· abn 37 428 185 226 craig murray – managing director, country energy cnr littlebourne street...

www.countryenergy.com.au ABN 37 428 185 226 Craig Murray – Managing Director, Country Energy Cnr Littlebourne Street & Hampden Park Road, KELSO NSW 2795 PO Box 172 BATHURST NSW 2795 Switch 13 2356 Direct Telephone 02 6589 8697 Facsimile 02 6589 8695

Ref: JC:JC 23 December 2003 Dr Thomas Parry Chairman Independent Pricing and Regulatory Tribunal PO Box Q290 QVB Post Office NSW 1230 Dear Dr Parry Review of the Access Arrangement for the Wagga Wagga Natural Gas Distribution Network Please find attached proposed revisions of the Access Arrangement and related documentation relating to the Wagga Wagga natural gas distribution network. The revisions have been prepared by Country Energy Gas Pty Limited in accordance with the requirements of the National Third Party Access Code for Natural Gas Pipeline Systems and the requirements of the current Access Arrangement. The proposed revisions feature a number of changes to the existing Access Arrangement. Country Energy looks forward to proceeding along a cooperative path to finalising the Access Arrangement and related documentation. The Board and management of Country Energy are keen to work closely and constructively with the Tribunal throughout the review. We look forward to further discussion on key issues and to receiving information requests. To enable any issues, clarification and requests for information to be dealt with in an efficient and coordinated manner throughout the price review process, please ensure that in the first instance all contact is directed to Ms Terri Benson on 6338 3424 or Mr Lawrence Zulli on 6883 4547. Yours sincerely Craig Murray Managing Director Att. 2

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1. INTRODUCTION....................................................................................................1

1.1 Basis for Access Arrangement...........................................................................1 1.2 Commencement and Application......................................................................1 1.3 Interpretation .....................................................................................................1 1.4 Contact Details...................................................................................................2 1.5 Information........................................................................................................2

2. SERVICES POLICY..............................................................................................4 2.1 Services to be offered.........................................................................................4 2.2 Reference Service Agreements ..........................................................................4 2.3 Transportation Services .....................................................................................5 2.4 Request For Service............................................................................................6 2.5 Pre-conditions to the provision of Services.......................................................8 2.6 Bonds and Credit Support.................................................................................9 2.7 Users with existing Service Agreements .........................................................11 2.8 User's Default...................................................................................................12

3. REFERENCE TARIFFS AND REFERENCE TARIFF POLICY.........................13 3.1 Reference Tariff Structure................................................................................13 3.2 Additional Services..........................................................................................14 3.3 Annual Changes in Reference Tariffs..............................................................15 3.4 Pass Throughs..................................................................................................15 3.5 Addition and Deletion of Reference Tariffs ....................................................17

4. TERMS AND CONDITIONS................................................................................19 4.1 Terms and Conditions.....................................................................................19 4.2 Gas Balancing and Unaccounted for Gas........................................................19 4.3 Load Shedding.................................................................................................20 4.4 Connection of third party distribution systems ..............................................20 4.5 Liabilities and Indemnity.................................................................................22

5. CAPACITY MANAGEMENT POLICY................................................................23 5.1 Contract Carriage Pipeline ..............................................................................23

6. TRADING POLICY..............................................................................................24 6.1 Bare Transfer....................................................................................................24 6.2 Other Transfers................................................................................................24 6.3 Original User Continues to Pay.......................................................................25

Table of Contents

2005 Wagga Wagga Gas Access Arrangement 31 December 2003

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6.4 Change of Delivery Point ................................................................................25 6.5 Fees...................................................................................................................26

7. EXTENSIONS AND EXPANSIONS POLICY .....................................................27 7.1 Coverage..........................................................................................................27 7.2 Extensions/Expansions and Tariffs.................................................................27 7.3 New Developments .........................................................................................28 7.4 Extension not used...........................................................................................29

8. REVIEW OF ACCESS ARRANGEMENT...........................................................30 8.1 Revisions Commencement Date......................................................................30 8.2 Revisions Submission Date..............................................................................30

GLOSSARY.................................................................................................................31 APPENDIX 1 - REFERENCE SERVICE AGREEMENT APPENDIX 2 - INITIAL REFERENCE TARIFFS APPENDIX 3 - TARIFF FORMULA APPENDIX 4 - REQUEST FOR SERVICE APPENDIX 5 - SCHEMAT IC DIAGRAM OF THE NETWORK


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1. INTRODUCTION

1.1 Basis for Access Arrangement This Access Arrangement has been prepared by Country Energy Gas Pty Ltd ACN 083 199 839 (Country Energy Gas) and applies to the natural gas distribution system serving Wagga Wagga and surrounding areas (including Uranquinty). This Access Arrangement should be read in conjunction with the accompanying Access Arrangement Information.

1.2 Commencement and Application

This Access Arrangement applies from 1 January 2005 and supersedes the Access Arrangement for the Network in place prior to this date. The provisions set out in this Access Arrangement will continue to apply until the Access Arrangement is reviewed in accordance with section 8 and/or the provisions set out in the Code.

1.3 Interpretation

In this Access Arrangement where a word or phrase is capitalised and italicised the term has the meaning set out in the Code, unless the word or phrase is defined in the Glossary in which case the word or phrase has the meaning given to that word or phrase in the Glossary. Further, in this Access Arrangement headings are for convenience only and do not affect interpretation, and unless the context indicates a contrary intention:

(a) a reference to any party includes that party's executors, administrators, successors, substitutes and assigns, including any person taking by way of novation;

(b) a reference to this Access Arrangement or to any other agreement, deed or document (including, without limitation any standard, code, guidelines or rule) includes, respectively, this Access Arrangement or that other agreement, deed or document as amended, novated, supplemented, varied or replaced from time to time;

(c) words importing the singular include the plural (and vice versa), words denoting a given gender include all other genders, and words denoting individuals include corporations (and vice versa);

(d) unless the context indicates otherwise, a reference to a section is a reference to a section of this Access Arrangement;

(e) references to currency are references to Australian currency unless otherwise specifically provided; and

(f) reference to any legislation or to any section or provision thereof includes any statutory modification or re-enactment or any statutory provision substituted


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for it, and ordinances, by-laws, regulations, and other statutory instruments issued thereunder.

1.4 Contact Details

General enquiries regarding this Access Arrangement should be directed to: Group General Manager Regulatory Affairs Country Energy Gas Pty Ltd PO Box 172 BATHURST NSW 2795 Telephone: 02 6338 3424 Fascimile: 02 6332 6812

1.5 Information

1.5.1 General Information about the Network

A person may request general information from Country Energy Gas about the Network and such information will be made available to the person (unless the information is Confidential Information or is information which Country Energy Gas otherwise reasonably considers to be confidential) in accordance with the processes set out in section 5.2 of the Network Code. If the information requested is contained in this Access Arrangement or in the Access Arrangement Information, it will be provided free of charge. In relation to the provision of other information, Country Energy Gas will make such information available for the fees set out in section 1.5.3. 1.5.2 Information concerning existing Users

Pursuant to section 7 of the Network Code:

(a) Any person may, with prior written consent of a Customer, request information from Country Energy Gas in respect of the load and pattern of usage, over a specified period, of the Customer. Where the Customer consumes greater than 10 TJ of gas per year, the request must include a copy of the Data Consent Form as set out in Annexure A of the Network Code, completed and signed by the Customer.

(b) Country Energy Gas will respond to such requests in accordance with the timeframes set out in section 7 of the Network Code.

(c) Country Energy Gas will charge a fee to respond to such requests as set out

in section 1.5.3.


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1.5.3 Fees

(1) An application fee of $80, payable at the time of the request, plus a fee of $80

per person per hour after the first person hour will be charged to respond to requests for information pursuant to sections 1.5.1 and 1.5.2. Country Energy Gas will provide an estimate of the fee at the time the request is made.

(2) The fees set out in 1.5.3(a) apply for the period 1 January 2005 to 30 June 2005. They will change on 1 July 2005 and on 1 July in each subsequent Year in accordance with the arrangements set out in Appendix 3.


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2. SERVICES POLICY This section contains Country Energy Gas ’ Services Policy, which sets out a description of the services offered and matters which impact on those services including how a User or Prospective User may obtain a service or an element of a service.

2.1 Services to be offered

Country Energy Gas will make available to Users or Prospective Users the following services: (a) a Contract Transportation Service (as described in section 2.3.1);

(b) a Volume Transportation Service (as described in section 2.3.2);

(c) four Additional Services (as described in section 2.3.3)

(1) a Meter Testing Service;

(2) a Special Meter Reading Service;

(3) a Connection Service; and

(4) a Disconnection Service.

(d) Negotiated Services (as described in section 2.3.4); The Contract Transportation Service, the Volume Transportation Service and each of the Additional Services are Reference Services and attract a Reference Tariff.

2.2 Reference Service Agreements

2.2.1 Requirement to enter into a Reference Service Agreement

(a) A Prospective User of a Reference Service will be required to enter into a

Reference Service Agreement specific to that User and that Service;

(b) If a Prospective User requires a Service other than a Reference Service, the Prospective User may seek to negotiate a Negotiated Service Agreement.

2.2.2 Period of Reference Service Agreements

The period of a Reference Service Agreement will start on the commencement date specified in that Reference Service Agreement. If the Reference Service Agreement incorporates a Transportation Service, the Reference Service Agreement will apply for a minimum period of 1 year and a maximum of 5 years. The election as to the period of the Reference Service Agreement is to be made by the User at the time the respective Reference Service Agreement is entered into.


