Apa Group · ASX:APA
Apa — Corporate Update (February 2020)
53 slides from Apa's corporate update, February 2020
Slide 1: Amadeus Consumer Reference Group: 2021-26 access arrangement revision
Amadeus Consumer Reference Group 2021-26 access arrangement revision
Slide 2: Agenda for today
Agenda for today Coffee 1 Welcome and Acknowledgement of Country and traditional owners Introductions around the table 2 House keeping and house rules 3 Overview of the day: what we are hoping to achieve 4 First roundtable meeting: recap and what we heard 5 Our answers to your questions 6 Demand for
Slide 3: Acknowledgement of Traditional Owners
Acknowledgement of Traditional Owners I’d like to acknowledge the Larrakia people whose land we are meeting on today and pay my respects to the Traditional Owners – past, present and emerging. 3
Slide 4: Introductions and housekeeping
Introductions and housekeeping • Introductions • Housekeeping • Emergency exits and process. • Bathrooms. • Tea and coffee location. • Scheduled breaks. • GHD support in the room. 4
Slide 5: House rules
House rules • This is intended be an open discussion between the reference group and APA. • We welcome any issue or question about the access arrangement and its context. • The main rule we propose is that the discussions during the roundtable are respectful. • We are not intending to attribute any
Slide 6: What are we hoping to achieve?
What are we hoping to achieve? 6
Slide 7: Summary of consultation and indicative timing (December 2019)
Summary of consultation and indicative timing (December 2019) Topic Roundtable Timing Asset management plan and capital expenditure 2 Mid-February 2020 Return on capital 2 Mid-February 2020 Depreciation 3 Mid-March 2020 Forecast operating expenditure 2 Mid-February 2020 Incentive mechanism 2 Mid-Feb
Slide 8: Getting into the details
Getting into the details • In this roundtable meeting, we shall present to you our initial thinking of key issues for the Amadeus Access Arrangement revision proposal: • The forecast of demand for pipeline services which should underpin our total revenue calculation and the setting of reference tari
Slide 9: There is also a broader context
There is also a broader context • The immediate focus of today’s roundtable meeting is our initial thinking on a number of key issues arising in preparation of the Amadeus Access Arrangement revision proposal. • But we would also like to step back: we would like to hear about how Amadeus might be im
Slide 10: First roundtable meeting: recap and what we heard
First roundtable meeting: recap and what we heard 10
Slide 11: Brief recap
Brief recap • At our first roundtable meeting, in December, we presented quite a lot of information on: • The Amadeus Gas Pipeline • The pipeline regulatory regime of the National Gas Law (NGL) and the National Gas Rules (NGR) • Why we convened this reference group. 11
Slide 12: We sought your views on our engagement plan
We sought your views on our engagement plan Your views … Please provide feedback on the following questions: 1. Is there other information you want us to provide about Amadeus Gas Pipeline? Tell us what other 2. Do you have any questions about the current arrangements for the AGP? information you wo
Slide 13: What we heard from you
What we heard from you • Tell us about the relationship between APA and PWC in so far as it affects the rights of other firm and as available Shippers on the AGP. • The response to questions that "we are working on that with PWC" will not be an acceptable answer to questions for long. • What role ca
Slide 14: Our answers to your questions
Our answers to your questions 14
Slide 15: Relationship between APA and PWC
Relationship between APA and PWC • APA has a gas transportation agreement with PWC. • Like other commercially negotiated agreements, this agreement is confidential. • However, under the NGL, the AER has access to the agreement with PWC, and to all of APA’s agreements for gas transportation on Amadeu
Slide 16: Pre-existing transportation agreements
Pre-existing transportation agreements • The note to section 2.1 of the Access Arrangement advises that there is currently no capacity available for provision of the firm service reference service: all capacity is utilised under pre- existing transportation agreements for services in the nature of f
Slide 17: “We are working on that with PWC”
“We are working on that with PWC” • At the first roundtable meeting, we advised that the rights to capacity in a pre-existing agreement could have priority ahead of the rights of another user who was prepared to contract for firm service provided by expanding Amadeus capacity. • In this context, PWC
Slide 18: What role can Amadeus play?
