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Gas distribution capital costs too high: AER

The draft decisions for the access arrangement proposals apply for the period from 1 July 2011-20 June 2016.

APT Allgas has proposed a rate of return of 10.3 per cent, which would increase real network charges for residential customers by 11 per cent as at 1 July 2011.

The company has proposed a significant increase in capital and financing costs for the period, including a 22 per cent increase in operating expenditure over the period.

Envestra proposed a rate of return of 10.6 per cent, which would see a real increase in network charges for residential customers by 15 per cent and 19 per cent across the Queensland and South Australian gas networks respectively.

The company has proposed a program that includes the progressive replacement of approximately 1,300 km of ageing gas pipes across both networks.

AER Chairman Andrew Reeves said “The AER agrees that additional expenditure is justified in some areas, such as Ipswich, where the level of gas leakage is a concern.

“However… the AER considers Envestra has not demonstrated that a significant increase in expenditure across the Brisbane network is justified given the historical trend of declining gas leakage at current mains replacement rates.”?

The AER considers that capital expenditure of $121 million in Queensland and $415 million in South Australia is efficient, which is 30 per cent and 20 per cent respectively less than the amounts proposed by Envestra.

Envestra Managing Director Ian Little said that the announcements by the AER were only draft decisions, and an opportunity existed for Envestra to provide further justification to the regulator in respect to a number of significant issues.

The companies have until 23 March 2011 to respond to the draft decisions.

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