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2.3 Transportation Services

2.3.1 Contract Transportation Service

The Contract Transportation Service is provided to the User in respect of the Delivery Point of a Contract Customer and consists of: (a) receiving natural gas at a Receipt Point;

(b) transporting the natural gas from a Receipt Point through the Network;

(c) delivering the natural gas to the Delivery Point;

(d) installing, maintaining and repairing Metering Facilities at the Delivery Point;

(e) reading the Metering Facilities at the Delivery Point at a frequency of 24 hours; and

(f) providing data, including metering data, to the User and other entities in accordance with the requirements of the Gas Retail Market Business Rules.

A Contract Customer is a Customer who has (or is reasonably expected by Country Energy Gas to have) an annual consumption of 10TJ or greater at a single Delivery Point. 2.3.2 Volume Transportation Service

The Volume Transportation Service is provided to the User in respect of the Delivery Point of a Volume Customer and consists of: (a) receiving natural gas at a Receipt Point;




(e) reading the Metering Facilities at the Delivery Point at a frequency of at least quarterly;

(f) providing data, including metering data, to the User and other entities in accordance with the requirements of the Gas Retail Market Business Rules; and

(g) in the case of a Customer who is not connected to the Network, the provision of up to 50 metres of pipeline from the Network to the nearest point on the Customer’s property, where the provision of such pipeline is consistent with the Extensions/Expansions Policy set out in section 7 and results in the economic feasibility test in section 8.16(b)(i) of the Code being passed.

A Volume Customer is a Customer who has (or is reasonably expected by Country Energy Gas to have) an annual consumption of less than 10TJ at a single Delivery Point.


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2.3.3 Additional Services

The following Additional Services are offered: (a) Meter Testing Service: on request of a User, an off-site check to test the

accuracy and soundness of Metering Facilities in order to determine whether the Metering Facilities are accurately measuring the quantity of natural gas delivered. The Meter Testing Service will be provided in accordance with the relevant provisions of the Network Code.

(b) Special Meter Reading Service: the reading of a meter and forwarding the metering data to the User and other entities in accordance with the requirements of the Gas Retail Market Business Rules, outside of the normal billing cycle for that Delivery Point.

(c) Connection Service: The connection of a Customer to the Network, either for the first time or following the disconnection of a Customer. Where necessary, this service includes the connection, adjustment or reconnection of Metering Facilities and performance of a safety check.

(d) Disconnection Service: Isolation of a Customer from the Network by adjusting or removing the Metering Facilities to prevent the withdrawal of natural gas.

The Additional Services apply to Delivery Points for Volume Customers. 2.3.4 Negotiated Service

A Negotiated Service is a service that is different from a Reference Service. Country Energy Gas will negotiate in good faith with a User or Prospective User to provide a Negotiated Service. Negotiated Services may include: (a) the delivery of natural gas to a Delivery Point at a higher pressure than the

Minimum Delivery Pressure;

(b) the delivery of natural gas to a proposed Delivery Point which requires pipeline assets to be constructed in excess of the distances specified in section 2.3.2(g);

(c) the transportation of natural gas and its delivery to a Delivery Point on the basis that such transportation and delivery can be interrupted other than for safety or operational reasons; and

(d) the provision of a service that would otherwise be a Transportation Service except to the extent that the Prospective User is seeking terms and conditions that are different to those that apply to the Reference Services.

2.4 Request For Service

2.4.1 Form and details of Request

In seeking access to the Network for the purposes of obtaining a Transportation Service or a Negotiated Service that involves the transportation of gas, a Prospective User must submit a Request For Service to Country Energy Gas. A Request For Service must include the information set out in the form in Appendix 4 and must be accompanied by the fee specified in section 2.4.7.


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2.4.2 Number of active Requests

A Prospective User may not lodge with Country Energy Gas more than one active Request For Service in relation to a single tranche of Capacity for the transportation of natural gas between a particular Receipt Point and a particular Delivery Point. 2.4.3 Incomplete or deficient Request For Service

If a Request For Service is incomplete or deficient in a material way, Country Energy Gas will promptly advise the Prospective User of that fact and of the nature of the deficiency. If the Prospective User corrects the deficiency within 5 Business Days of Country Energy Gas’ advice, the date on which the Request For Service was first received by Country Energy Gas will continue to determine the priority of the Request For Service for queuing purposes. Otherwise the Priority Date for the Request For Service will be the date on which Country Energy Gas receives the completed request. 2.4.4 Insufficient Capacity

Where Country Energy Gas receives a completed Request For Service, if insufficient Capacity is available to satisfy the Request For Service, Country Energy Gas will advise accordingly within 20 Business Days and provide details of any queue that has been formed. 2.4.5 Lapse of a Request For Service

Where Capacity is available to satisfy a Request For Service, then unless: (a) the Prospective User has entered into a Reference Service Agreement or a

Negotiated Service Agreement within 30 Business Days of submitting a completed Request For Service; or

(b) bona fide negotiations have commenced within 30 Business Days of submitting a completed Request For Service; or

(c) the Prospective User has notified an Access Dispute, the Request For Service will be deemed to have lapsed. 2.4.6 Insufficient Capacity Available

Requests for Service will be processed according to their Priority Date. Where there is not sufficient Capacity available (taking into account all Users' existing Capacity Entitlements) on the relevant part of the Network to meet all Requests For Service then a queue will be formed according to the Priority Date. Country Energy Gas will first offer the Prospective User at the top of the queue any Spare Capacity that is capable of partly satisfying its Request For Service. Country Energy Gas may then undertake an investigation of Developable Capacity alternatives. Under these circumstances Country Energy Gas may elevate the priority of other Prospective Users’ Requests For Service in the interests of optimising design and achieving efficiency in the structure and level of Reference


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Tariffs. Country Energy Gas will only take such action where it is reasonable to do so and where it will not foreseeably disadvantage other Prospective Users, other than in relation to their position in the queue. 2.4.7 Fee for processing Request for Service

(a) An application fee of $80, payable at the time of the request, plus a fee of $80

per person per hour after the first person hour will be charged for processing a Request for Service. Country Energy Gas will provide an estimate of the fee at the time the request is made.

(b) The fees set out in 2.4.7(a) apply for the period 1 January 2005 to 30 June 2005. They will change on 1 July 2005 and on 1 July in each subsequent Year in accordance with the arrangements set out in Appendix 3.

2.5 Pre-conditions to the provision of Services

2.5.1 Natural Gas

Prior to entering into a Reference Service Agreement which includes a Transportation Service, the Prospective User must demonstrate to Country Energy Gas’ satisfaction that it has arrangements in place to ensure that: (a) the Prospective User is entitled to take delivery of an appropriate quantity of

natural gas at the nominated Receipt Point; and

(b) the natural gas it wishes Country Energy Gas to transport will conform to the Australian Standard AS4564 – Specification for General Purpose Natural Gas.

Country Energy Gas may, during the term of a Reference Service Agreement, require a User to provide evidence to Country Energy Gas’ satisfaction that these quantity and quality assurance arrangements remain in force. 2.5.2 Compliance with Laws

If the Prospective User: (a) is to supply gas to any third party, including without limitation any Customer;

or

(b) proposes to connect a distribution system to the Network, then prior to entering into a Reference Service Agreement, the Prospective User must demonstrate to Country Energy Gas ' satisfaction that it holds all necessary licences, authorities and permits and will comply with all relevant Laws. Country Energy Gas may seek written evidence from the Prospective User of the relevant licences, authorities and permits.


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2.6 Bonds and Credit Support

2.6.1 Requirement to Provide Security

(a) Before Transportation Services are provided to a Prospective User, any

Prospective User who does not meet Acceptable Credit Criteria must provide security for the Prospective User’s performance of the Reference Service Agreement. The security may be in the form of either:

(1) payment by the Prospective User to Country Energy Gas of a Bond

which is reasonably estimated by Country Energy Gas to represent not less than 90 days of charges for the Contract Transportation Service and the Volume Transportation Service under the Prospective User's Reference Service Agreement (the Bond Amount); or

(2) the provision of Credit Support. (b) Country Energy Gas may require the Prospective User to provide information

to enable Country Energy Gas to assess whether the Prospective User does meet Acceptable Credit Criteria. Such information will be sought consistent with the provisions of the Privacy Act 1988.

2.6.2 Credit Support

Credit Support is an undertaking in writing from a person (a Credit Support Provider) which: (a) is a guarantee or bank letter of credit in a form acceptable to Country Energy

Gas; and

(b) is duly executed by the Credit Support Provider and delivered unconditionally to Country Energy Gas ; and

(c) constitutes valid and binding unsubordinated obligations of the Credit Support Provider to pay Country Energy Gas in accordance with the provisions of this Access Arrangement and the Prospective User’s Reference Service Agreement ; and

(d) permits drawings or claims by Country Energy Gas to an amount which is at all times not less than 90 days of charges for the Contract Transportation Service and the Volume Transportation Service under the Prospective User's Reference Service Agreement, as reasonably estimated by Country Energy Gas (the Credit Support Amount).

2.6.3 Expiry of Credit Support Where a User’s current Credit Support is due to expire or terminate then the User: (a) must notify Country Energy Gas at least 10 Business Days prior to the

expiration or termination; and (b) ensure that replacement Credit Support that complies with this section 2.6 is

in place prior to and effective from the date of termination.


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2.6.4 Credit Support Provider The Credit Support Provider must: (a) be either:

(1) any entity under the prudential supervision of the Australian Prudential Regulation Authority; or

(2) a central borrowing authority of an Australian State or Territory which has been established by an Act of Parliament of that State or Territory.