What role can Amadeus play? • We know why Amadeus is important to APA. • We see Amadeus providing gas transport. • We would like to hear why it is important to you, and to others in the NT, now and in the longer term. Discussion What should be guiding our thinking as we develop the Amadeus Access Ar
Slide 19: Balancing safety, reliability and affordability
Balancing safety, reliability and affordability • Businesses are facing tough conditions, not only in the Northern Territory. • The cost of energy is a major national issue. • We are working to keep Amadeus gas transportation safe, reliable and affordable • There is a balance to be achieved here: ma
Slide 20: Pipeline services and demand forecasting
Pipeline services and demand forecasting 20
Slide 21: A new context for Amadeus service provision
A new context for Amadeus service provision • Significant change in utilisation of Amadeus with Darwin commercial operation of the Northern Gas Pipeline (NGP) in January 2019. • NGP interconnects with Amadeus at Warrego, about 1,000 km south of Darwin. Bonaparte Gas Pipeline Ban Ban Springs • Gas de
Slide 22: AER reference service proposal decision
AER reference service proposal decision • Under the current Amadeus Access Arrangement, APA is to provide only one reference service: a firm transportation service • At our first roundtable, in December, the AER advised that a reference service proposal decision was imminent: the Amadeus Access Arra
Slide 23: Demand for pipeline services
Demand for pipeline services • All of the capacity available for the Amadeus firm service reference service is fully contracted by users with pre-existing agreements for firm transportation services. • None of those agreements is expected to terminate during the access arrangement period, and pipeli
Slide 24: Interruptible service
Interruptible service • Interruptible service can be made available using any unused part of the Amadeus capacity which has been contracted to users with pre-existing agreements. • That capacity can be made available to other users subject to recognition of any rights in the pre- existing agreements
Slide 25: Interruptible service
Interruptible service • The capacity which might be used to provide an interruptible service on the AGP is the contracted but un-nominated capacity of existing users of firm service transportation services: it is capacity which, in other circumstances, could be accessed under the day-ahead auction p
Slide 26: Asset management plan and CAPEX forecast
Asset management plan and CAPEX forecast
Slide 27: Why talk about asset management?
Why talk about asset management? • The reference tariffs of an access arrangement are to recover the costs of providing the reference services. • These costs include the service provider’s investment in the pipeline system used to provide those services – this investment is the capital base. • A sub
Slide 28: Asset management planning
Asset management planning • Asset management plans are the outworking of a well-established process which APA has for each of its major pipeline assets. • Development of the process has been guided by ISO 55000 (the International Standard covering management of physical assets). • Focus of asset man
Slide 29: Amadeus asset management plan
Amadeus asset management plan • Amadeus will be some 35 years old at commencement of the access arrangement period. • The pipe itself is generally in sound condition, but there has been some degradation consistent with a pipeline which is about half-way through its physical life. • After 35 years in
Slide 30: Actual CAPEX against AER allowance 2016-17 to 2020-21
Actual CAPEX against AER allowance 2016-17 to 2020-21 2016-17 2017-18 2018-19 2019-20 2020-21 Total Notes CAPEX allowance (AER May 2016 Final Decision) Pipeline $m 1.9 0.3 0.3 0.3 0.3 2.9 Compression $m 0.0 0.0 0.0 0.0 0.0 0.0 Meter stations $m 1.2 1.1 0.7 0.7 0.6 4.3 SCADA and communications $m 0.7
Slide 31: Actual CAPEX against allowance: notes
Actual CAPEX against allowance: notes [1] Facilities for Channel Island Bridge in-line inspection [2] New Tanami Road delivery point [3] New Darwin depot and office building not yet commenced AER will carefully assess all actual expenditures against the capital expenditure criteria of the NGR before
Slide 32: CAPEX forecast 2021-22 to 2025-26
CAPEX forecast 2021-22 to 2025-26 2021-22 2022-23 2023-24 2024-25 2025-26 Total Pipeline integrity AGP laterals - DCVG survey $m 0.0 0.0 0.0 0.0 0.0 0.0 AGP - Inspection - Inline inspecition - MFL $m 0.2 0.4 0.4 0.1 0.0 1.0 Heatshrink sleeve upgrades $m 0.3 0.3 0.3 0.3 0.3 1.3 $m 0.5 0.6 0.6 0.4 0.3
Slide 33: Amadeus CAPEX forecast
Amadeus CAPEX forecast • Relatively low CAPEX: around $2 million each year during access arrangement period. • Consistent with a pipeline some 35 years old and generally in sound condition. • CAPEX still to be fully assessed against the capital expenditure criteria of the NGR but necessary to mainta
Slide 34: Operating expenditure
Operating expenditure energy. connected.
