and maintain the network on a lowest sustainable cost basis.

SP AusNet a saucy lot: The decision was in The Victoria Gas Access Arrangement Review 2008-2012, by the Essential Services Commission and published 28 August 2007. It noted SP Management Services – SP AusNet reported in its regulatory accounts;

• payments made to SPI Management Services (SPIMS);

• payments to SPIMS are reported at an aggregate level;

• said to be for management services provided by SPIMS to SP AusNet, including for the gas distribution business (SPI Networks (Gas) Pty Ltd (SPI Gas).

Please explain:The Commission sought further clarification of the activities undertaken in relation to SP AusNet’s payments to SPIMS and proposes to further investigate the basis on which these charges are paid by SP AusNet, and indirectly SPI Gas, to SPIMS and the particular activities that are undertaken by SPIMS as part of its consideration of the final decision.

Spaghetti junction: In particular, the Commission proposes to further investigate and seeks further information and submissions from SP AusNet as to how these payments properly relate to costs of undertaking activities in SPI Gas supplying reference services by the network.

Management advice questioned: One aspect of the reported cost appears to be payment by SPIMS of a management fee to Singapore Power Limited (SPL). The management fee is said to be for advice and consulting services which are provided by SPL to SPIMS in the performance of its work, which the Commission understands is related to the gas and electricity distribution and electricity transmission businesses of SP AusNet.

Management fees don’t qualify as “operations”: It appears that one third of the fee paid by SPIMS to SPL may have been included in the gas distribution regulatory accounts of SP AusNet and that this has formed part of the cost benchmarks in the SP AusNet information templates. As with Multinet, the Commission is not satisfied at this time on the information that has been provided by SP AusNet that such payments are for activities undertaken in the provision of Reference Services.

Adjustment to the SP AusNet cost benchmarks: For example, it may be that such management fees include an allocation of head office, shareholder, finance and other costs that are not costs of providing the Reference Services.

Reference: Gas Access Arrangement Review 2008-2012, Essential Services Commission, Draft Decision, Executive Summary, 28 August 2007.

Erisk Net, 2/9/2007

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