(b) be resident in, or have a permanent establishment in Australia; (c) not be under external administration (as defined in the Corporations Act) or

under a similar form of administration under any laws applicable to it in any jurisdiction;

(d) not be immune from suit; (e) be capable of being sued in its own name in a court in Australia; and (f) maintain an unqualified credit rating of not less than: (g) AA from Standard and Poor's (Australia) Pty Limited; or (h) Aa from Moody's Investor Service Pty Limited; or

(i) an equivalent credit rating as determined by Country Energy Gas. 2.6.5 Variation of Bond Amount or Credit Support Amount

If a User has provided a Bond or Credit Support and

(a) the User and Country Energy Gas agree to vary the User's MDQ; or

(b) in Country Energy Gas’ reasonable opinion the Credit Support Amount or Bond Amount calculated in accordance with section 2.6.1(a)(1) or 2.6.2(d) has otherwise increased or decreased,

then Country Energy Gas will notify the User of the revised Credit Support Amount or Bond Amount and:

(c) if the Credit Support Amount or Bond Amount has decreased, within 5

Business Days Country Energy Gas will repay the User part of the Bond or agree to the reduction in the Credit Support Amount; or

(d) if the Credit Support Amount or Bond Amount has increased, the User will pay Country Energy Gas an additional amount of Bond or provide additional Credit Support within 5 Business Days such that the total amount of Bond or Credit Support is restored to the revised Bond Amount or Credit Support Amount.

2.6.6 Drawing on Bond or Credit Support Country Energy Gas may draw on the Bond or Credit Support in respect of an Outstanding Amount where all of the following circumstances apply:


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(a) Country Energy Gas has given the User a notice of intention to draw on the Bond or Credit Support stating:

(1) the date of the notice;

(2) that Country Energy Gas intends to draw on the Bond or Credit Support;

(3) the date, being not less than 5 Business Days from the date of the notice, on which it will draw on the Bond or Credit Support.

(b) 5 Business Days have elapsed since Country Energy Gas provided the notice of intention to draw on the Bond or Credit Support; and

(c) the Outstanding Amount remains unpaid on the date at which Country Energy Gas draws on the Bond or Credit Support.

Where Country Energy Gas draws on the Bond or Credit Support with the effect that the remaining amount of the Bond or Credit Support is less than the Bond Amount or Credit Support Amount then the User must within 24 hours provide an additional amount of Bond or Credit Support such that the Bond or Credit Support is restored to the Bond Amount or Credit Support Amount. 2.6.7 Releasing the Bond or Credit Support In the event of the termination of a Reference Service Agreement with a User, Country Energy Gas will release the Bond or Credit Support, less any Outstanding Amounts payable in accordance with this section 2.6. Neither the provision of a Bond or Credit Support, nor any amount drawn on them by Country Energy Gas, will prevent Country Energy Gas from claiming from the User any amount payable under a Reference Service Agreement in circumstances where the Bond or Credit Support was insufficient to satisfy such amount.

2.7 Users with existing Service Agreements

2.7.1 Grant of Options to Renew

A User seeking a Reference Service or a Negotiated Service after the Reference Service Agreement or Negotiated Service Agreement in respect of that Service has expired or been terminated shall be treated as a Prospective User seeking to obtain that Service, unless in the case of a Negotiated Service Agreement the terms of that agreement include an option to renew the User's right to obtain the Service. Any such option will only grant that User with priority in relation to the Service currently provided by Country Energy Gas under the relevant Negotiated Service Agreement or such other service which does not utilise Capacity greater than that provided for under the relevant Service Agreement. A Reference Service will not include an option to renew the Reference Service Agreement under which Country Energy Gas provides that Reference Service to a User. 2.7.2 Small Retail Customers

Notwithstanding section 2.7.1, a Reference Service Agreement with a User that relates to the supply of natural gas to Small Retail Customers may grant the User


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concerned rights to renew the Reference Service Agreement or obtain Capacity in priority to other Users to the extent necessary to ensure the reasonable security of supply to the relevant Small Retail Customers.

2.8 User's Default 2.8.1 Agreement with User's Customers

The User must enter into agreements with its Customers which are in accordance with the provisions of Schedule 1 of the Gas Supply (Natural Gas Retail Competition) Regulation 2001. 2.8.2 User Default

In the event that the Reference Service Agreement which includes a Transportation Service between Country Energy Gas and the User is terminated by Country Energy Gas following a default by the User, then: (a) if the default occurs due to the User being subject to a Last Resort Supply

Event in accordance with section 70 of the Gas Supply (Natural Gas Retail Competition) Regulation 2001, then arrangements for supply to Customers will apply as provided for under that Regulation;

(b) if the default occurs for a reason other than the User being subject to a Last Resort Supply Event in accordance with section 70 of the Gas Supply (Natural Gas Retail Competition) Regulation 2001, then:

(1) Country Energy Gas will publish a notice in a newspaper circulating

in the Wagga Wagga region stating that the User’s Reference Service Agreement has been terminated;

(2) Country Energy Gas will advise the Retailer of Last Resort that the User’s Reference Service Agreement has been terminated;

(3) Small Retail Customers of the User will be transferred as customers of the Retailer of Last Resort, as if a Last Resort Supply Event had occurred;

(4) the Retailer of Last Resort will comply with sections 71, 72 and 73 of the Gas Supply (Natural Gas Retail Competition) Regulation 2001 as if a Last Resort Supply Event had occurred.


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3. REFERENCE TARIFFS AND REFERENCE TARIFF POLICY

3.1 Reference Tariff Structure

3.1.1 Contract Transportation Service

The Reference Tariff for the Contract Transportation Service will depend upon the Zone in which the relevant Delivery Point is located, and consists of: (a) A Monthly Capacity Charge based on the MDQ for that Delivery Point. The

MDQ for a Delivery Point is established in accordance with sections 3.1.3 and 3.1.4. The initial Monthly Capacity Charge is set out in Appendix 2; and

(b) A Monthly Metering Charge designed to recover the specific costs of

providing, maintaining and operating the Metering Facilities at a Delivery Point as well as the costs associated with remotely reading that meter on a daily basis and forwarding that data to the User and other entities in accordance with the Gas Retail Market Business Rules. Monthly Metering Charges are specific to the Metering Facilities at a Delivery Point. The initial Monthly Metering Charges are set out in, or calculated in accordance with the approach detailed in, Appendix 2.

3.1.2 Volume Transportation Service

The Reference Tariff for the Volume Transportation Service consists of: (a) a Monthly Fixed Charge based on the flow rate of the Metering Facilities at

the Delivery Point provided in accordance with section 3.1.5. The initial Monthly Fixed Charge is set out in Appendix 2; plus

(b) a Volumetric Charge for each GJ of gas delivered to the Delivery Point. The initial Volumetric Charge is set out in Appendix 2.

3.1.3 Nomination of MDQ and MHQ

Prior to the provision of a Contract Transportation Service to a Delivery Point each User must ensure that the relevant Contract Customer nominates to Country Energy Gas the proposed maximum daily quantity of natural gas (MDQ) and maximum hourly quantity of natural gas (MHQ) to be delivered to the Delivery Point serving that Customer. 3.1.4 Overruns and Increase in MDQ

(a) Subject to sections 3.1.4(b) and 3.1.4(c), a User may apply in writing to

Country Energy Gas 24 hours prior to an Overrun occurring to have that Overrun authorised.

(b) Country Energy Gas may authorise such an Overrun providing that in the opinion of Country Energy Gas the Overrun:


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(1) does not compromise the safety of the Network;

(2) does not impact on Country Energy Gas’ commercial obligations; and

(3) there are no capacity constraints in the Network. Such authorisation does not have any effect unless the authorisation is expressed in writing by Country Energy Gas.

(c) The User may not apply to have an Overrun authorised if more than five Overruns have been already authorised in that Year.

(d) If an Overrun that has not been authorised occurs more than three times in

any one month, then Country Energy Gas will reset the MDQ established in accordance with section 3.1.3 to a level consistent with the highest unauthorised Overrun that occurred in that month. The revised MDQ shall be used to calculate Capacity Charges for the duration of the Reference Service Agreement including the month in which the three unauthorised Overruns occurred.

(e) Country Energy Gas will notify the User in writing in the event that the MDQ

has been adjusted in accordance with section 3.1.4(d). (f) no unauthorised Overrun will be deemed to have occurred if it is not possible

to determine the quantity of natural gas withdrawn at the Delivery Point because of a failure or unavailability of Metering Facilities even if it is subsequently established that an Overrun would have occurred on the basis of the quantities subsequently estimated to have been withdrawn on that Day.

3.1.5 Provision of Maximum Hourly Flow Rate

Upon connection to the Network, each User must ensure that each of its Volume Customers provides to Country Energy Gas the hourly Maximum Meter Flow Rate of the Metering Facilities at the Delivery Point serving that Customer. The User must: (a) in respect of a Customer that is already connected to the Network, advise

Country Energy Gas of any proposed change to the hourly Maximum Meter Flow Rate of the Metering Facilities ; and

(b) ensure that the hourly Maximum Meter Flow Rate of the Metering Facilities is not exceeded, other than by prior written agreement with Country Energy Gas.

3.2 Additional Services

The initial Reference Tariffs for the Additional Services are set out in Appendix 2.


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3.3 Annual Changes in Reference Tariffs

3.3.1 Annual Changes in Reference Tariffs

The manner in which the Reference Tariffs for the Contract Transportation Service, the Volume Transportation Service and each of the Additional Services will change annually on 1 July 2005 and 1 July in each Year thereafter throughout the Access Arrangement Period are set out in Appendix 3. In broad terms, Reference Tariffs for Transportation Services will change consistent with a (1+CPI-X) mechanism applying to a weighted average tariff basket of Services.

3.3.2 Notification of Annual Changes in Reference Tariffs

Country Energy Gas will notify Users in writing of the annual changes to Reference Tariffs at least 20 Business Days prior to 1 July each Year.

3.4 Pass Throughs

3.4.1 Pass Through Event

(a) At any time during the Access Arrangement Period, Country Energy Gas may apply to IPART to amend Reference Tariffs as a result of a Pass Through Event, with the changes to take effect in conjunction with the annual change in Reference Tariffs.