Slide 35: Operating expenditure 2016-17 to 2020-21: actual and allowance
Operating expenditure 2016-17 to 2020-21: actual and allowance Actual operating 16,000 expenditure is expected 14,000 to be $6.3 million ($FY21) 12,000 or 9% lower than the 10,000 forecast allowance. $000s, $FY21 8,000 Key reasons: 6,000 • So far lower than forecast 4,000 ‘intelligent pigging’ costs
Slide 36: Forecasting operating expenditure
Forecasting operating expenditure • Two approaches to forecasting operating expenditure • Bottom up approach • Top down approach • Bottom up • Examine all costs and forecast them out for five years • Beneficial if starting from scratch or facing big changes in operating costs • Top down • Most commo
Slide 37: Base, step and trend method
Base, step and trend method •Use select actual expenditure in the current regulatory period as a starting point. Base year opex •Under incentive regulation, the revealed actual cost is taken to be efficient. •Any extraordinary items are removed. Trend •The base year operationg expenditure is adjust
Slide 38: Thinking about which method to apply
Thinking about which method to apply • Base, step and trend is a revealed – actual – cost approach. • Provides an incentive to keep operating costs down. • Also then reveals efficient operating costs. • Means that we don’t need to provide bottom-up forecast. • Base, step and trend is well known and
Slide 39: Applying base, step and trend to Amadeus
Applying base, step and trend to Amadeus Base year opex •We are proposing to use 2018/19. This is the latest available audited year. •We are proposing a rate of change based on forecast change in real labour costs only. Trend •The most current information prepared for the AER by Deloitte Access Econ
Slide 40: Forecast operating expenditure 2021-22 to 2025-26
Forecast operating expenditure 2021-22 to 2025-26 • Applying the base, step and trend approach results in preliminary forecast of operating expenditure: • $12.4 million (FY$21) per year • Total of $66.2 million (FY$21) for the five years. • The forecast excludes: • Step changes due to FIFO costs • E
Slide 41: Efficiency carryover – incentive – mechanism
Efficiency carryover – incentive – mechanism What is it? • The AER has previously approved an incentive mechanism to encourage us to seek efficiencies in the operation of the Amadeus. • This incentive mechanism is the efficiency carryover mechanism. • Efficiency carryover mechanism: • Provides an in
Slide 42: Forecasting operating expenditure
Forecasting operating expenditure Getting your insights • Do you have any views or questions about: • Amadeus operating expenditure? • Methods of forecasting operating expenditure? • The efficiency carryover mechanism? 42
Slide 43: Return on investment and inflation
Return on investment and inflation 43
Slide 44: Return on investment
Return on investment • Return on investment in each year of the access arrangement period is the product of: • The projected capital base – the forecast total investment in the pipeline – at the beginning of the year • The allowed rate of return • Allowed rate of return determination, once contentio
Slide 45: Risk free rate of return
Risk free rate of return • A risk free rate of return is required for estimating equity returns • Returns on low-risk government bonds are used to estimate this risk free rate of return. • The way in which the risk free rate is to be estimated, from returns on Australian Government securities with t
Slide 46: Return on equity
Return on equity • In accordance with the instrument, the return on equity is estimated using the Capital Asset Pricing Model (CAPM): 𝑘𝑒 = 𝑘𝑓 + 𝛽 ∙ 𝑀𝑅𝑃 • 𝑘𝑓 is the estimate of the risk free rate of return • 𝛽 ∙ 𝑀𝑅𝑃 is a premium for risk: • MRP is the market risk premium – the amount…
Slide 47: Rate of return on debt
Rate of return on debt • The rate of return instrument requires estimation of the rate of return on debt as an average of the rates on corporate debt with a term to maturity of 10 years published by: • Reserve Bank of Australia • Bloomberg • Thompson-Reuters. • APA has used data from these three sou
Slide 48: Estimate of the allowed rate of return
Estimate of the allowed rate of return • Using its estimates of the return on equity and the return on debt, together with the value for the gearing set in the rate of return instrument (0.6), APA has made an estimate of the allowed rate of return of: (1 – 0.6) x 4.87% + 0.6 x 4.75% = 4.79% • APA ex
Slide 49: Forecasting inflation
Forecasting inflation • The allowed rate of return calculated in the way prescribed by the rate of return instrument is a nominal rate: it incorporates – implicitly – expectations of future inflation. • Those expectations must be made explicit for some parts of total revenue and reference tariff det
Slide 50: Wrapping up and next steps
Wrapping up and next steps 50
Slide 51: Summary of consultation and indicative timing
Summary of consultation and indicative timing Topic Roundtable Timing Asset management plan and capital expenditure 2 Mid-February 2020 Return on capital 2 Mid-February 2020 Depreciation 3 Mid-March 2020 Forecast operating expenditure 2 Mid-February 2020 Incentive mechanism 2 Mid-February 2020 Estim
Slide 52: Wrap up
Wrap up • Summary of key outcomes from today • Invite comments from participants Thank you for participating 52
Slide 53: For further information contact
For further information contact: Or visit the APA website: John Williams apa.com.au Manager Regulatory +61 8 6189 4594 [email protected] Or Amadeus engagement webpage: apa.com.au/about-apa/our- Nives Matosin projects/amadeus-gas-pipeline- Manager Regulatory access-arrangement/. +61 2 9693 008