(b) A Pass Through Event is:

(1) an actual or anticipated change in the level of a Pass Through Item; (2) the introduction of a new Pass Through Item that was not in

existence at 1 July 2004; (3) the removal of a Pass Through Item that was in existence at 1 July

2004; and which has a material effect on Country Energy Gas’ costs and which was not reflected in the calculation of Reference Tariffs.

(c) An application under section 3.4.1(a) must state:

(1) details of the Pass Through Event; (2) the date the Pass Through Event occurred or is anticipated to occur;

(3) the estimated financial effect of the Pass Through Event on Country Energy Gas ; and

(4) the amount by which Reference Tariffs are proposed to be amended and the date upon which the amendments are to take effect.

3.4.2 Procedure for Pass-Through

(a) If IPART receives an application under section 3.4.1 it must advise Country Energy Gas whether it agrees the Pass Through Event has occurred or is likely to occur, or not. If IPART agrees that the Pass Through Event has


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occurred or is likely to occur, IPART must decide the amount by which Reference Tariffs are to be amended as a result of the Pass Through Event and notify Country Energy Gas of its decision;

(b) If IPART does not give a notice to Country Energy Gas under section 3.4.2(a) within 30 Business Days of receiving an application from Country Energy Gas, on the 31st Business Day IPART is deemed to have notified Country Energy Gas that the proposed amendments to Reference Tariffs are to apply as specified in the application;

(c) If IPART gives a notice to Country Energy Gas under section 3.4.2(a) that it does not agree that the Pass Through Event has occurred or is likely to occur, then IPART must provide the reasons for this decision.

(d) If IPART believes a Pass Through Event has occurred, but has not received an application from Country Energy Gas within 3 months of it occurring, IPART may decide that Reference Tariffs should be amended and the amount by which they should be amended;

(e) At least 14 days prior to making a decision under section 3.4.2(d) , IPART must notify Country Energy Gas of its intention to make a decision and the proposed amendments to Reference Tariffs. IPART must consider any submission made by Country Energy Gas prior to making its decision and must notify Country Energy Gas in writing upon making a decision; and

(f) IPART may appoint an independent auditor to review the estimated financial effect of the Pass Through Event on Country Energy Gas. The cost of the auditor shall be borne by IPART.

3.4.3 Factors which IPART must consider

In deciding the amount by which Reference Tariffs are to be amended under section 3.4.2 IPART must ensure that: (a) the financial effect on Country Energy Gas is neutral; and

(b) the burden of the amendments to Reference Tariffs is allocated between Reference Services in a manner consistent with the basis upon which costs were allocated in order to develop the Reference Tariffs, or in a manner prescribed by law.

3.4.4 Notification of Users

Country Energy Gas must notify Users of any amendment to Reference Tariffs pursuant to this section 3.4 within 14 days of a notice being received (or being deemed to be received) in accordance with section 3.4.2(a), (b) or (e). 3.4.5 Pass-Throughs not taken into account in price control calculation

An amendment to Reference Tariffs that occurs under this section 3.4 is not taken into account in deciding whether Reference Tariffs comply with the formula in Appendix 3.


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3.5 Addition and Deletion of Reference Tariffs

3.5.1 Addition and Deletion of Tariffs

Country Energy Gas may introduce new Reference Tariffs and/or Reference Tariff Components, and delete existing Reference Tariffs and/or Reference Tariff Components during the Access Arrangement Period. 3.5.2 Addition of Reference Tariffs for Transportation Services

(a) Where Country Energy Gas is proposing to introduce new Reference Tariffs

and/or new Reference Tariff Components for Transportation Services the Qt-1ij

term in Appendix 3 Section A3.1.1 will be interpreted in relation to:

(1) the estimates of the quantities that would have been sold, in relevant units, if the Reference Tariff Components had existed in Year t-1;

(2) the Reference Tariff Components of the parent Reference Tariff in Year t-1;

(b) Where Country Energy Gas has introduced new Reference Tariffs and/or new Reference Tariff Components in Year t, the Pt

ij term in Appendix 3 Section A3.1.1 will be interpreted in relation to the estimates of the quantities that would have been distributed, in relevant units if the Reference Tariff Components had existed in Year t-1.

3.5.3 Deletion of Reference Tariffs

(a) Where Country Energy Gas is proposing to withdraw a Reference Tariff and

to reassign only one other Reference Tariff to the Delivery Points to which the Reference Tariff to be withdrawn applied, the Pt+1

i j term in Appendix 3 Section A3.1.1 for the Reference Tariff that is proposed to be withdrawn will be interpreted in relation to the Reference Tariff Components of the Reference Tariff which will be reassigned to those Delivery Points in Year t+1.

(b) Where Country Energy Gas is proposing to withdraw a Reference Tariff and to reassign more than one other Reference Tariff to the Delivery Points to which the Reference Tariff to be withdrawn applied:

(1) the Pt+1ij term in Appendix 3 Section A3.1.1 for the Reference Tariff

that is proposed to be withdrawn will be interpreted separately in relation to the Reference Tariff Components of each of the Reference Tariffs which will be reassigned to those Delivery Points in Year t+1; and

(2) the Qt-1ij term in Appendix 3 Section A3.1.1 for the Reference Tariff

that is proposed to be withdrawn in Year t+1 will be the actual quantities, in relevant units of each Reference Tariff Component, that were distributed under the parent Reference Tariff at those Delivery Points to which the same Reference Tariff was assigned in Year t+1; and

(3) the Qt-1ij term in Appendix 3 Section A3.1.1 for the Reference Tariff

that has been withdrawn in Year t, will be the actual quantities, in


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relevant units of each Reference Tariff Component, that were distributed under the parent Reference Tariff at those Delivery Points to which the same Reference Tariff was assigned in Year t.


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4. TERMS AND CONDITIONS

4.1 Terms and Conditions

Country Energy Gas will provide Services in accordance with the service standards and the terms and conditions set out in: (a) this Access Arrangement; (b) the Network Code, as amended from time to time; (c) the Gas Retail Market Business Rules, as amended from time to time; (d) relevant Laws ; and (e) the standard Reference Service Agreement, as amended by Country Energy

Gas, from time to time. The standard Reference Service Agreement is set out in Appendix 1.

4.2 Gas Balancing and Unaccounted for Gas

4.2.1 No Balancing network Country Energy Gas and Users must comply with the gas balancing arrangements set out in the Gas Retail Market Business Rules . The Network will be a no balancing network section, as defined in the Gas Retail Market Business Rules. 4.2.2 Deemed delivery point For the purposes of gas balancing, each User will be deemed to deliver gas to the Bomen Receipt Point and the Uranquinty Receipt Point for a particular time period in accordance with the following formula: VolumeBomen = Total Deliveries x ReceiptsBomen (ReceiptsUranquinty + ReceiptsBomen) and VolumeUranquinty = Total Deliveries x ReceiptsUranquinty (ReceiptsUranquinty + ReceiptsBomen) where VolumeBomen is the total volume of gas deemed to have been delivered (in GJ) to the Bomen Receipt Point on behalf of the User in the time period. VolumeUranquinty is the total volume of gas deemed to have been delivered (in GJ) to the Uranquinty Receipt Point on behalf of the User in the time period. ReceiptsBomen is the total volume of gas received (in GJ) at the Bomen Receipt Point in the time period.

ReceiptsUranquinty is the total volume of gas received (in GJ) at the Uranquinty Receipt Point in the time period.


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Total Deliveries is the total volume of gas delivered (in GJ) to the User’s Delivery Points in the time period. 4.2.3 Unaccounted for Gas In calculating the amounts owed by Users to Country Energy Gas for Transportation Services , the volume of gas withdrawn at Delivery Points will be increased by the following percentages to reflect the cost of Unaccounted for Gas:

Year Unaccounted for Gas

percentage – Contract Delivery

Points

Unaccounted for Gas percentage – Volume Delivery

Points Jan to June 2005 1% 9.6%

2005-06 1% 9.0% 2006-07 1% 8.5% 2007-08 1% 8.0% 2008-09 1% 7.5% 2009-10 1% 7.0%

4.3 Load Shedding

Country Energy Gas and Users must comply with the Load Shedding Procedures set out in Country Energy Gas’ Safety and Operating Plan.

4.4 Connection of third party distribution systems

4.4.1 By-pass and network augmentation

A Prospective User may, provided it has the relevant authorisation and subject to the conditions set out below, construct and operate its own pipe or system of pipes and associated equipment from any agreed point on the Network to the points where the natural gas is to be utilised. 4.4.2 Off take point The pipe or system of pipes installed by the Prospective User which connects any pipes or other equipment to the Network pursuant to this section 4.4, shall comply with the following requirements in order to ensure that the integrity, safety and operation of the Network is not compromised: (a) Country Energy Gas and the Prospective User will agree to the location of the

off take point on the Network; (b) Country Energy Gas will only withhold its agreement to a location sought by a

Prospective User on the grounds of technical, operational or safety considerations;


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(c) the hot tap connection to connect the Prospective User's facilities to the Network will be performed to AS1697-1981 standard and, if applicable, AS2885-1997 standard at the User's expense;

(d) the work will be performed either (at the Prospective User's cost) by Country Energy Gas or by a contractor approved by Country Energy Gas and engaged by the User. In the latter case, Country Energy Gas reserves the right to supervise the work; and

(e) the Prospective User must design, install, and operate any cathodic protection system installed to protect its facilities in such a manner as to avoid any interference which may be detrimental to Country Energy Gas’ facilities.

4.4.3 Equipment upstream of the Point of Delivery

Country Energy Gas will install isolation valves and metering equipment at the point of off take from the Network, upstream of the Delivery Point. Country Energy Gas will install, own and operate the facilities upstream of the Delivery Point. 4.4.4 Delivery Point

The Delivery Point will be at the outlet of the Metering Facility immediately downstream of the facilities referred to in section 4.4.2. All facilities downstream of the Delivery Point will be the responsibility of the User. 4.4.5 Load Shedding

Following the commissioning of any facilities connected to the Network the User and all users of facilities downstream of the Delivery Point will be subject to Load Shedding Procedures in relation to such facilities, as set out in Country Energy Gas’ Safety and Operating Plan. The User must have facilities available to it to reduce or discontinue the withdrawal of natural gas from the Network if required to do so. 4.4.6 Installation and operation

In the interests of safety and ensuring the integrity of Country Energy Gas' facilities, a person who plans to install natural gas transportation facilities in the vicinity of those owned by Country Energy Gas, will cooperate to establish, in a timely manner, appropriate arrangements and procedures for the safe installation and operation of that person's facilities and for the management of emergency situations involving the facilities of either of them. 4.4.7 Abandonment disconnection

In the event that the third party natural gas distribution system ceases to be used to take natural gas to the Delivery Point the person responsible for that natural gas distribution system at that time will ensure, at its expense, that the facilities are disconnected and isolated from Country Energy Gas' facilities. This requirement does not apply where the cessation of use is for a temporary period (not exceeding 3 months).


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4.4.8 Indemnity

The person responsible for a third party natural gas distribution system connected to the Network will indemnify Country Energy Gas against any claim of liability in relation to, or arising out of, its facilities downstream of the point of connection to the Network.

4.5 Liabilities and Indemnity

4.5.1 Exclusions from Country Energy Gas’ liability

Subject to any laws to the contrary, Country Energy Gas will not in any circumstance be liable to the User for: (a) momentary fluctuations in the amount of natural gas delivered to the User at

any Delivery Point or transported through the Network; (b) any failure to deliver any natural gas to any Delivery Point or any other loss,

damage or expense suffered by the User caused by any failure of a user of the Network (including the User) to observe or comply with an agreement to which it is a party;

(c) any failure to deliver any natural gas to any Delivery Point or any other loss, damage or expense suffered by the User caused by no or reduced injection of supply of gas into, or, by no or reduced off take of natural gas from, the Network; or

(d) any failure to deliver natural gas to any Delivery Point or any other loss, damage or expense suffered by the User caused by any defect or abnormal conditions in the User's equipment or that belonging to any other user of the Network or other person connected to the Network.

4.5.2 Limitations on Country Energy Gas’ liability

If there is any event or circumstance other than those described in section 4.5.1, notwithstanding any other provision, Country Energy Gas (including its directors, officers, employees, authorised agents, contractors, sub-contractors and professional advisers) will only be liable for:

(a) the direct loss or damage to the User (excluding any loss of profit by the User, or the amount of any damage awarded against the User in favour of, or moneys paid by the User by way of settlement to any third party and any costs or expenses of the User in connection with the same) arising from Country Energy Gas' failure to comply with or observe any provision of this Access Arrangement or the Reference Service Agreement; and

(b) in respect of such direct loss or damage to the User, up to the maximum sum

of $20,000 for any single event or circumstance of failure described in paragraph (a) above (and a series of such failures arising from the same event or circumstance of failure) and up to the maximum sum of $100,000 in respect of events or circumstances of failure described in (a) above occurring in any one period of 365 consecutive Days.


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4.5.3 User Indemnity

The User must indemnify Country Energy Gas against:

(a) any damage, expense, loss or cost Country Energy Gas suffers or incurs as a result of, or in connection with, or arising out of the performance of the Reference Service Agreement by Country Energy Gas or by any breach of the Reference Service Agreement by the User including any consequential loss or loss of profits; and

(b) any claim, demand, action or proceeding whatsoever made or brought by any person in connection with any such breach of the Reference Service Agreement by the User.

4.5.4 User’s liability

The User will not in any circumstance be liable to Country Energy Gas for:

(a) any failure by the User to perform, observe or comply with any provision of this Access Arrangement or the Reference Service Agreement caused by Country Energy Gas' failure to perform, observe or comply with the same; or

(b) any failure by the User to perform, observe or comply with any provision of this Access Arrangement or the Reference Service Agreement caused by any defect or abnormal conditions in the Network.

5. CAPACITY MANAGEMENT POLICY

5.1 Contract Carriage Pipeline

The Network is a Contract Carriage Pipeline.


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6. TRADING POLICY

6.1 Bare Transfer

A User will be entitled to make a Bare Transfer of all or part of its MDQ without Country Energy Gas’ consent so long as the transferee notifies Country Energy Gas of: (a) the User who made the transfer or assignment;

(b) the amount of the MDQ which was transferred or assigned; and (c) the location of the Delivery Point which is the subject of the transfer, prior to

utilising any MDQ so transferred or assigned.

6.2 Other Transfers

6.2.1 Conditions for Other Transfers

Where a User wishes to transfer or assign some or all of its MDQ other than by way of Bare Transfer the User may do so with Country Energy Gas’ prior written consent. Country Energy Gas will only withhold its consent or make its consent subject to conditions on reasonable commercial or technical (including safety) grounds, including where: (a) there is not sufficient Capacity either before or as a result of the transfer or

assignment to enable the amount of the MDQ transferred or assigned to be delivered to the proposed new Delivery Point; or

(b) the effect of the transfer or assignment would be that Country Energy Gas would receive less revenue as a result of the transfer or assignment; or

(c) where the proposed transferee is unable to satisfy Country Energy Gas that it is able to meet the relevant requirements set out in section 2.5 of this Access Arrangement.

6.2.2 Application for Other Transfers

Where a User wishes to transfer or assign some or all of its MDQ other than by way of Bare Transfer it must provide sufficient information to Country Energy Gas in order to assess whether the transfer or assignment is reasonable on commercial or technical (including safety) grounds, including: (a) the User who proposes to make the transfer or assignment;

(b) the amount of the MDQ which is to be transferred or assigned;

(c) the location of the Delivery Point from which the relevant amount of the MDQ is to be transferred or assigned;

(d) the location of the Delivery Point to which the relevant amount of the MDQ is to be transferred or assigned;


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(e) the dates and number of Days to which the transfer or assignment is to relate; and

(f) the ability of the transferee to meet the requirements set out in section 2.5 of this Access Arrangement,

as soon as it is practicable to do so before the transfer or assignment is proposed to take place (and in any event not later than 14 Business Days prior to the date of the proposed trade).

6.3 Original User Continues to Pay

A User who transfers or assigns any of its MDQ remains liable to Country Energy Gas for all charges or other amounts payable to Country Energy Gas in respect of the part of the MDQ transferred or assigned unless Country Energy Gas expressly agrees in writing that some other person will be liable for some or all of those charges or other amounts, and the other person concerned has agreed to be liable to Country Energy Gas in respect of those amounts.

6.4 Change of Delivery Point 6.4.1 Conditions for Changes in Delivery Point

A User will be entitled to change the Delivery Point specified in a Reference Service Agreement with Country Energy Gas’ prior written consent. Country Energy Gas may refuse its consent or make the granting of consent subject to conditions where this is commercially or technically reasonable including where: (a) a reduction in the User's MDQ at the original Delivery Point will not result in a

corresponding increase in Country Energy Gas’ ability to provide that Service to the alternative Delivery Point; or

(b) Country Energy Gas would not, after the change, receive at least the same amount of revenue it would have received before the change.

6.4.2 Application for Change in Delivery Point

Where a User wishes to change a Delivery Point it must provide sufficient information to Country Energy Gas in order to assess whether the change is reasonable on commercial or technical (including safety) grounds, including: (a) the locations of the Delivery Points which are to be changed;

(b) the amount of the MDQ which is the subject of the change;

(c) the proposed date upon which the change in Delivery Points is to occur,

as soon as it is practicable to do so before the proposed change in Delivery Point (and in any event not later than 14 Business Days prior to the date of the proposed change in Delivery Point).


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6.5 Fees

The following fees shall apply to applications for transfer or assignment of MDQ (other than by Bare Transfer) and requests for changes of Delivery Points: (a) an application fee of $80, payable at the time of the application; plus

(b) a fee of $80 per person per hour

to reflect the costs incurred by Country Energy Gas in determining whether the transfer or assignment of MDQ or Delivery Point is commercially and technically feasible and reasonable. This fee will be agreed in advance with the User making the application, but in any case will not exceed $320.

The fees set out above apply for the period 1 January 2005 to 30 June 2005. They will change on 1 July 2005 and on 1 July in each subsequent Year in accordance with the arrangements set out in Appendix 3.


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7. EXTENSIONS AND EXPANSIONS POLICY

7.1 Coverage

7.1.1 Extensions

All extensions to the Network by Country Energy Gas will be covered and subject to this Access Arrangement unless: (a) Country Energy Gas provides written notice to IPART that the extension will

not be covered; and

(b) the extension was not included in the calculation of Reference Tariffs.

7.1.2 Expansions

Any expansion of the Capacity of the Network will be treated as part of the Network and accordingly will be the subject of coverage under this Access Arrangement.

7.2 Extensions/Expansions and Tariffs

7.2.1 Prevailing Reference Tariffs will apply

(a) Subject to section 7.2.1(b), where New Facilities Investment passes the economic feasibility test in section 8.16(b)(i) of the Code, Incremental Users will be charged at the prevailing Reference Tariffs;

(b) Despite section 7.2.1(a) nothing prevents Country Energy Gas and a Prospective User or Users from agreeing that the Prospective User or Users will contribute to the funding of a New Facility. In such a case the level of funding and subsequent tariff arrangements will be as agreed between the parties.

7.2.2 Economic Feasibility Test not Passed

Where New Facilities Investment does not pass the economic feasibility test in section 8.16(b)(i) of the Code then Country Energy Gas may:

(a) seek to apply a Surchage on Incremental Users in accordance with the Code; and/or

(b) negotiate a Capital Contribution with a specific User or Users; and/or

(c) propose revisions to the Access Arrangement which have the effect of raising Reference Tariffs immediately.


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7.3 New Developments

7.3.1 Payment or Construction by Developers

Where New Facilities are required to be undertaken in order to provide services to a New Development, then Country Energy Gas may require: (a) the Developer to reimburse Country Energy Gas for part or all of the cost of

the New Facilities located within the geographic boundary of the New Development; and/or

(b) the Developer to pay for and arrange for the construction of the New Facilities located within the geographic boundary of the New Development; and/or

(c) where the provision of gas to the New Development would otherwise not pass the economic feasibility test in section 8.16(b)(i) of the Code, the Developer to contribute to the cost of New Facilities outside the geographic boundary of the New Development required to the extent that the economic feasibility test is met.

7.3.2 Payment by Developers

Where under section 7.3.1 a Developer is required to contribute to the cost of the construction of New Facilities, then: (a) Country Energy Gas will be the owner of the New Facilities; and

(b) the amount of the New Facilities Investment entering the Capital Base will be the total cost of the project less the contribution from the Developer.

7.3.3 Construction by Developers

Where under section 7.3.1(b) the Developer is required to pay for and arrange the construction of New Facilities, then: (a) the Developer and/or any persons engaged by the Developer to construct the

New Facilities must be approved by Country Energy Gas and must comply with any guidelines, rules, codes and conditions established by Country Energy Gas and relevant Laws. Country Energy Gas reserves the right to supervise the work and to charge the Developer for the cost of that supervision;

(b) the New Facilities Investment will not be included in the Capital Base for the purposes of calculating Reference Tariffs; and

(c) prior to providing gas for the first time to each Delivery Point within the New Development, Country Energy Gas will charge the Developer a commissioning fee. The first ten lots will be charged at $80 per lot, and each additional lot will be charged at $50 per lot. These fees apply for the period 1 January 2005 to 30 June 2005 and will change on 1 July 2005 and on 1 July in each subsequent Year in accordance with the arrangements set out in Appendix 3.


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7.4 Extension not used Where Country Energy Gas is requested by a User to construct New Facilities to permit a Customer to connect to the Network and Country Energy Gas is subsequently advised by the User that the Customer does not wish to connect to the Network, the User will be required to pay Country Energy Gas a service removal fee of $500. This fee applies for the period 1 January 2005 to 30 June 2005 and will change on 1 July 2005 and on 1 July in each subsequent Year in accordance with the arrangements set out in Appendix 3.


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8. REVIEW OF ACCESS ARRANGEMENT

8.1 Revisions Commencement Date

The date upon which revisions to the Access Arrangement are intended to commence (the Revisions Commencement Date) is 1 July 2010. In the event that proposed revisions to the Access Arrangement are not approved by IPART and put into effect by the Revisions Commencement Date, then: (a) this Access Arrangement, including the terms and conditions, will continue to

apply; and (b) Reference Tariffs and other fees set out in this Access Arrangement applying

for 2009-10, will increase by the Change in the CPI on the Revisions Commencement Date and thereafter on 1 July each Year until such time as revisions to this Access Arrangement are approved.

8.2 Revisions Submission Date

The date upon which revisions to the Access Arrangement will be submitted to IPART (the Revisions Submission Date) is 1 July 2009.

Unless the context otherwise requires, the following expressions have the following meanings when used in this Access Arrangement: “Acceptable Credit Criteria“ means, in relation to an entity, that the entity: (a) is resident in, or has a permanent establishment in Australia

(b) is not under external administration (as defined in the Corporations Act) or under a similar form of administration under any laws applicable to it in any jurisdiction;

(c) is not immune from suit;

(d) is capable of being sued in its own name in a court in Australia; and

(e) maintains an unqualified credit rating of not less than:

(1) BBB from Standard and Poor's (Australia) Pty Limited; or (2) Baa from Moody's Investor Service Pty Limited; or (3) an equivalent credit rating as determined by Country Energy Gas.

“Access Arrangement“ means this Access Arrangement lodged by Country Energy Gas and approved by IPART. “Access Arrangement Information“ means the document entitled Access Arrangement Information which accompanies this Access Arrangement. "Access Arrangement Period" means the period from 1 January 2005 to 30 June 2010. "Access Dispute" has the same meaning as in the Code. "Additional Services" are the Meter Testing Service, the Special Meter Reading Service, the Connection Service and the Disconnection Service. “Bare Transfer“ means in respect of a User a transfer or assignment of all or part of the MDQ of a User under a Reference Service Agreement to the extent that:

Glossary


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(a) the User's obligations under the agreement remain in full force and effect after the transfer or assignment; and

(b) the terms of the Reference Service Agreement are not altered as a result of

the transfer or assignment. “Bomen Receipt Point“ means the outlet immediately downstream of the Metering Facilities owned and operated by the Transmission Operator located at the Wagga Wagga gate station at Lot 2 Byrnes Road, Bomen. “Bond“ means a payment by a Prospective User or User to Country Energy Gas under section 2.6.1(a)(1). “Bond Amount“ means the amount of a Bond required to be posted under section 2.6.1(a)(1) or section 2.6.5. “Business Day“ means a day other than a Saturday, Sunday or a declared public holiday in New South Wales. “Business Hours“ means between the hours of 9am and 5pm on a Business Day. “Capacity“ means at a point in time the capability of the Network or a particular section of the Network to transport natural gas between defined points, taking into account the configuration of the Network and its operational requirements, as determined by Country Energy Gas using its then current load flow model of the Network. “Capacity Entitlement“ means in relation to a User and a Delivery Point of that User, the MDQ of that person in relation to that Delivery Point plus the amount, if any, of any Contracted Capacity of any other Users that has been transferred or assigned to the first mentioned User less the amount, if any, of any Contracted Capacity of the first mentioned User in relation to that Delivery Point that is transferred or assigned to another User. “Capital Base“ has the same meaning as in the Code. “Capital Contribution” has the same meaning as in the Code. “Change in the CPI” for a Year t means the average of the CPI for the four quarters to the December quarter immediately preceding that Year divided by the average of the CPI for the four quarters to the December quarter immediately preceding Year t-1. “Code“ means the National Third Party Access Code for Natural Gas Pipeline Systems. “Contract Customer” has the meaning given in section 2.3.1. "Contracted Capacity" means, in respect of a User, that part of the Capacity which has been reserved by that User pursuant to an agreement entered into with Country Energy Gas .

“Confidential Information” has the same meaning as in the Code.


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“Connection Service” has the meaning given to it in section 2.3.3. “Contract Transportation Service” means the provision of the service set out in section 2.3.1 to a Contract Customer in accordance with a Reference Service Agreement. “Contracted Capacity“ means, in respect of a user of the Network, that part of the Capacity of the Network which has been reserved by that user pursuant to a contract entered into with Country Energy Gas. “Corporations Act“ means the Corporations Act 2001. “Country Energy Gas” means Country Energy Gas Pty Ltd ACN 083 199 839 “CPI“ means the Consumer Price Index: All Groups, index number weighted average of eight capital cities published by the Australian Bureau of Statistics from time to time and if the Australian Bureau of Statistics ceases to calculate and publish such an index then CPI will mean any index that substantially replaces that index. “Credit Support“ has the meaning given in section 2.6.2. “Credit Support Amount“ means the amount of Credit Support required to be posted under section 2.6.2(d) or section 2.6.5 “Credit Support Provider“ means a person who has provided Credit Support to a User and who satisfies the requirements in section 2.6.4. “Customer“ means a person that uses natural gas at a Delivery Point. “Day“ means (unless otherwise advised by Country Energy Gas ) a period of 24 hours beginning at 06.30 Eastern Standard Time. “Data Consent Form” means the form of that name included as Annexure A to the Network Code, as amended from time to time. “Delivery Point“ means the point on the Network nominated or defined in a Reference Service Agreement at which natural gas is withdrawn from the Network by a User for use by a Customer. A Delivery Point may in certain circumstances consist of one, two or more sets of Metering Facilities servicing a particular Customer's site or premises, or servicing a third party network. “Developable Capacity“ has the same meaning as in the Code. “Developer “ means in relation to a New Development, the person or persons responsible for undertaking the subdivision, including the agent or agents of that person or persons. “Disconnection Service“ has the meaning given to it in section 2.3.3. “Existing Supplier“ means a User holding appropriate consents under section 2.5.2 who is a party to a Reference Service Agreement. “First Access Arrangement“ means the Access Arrangement in place for the Network during the First Access Arrangement Period.


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“First Access Arrangement Period“ means the period under which the First Access Arrangement for the Network applied, being 1 October 1999 to 31 December 2004. “Gas Act“ means the Gas Supply Act 1996 (NSW). “Gas Retail Market Business Rules” means the Gas Retail Market Rules to Support Retail Competition in Gas, as amended from time to time. “GJ“ means gigajoules. “Incremental User” has the same meaning as in the Code. “IPART“ means the Independent Pricing and Regulatory Tribunal of New South Wales or any successor body appointed to replace it or carry out functions currently undertaken by Independent Pricing and Regulatory Tribunal pursuant to the Code, the Gas Act and the Gas Pipelines Access (New South Wales) Act 1998. “kPa“ means kilopascals. “Last Resort Supply Event“ means the events set out in section 70(1) of the Gas Supply (Natural Gas Retail Competition) Regulation 2001. “Laws“ means all laws including statutes, regulations, licences, authorisations and codes as well as any determinations of any governmental agency under such laws applying from time to time. “Load Shedding Procedures“means the procedures for the progressive shedding of loads supplied by the Network in the event of a failure in the Network or a failure in supply to the Network as set out in the Safety and Operating Plan.

“Maximum Meter Flow Rate” means in respect to a Delivery Point, the maximum volume flow of natural gas that can pass through the Metering Facilities at that Delivery Point.

“MDQ“ or “Maximum Daily Quantity“ means the maximum daily quantity of natural gas (which Country Energy Gas is required to transport and which the User may withdraw under a Reference Service Agreement). “Metering Facilities“ means the meter(s) and any associated filter(s), regulator(s), or other equipment, and pipework, by which the natural gas delivered to the User is conditioned, controlled, and metered, and includes any supporting infrastructure including enclosures. “Meter Testing Service“ has the meaning given to it in section 2.3.3 “MHQ“ or “Maximum Hourly Quantity“ means the maximum hourly quantity of natural gas (which Country Energy Gas is required to transport and which the User may withdraw under a Reference Service Agreement).


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“Minimum Delivery Pressure“ means:

(a) in respect of a Delivery Point which delivers gas to a Contract Customer, 7 kPa; and

(b) in respect of any other Delivery Point, 1.5 kPa. "Monthly Capacity Charge" means the monthly charge payable under the Reference Tariff for the Contract Transportation Service based on the MDQ of a Delivery Point, as set out in section 3.1.1(a). “Monthly Fixed Charge“ has the meaning given in section 3.1.2(a). “Monthly Metering Charge“ has the meaning given in section 3.1.1(b). “Negotiated Service” means a service negotiated between Country Energy Gas and a User in respect of the Network that is not a Reference Service. “Negotiated Service Agreement” means an agreement between a User and Country Energy Gas relating to the provision of a Negotiated Service. “Network“ means Country Energy Gas’ natural gas distribution system serving Wagga Wagga and surrounding areas in place at 1 January 2005, plus any additions to the Network that are covered in accordance with section 7. “Network Code“ means the Gas Network Code for Full Retail Competition issued by the Ministry of Energy and Utilities, as amended from time to time. “New Development “ means a subdivision of one or more residential, commercial or industrial lots for the purposes of sale or disposal by a Developer. “New Facility” has the same meaning as in the Code. “New Facilities Investment” has the same meaning as in the Code. “Outstanding Amount“ means any amount specified in an invoice for Transportation Services which is unpaid by the due date for payment. An “Overrun“ occurs where the withdrawals by a particular User at a Delivery Point on a Day exceeds or is forecast to exceed the Capacity Entitlement of that User for that Delivery Point on that Day. “Pass Through Event” has the meaning given in section 3.4.1(b). “Pass Through Item” means any royalty, duty, excise, tax, impost, levy fee or charge imposed by any government or regulator (including IPART), statutory corporation, body, instrumentality, minister, agency or other authority in respect of the operation or administration of the Network or in the provision of Reference Services , and including (for the avoidance of doubt): (a) the reticulator’s authorisation fee paid by Country Energy Gas ; (b) costs associated with changes in service standards where Country Energy

Gas has been directed, ordered or required to make such changes as a result of legislation or regulatory arrangements;


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(c) costs associated with changes in occupational health and safety requirements;

(d) costs associated with any retailer of last resort scheme; (e) costs associated with full retail contestability; and (f) insurance costs. “Pipelines“ means a pipe, or system of pipes, or part of a pipe, or part of a system of pipes, for transporting natural gas, and any tanks, reservoirs, machinery or equipment directly attached to the pipe, or system of pipes, but does not include: (a) anything upstream of an exit flange on a pipeline conveying natural gas from

a gas processing plant; (b) a gathering system operated as part of an upstream producing operation; (c) any tanks, reservoirs, machinery or equipment used to remove or add

components to or change natural gas (other than odourisation facilities) such as a gas processing plant;

(d) anything downstream of the Delivery Point of a Customer; or (e) anything upstream of a Receipt Point. “Priority Date“ means the date at which a completed Request for Service is received by Country Energy Gas. “Prospective User“ means any person who submits a Request For Service (and in respect of that Request For Service includes any User who submits a Request For Service). “Receipt Point“ means either the Bomen Receipt Point or the Uranquinty Receipt Point. “Reference Services” are the Contract Transportation Service, the Volume Transportation Service and each of the Additional Services. “Reference Service Agreement” is an agreement between Country Energy Gas and a User for the provision of a Contract Transportation Service, a Volume Transportation Service or an Additional Service in the form set out in Appendix 1. “Reference Tariff” means the tariff for a Transportation Service or an Additional Service, as set out in or established pursuant to, this Access Arrangement. “Reference Tariff Component” means an individual price element comprising part of a Reference Tariff. “Retailer of Last Resort“ means the supplier to whose authorisation is attached a retailer of last resort’s endorsement in respect of the Network. “Request For Service“ means a completed application under section 2.4.1. “Revisions Commencement Date“ has the meaning given in section 8.1. “Revisions Submission Date” has the meaning given in section 8.2


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"Safety and Operating Plan" means Country Energy Gas' Safety and Operating Plan as required by the Gas Supply (Safety and Operating Plans) Regulations 1997 (NSW).

“Service“ has the same meaning as in the Code. “Service Agreement“ means a Transportation Services Agreement, an Additional Services Agreement or a Negotiated Service Agreement. “Services Policy“ has the same meaning as in the Code. “Small Retail Customer“ has the meaning given to the term in Gas Act. “Special Meter Reading Service“ has the meaning given to it in section 2.3.3 “Surcharge” has the same meaning as in the Code. “TJ“ means terajoules. “Transmission Operator” means the owner of the transmission pipeline located upstream of the Receipt Points. “Transportation Service” means a Contract Transportation Service or a Volume Transportation Service. “Unaccounted for Gas“ means the amount of natural gas metered as received at a Receipt Point which is not metered as delivered at a Delivery Point, being natural gas which is lost through leakages in the Network or not accounted for due to metering errors or theft. “Uranquinty Receipt Point“ means the outlet immediately downstream of the Metering Facilities owned and operated by the Transmission Operator located at Uranqunity Cross Road, Uranquinty. “User” means a person to whom Country Energy Gas provides a service under a Reference Service Agreement. “Volume Customer” has the meaning given in section 2.3.2. “Volume Transportation Service” means the provision of the services set out in section 2.3.2 to a Volume Customer in accordance with a Reference Service Agreement. “Volumetric Charge” has the meaning given in section 3.1.2(b). “Year” means each twelve month period from 1 July to 30 June. “Zone” means the Bomen Zone, the Central Zone or the Fringe Zone, as defined in Appendix 5 to this Access Arrangement.

Appendix 1 Reference Service Agreement

Reference Service Agreement

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Agreement made at on

Parties COUNTRY ENERGY GAS PTY LIMITED, ACN 083 199 839, a company incorporated in New South Wales and having its registered office at 30 Morisset Street, Queanbeyan, NSW, 2620 ("Country Energy Gas")

[to be inserted, including ABN/ACN], is a corporation established under the [to be inserted] having its registered office at [to be inserted] (the "User")

Recitals

A. Country Energy Gas operates a gas distribution network at Wagga Wagga (the Network) and is engaged in the transportation of natural gas using that network.

B. The User has requested access to the Network pursuant to the National Third Party Access Code for Natural Gas Pipeline Systems.

C. Country Energy Gas has agreed to grant the User access to its Wagga Wagga distribution network pursuant to Country Energy Gas’ Access Arrangement and the terms and conditions set out in this agreement.

The Parties agree

1. Definitions and interpretation

1.1 Definition

In this agreement, unless the context otherwise requires:

"Acceptable Credit Criteria" means that the User:

(a) is resident in, or has a permanent establishment in Australia;

(b) is not under external administration (as defined in the Corporations Act) or under a similar form of administration under any laws of administration applicable to it in any jurisdiction;

(c) is not immune from suit;

(d) is capable of being sued in its own name in a court in Australia; and

(e) maintains an unqualified credit rating of not less than:

(1) BBB from Standard and Poor's (Australia) Pty Limited; or

(2) Baa from Moody's Investors Services Pty Limited; or

(3) an equivalent credit rating as determined by Country Energy Gas .


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"Access Arrangement" means the access arrangement lodged by Country Energy Gas and approved by IPART.

"Additional Services" are the Meter Testing Service, the Special Meter Reading Service, the Connection Service and the Disconnection Service.

"Bank Bill Rate" in respect of any day means:

(a) the Bank Bill Swap Reference Rate for 30 Days on that day (or if not a Business Day, on the previous Business Day) published in the Australian Financial Review, or if that is not available,

(b) the rate percent per annum agreed by the parties in good faith to be the appropriate rate having regard to comparable indices then available in the then current bill market.

“Bond” means a payment by a User to Country Energy Gas in accordance with clause 13.

“Billing Period” means the period specified in Schedule 1.

“Bomen Receipt Point” means the outlet immediately downstream of the Metering Facilities owned and operated by the Transmission Operator located at the Wagga Wagga gate station at Lot 2 Byrnes Road, Bomen.

“Bond Amount” has the meaning given to it in clause 13.1

"Business Day" means a day other than a Saturday, Sunday or a declared public holiday in New South Wales.

"Capacity" means, at a point in time, the capability of the Network or a particular section of the Network to transport gas between defined points, taking into account the configuration of the Network and its operational requirements, as determined by Country Energy Gas using its then current load flow model of the Network.

"Capacity Entitlement" means in relation to a User and a Delivery Point of that User, the MDQ of that person in relation to that Delivery Point plus the amount, if any, of any Contracted Capacity of any other Users that has been transferred or assigned to the first mentioned User less the amount, if any, of any Contracted Capacity of the first mentioned User in relation to that Delivery Point that is transferred or assigned to another User.

“Capacity Payment” has the meaning given to it in clause 11.1.

"Code" means the National Third Party Access Code for Natural Gas Pipeline Systems.

"Commencement Date" means the date specified as such in Schedule 1 or such other date as may be agreed in writing by the parties.

"Confidential Customer Information" means all information which the User provides to Country Energy Gas on a confidential basis or which


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Country Energy Gas otherwise holds or obtains, concerning any particular Customer of the User or any particular person who intends to become a Customer, but does not include any such information:

(a) obtained from sources independent of either party including (for the avoidance of doubt) the relevant Customer of the User;

(b) which becomes publicly available and is obtained from such public sources;

(c) which is Confidential Customer Information but to which paragraph (a) or (b) subsequently applies; or

(d) which is both contained in and generated from Country Energy Gas' own billing records of Customers other than billing records relating to Reference Services provided to the User.

“Connection Service” means the connection of a Volume Customer to the Network, either for the first time or following the disconnection of a Volume Customer. Where necessary, this service includes the connection, adjustment or reconnection of Metering Facilities and performance of a safety check.

“Connection Service Charge” means the charge payable under the Reference Tariff for the Connection Service.

"Contract Delivery Point" means a Delivery Point to which the Contract Transportation Service is provided.

"Contracted Capacity" means, in respect of a User, that part of the Capacity which has been reserved by that User pursuant to an agreement entered into with Country Energy Gas.

The "Contract Transportation Service" consists of :

(a) receiving natural gas at a Receipt Point;






“Corporations Act” means the Corporations Act 2001.

“Credit Support” has the meaning given in clause 13.2.

“Credit Support Amount” means the amount of Credit Support required to be posted under clause 13.


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“Credit Support Provider“ means a person who has provided Credit Support to a User and who:

(a) is either: (1) any entity under the prudential supervision of the

Australian Prudential Regulation Authority; or (2) a central borrowing authority of an Australian State or

Territory which has been established by an Act of Parliament of that State or Territory.

(b) is resident in, or have a permanent establishment in Australia; (c) is not under external administration (as defined in the

Corporations Act) or under a similar form of administration under any laws applicable to it in any jurisdiction;

(d) is not immune from suit; (e) is capable of being sued in its own name in a court in Australia;

and (f) maintains an unqualified credit rating of not less than:

(1) AA from Standard and Poor's (Australia) Pty Limited; or (2) Aa from Moody's Investor Service Pty Limited; or (3) an equivalent credit rating as determined by Country

Energy Gas .

"Customer" means a person that uses natural gas at a Delivery Point.

"Daily Estimated Input" has the meaning given to it in clause 4.1.

"Day" means (unless advised otherwise by Country Energy Gas ) a period of 24 hours beginning at 06:30 Eastern Standard Time

"Default Rate" means the Bank Bill Rate plus 2% per annum.

"Delivery Points" means the point or points specified as such in Schedule 1.

“Disconnection Service” means the isolation of a Volume Customer from the Network by adjusting or removing the Metering Facilities to prevent the withdrawal of natural gas.

“Disconnection Service Charge” means the charge payable under the Reference Tariff for the Disconnection Service.

"Disputed Amount" means an amount that is:

(a) specified in an invoice issued pursuant to clause 12; and

(b) for which the User has provided a Notice of Disputed Amount in respect of that amount.

"Due Date for Payment" means:

(a) in the case of an amount specified in an invoice issued pursuant


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to clause 12, the later of the 15th Business Day of the month in which the invoice is supplied and 10 Business Days after the invoice is rendered; or

(b) in the case of a Disputed Amount that is determined to be payable by the User in accordance with applicable dispute resolution procedures, 5 Business Days after the determination.

"Expert" has the meaning given to it in clause 18.2.

"Event of Default" means any of the events of default set out in clause 14.1.

“Fixed Payment” has the meaning given to it in clause 11.1

"Force Majeure" means an event or circumstance beyond the reasonable control of a party, as the case may be, which results in or causes a failure by such party in the performance of any obligations imposed on it by this agreement notwithstanding the exercise by such party of reasonable care and will include but will not be limited to acts of God, sabotage, acts of war, blockades, insurrections, riots, epidemics, floods, storms, fires, washouts, explosions, breakage of or accident to machines or lines of pipe, freezing of wells or delivery facilities, well blowouts, craterings, the necessity for making repairs to or reconditioning wells, machinery, equipment or pipelines (not resulting from the fault or negligence of the relevant party), arrests and restraints of rulers and peoples, civil disturbances and the order of any court or government authority.

"Gas Act" means the Gas Supply Act 1996 (NSW)

"Gas Retail Market Business Rules" means the Gas Retail Market Rules to Support Retail Competition in Gas, as amended from time to time.

"GJ" means gigajoules.

"IPART" means the Independent Pricing and Regulatory Tribunal of New South Wales or any successor body appointed to replace it or carry out functions currently undertaken by the Independent Pricing and Regulatory Tribunal pursuant to the Code, the Gas Act and the Gas Pipelines Access (New South Wales) Act 1998.

"kPa" means kilopascals.

“Laws” means all laws including statutes, regulations, licences, authorisations and codes as well as any determinations of any governmental agency under such laws applying from time to time.

“Last Resort Supply Event” means the events set out in section 70(1) of the Gas Supply (Natural Gas Retail Competition) Regulation 2001.

"Load Shedding Procedures" means the procedures for the progressive shedding of loads supplied by the Network in the event of a failure in the Network or a failure in supply to the Network as set out in the Safety and Operating Plan.


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“Maximum Meter Flow Rate” means in respect to a Delivery Point the maximum volume flow of natural gas that can pass through the Metering Facilities at that Delivery Point as defined in Schedule 1.

“MDQ” or “Maximum Daily Quantity” means the maximum daily quantity of natural gas (which Country Energy Gas is required to transport and which the User may withdraw under this agreement).

"Metering Facilities" means the meter(s) and any associated filter(s), regulator(s) or other equipment, and pipework, by which the gas delivered to the User is conditioned, controlled and metered, and includes any supporting infrastructure including enclosures.

“Metering Payment” has the meaning given to it in clause 11.1.

“Meter Testing Service” means an off-site check to test the accuracy and soundness of Metering Facilities at a Volume Delivery Point in order to determine whether the Metering Facilities are accurately measuring the quantity of natural gas delivered. The Meter Testing Service will be provided in accordance with the relevant provisions of the Network Code.

“Meter Testing Service Charge” means the charge payable under the Reference Tariff for the Meter Testing Service.

“MHQ” or “Maximum Hourly Quantity” means the maximum hourly quantity of natural gas (which Country Energy Gas is required to transport and which the User may withdraw under this agreement)

"Minimum Delivery Pressure" means:

(a) in respect of a Delivery Point which delivers gas to a Contract Customer, 7 kPa; and

(b) in respect of any other Delivery Point, 1.5 kPa.

"Monthly Capacity Charge" means the monthly charge payable under the Reference Tariff for the Contract Transportation Service based on the MDQ of a Delivery Point.

"Monthly Fixed Charge" means the monthly charge payable under the Reference Tariff for the Volume Transportation Service based on the flow rate of the Metering Facilities at the Delivery Point.

"Monthly Metering Charge" means the monthly charge payable under the Reference Tariff for the Contract Transportation Service which is designed to recover the specific cost of providing, maintaining and operating Metering Facilities at a Contract Delivery Point, as well as the costs associated with remotely reading that meter on a daily basis and forwarding that data to the User and other entities in accordance with the Gas Retail Market Business Rules.

"Network" means:


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(a) Country Energy Gas’ natural gas distribution system serving Wagga Wagga and surrounding areas (including Uranquinty) in place at 1 January 2005, plus

(b) any additions to the natural gas distribution system that are covered in accordance with section 7 of the Access Arrangement.

“Network Code” means the Gas Network Code for Full Retail Competition issued by the Ministry of Energy and Utilities, as amended from time to time.

“Notice of Disputed Amount” means a notice provided in accordance with clause 12.5 which sets out:

(a) that the User disputes payment of an amount specified in the invoice; and

(b) the grounds for dispute in respect of the amount disputed; and

(c) that the User undertakes to Country Energy Gas that the dispute in respect of the particular disputed amount is a bona fide dispute.

“Outstanding Amount” means any amount specified in an invoice issued pursuant to clause 12 (excluding any Disputed Amount) which is unpaid by the Due Date for Payment.

An “Overrun” occurs where the withdrawals by a particular User at a Delivery Point on a Day exceeds or is forecast to exceed the Capacity Entitlement of that User for that Delivery Point on that Day.

“Reference Tariff” means the tariff for a Transportation Service or an Additional Service, as set out in or established pursuant to, the Access Arrangement.

“Receipt Point” means either the Bomen Receipt Point or the Uranquinty Receipt Point.

"Safety and Operating Plan" means Country Energy Gas' Safety and Operating Plan as required by the Gas Supply (Safety and Operating Plans) Regulations 1997 (NSW).

“Special Meter Reading Charge” means the charge payable under the Reference Tariff for the Special Meter Reading Service.

“Special Meter Reading Service” means the reading of a meter at a Volume Delivery Point and forwarding the metering data to the User and other entities in accordance with the requirements of the Gas Retail Market Business Rules, outside of the normal billing cycle for that Delivery Point.

"Supply Failure Notification Regime" means the notification regime under which Customers and Users are notified of an interruption to the supply of gas to them, to be developed and implemented by Country Energy Gas .

"Termination Date" means the date specified as such in Schedule 1.


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“Transmission Operator” means the owner of the transmission pipeline located upstream of the Receipt Points.

"Transportation Service" has the meaning given to it in clause 3.1.

“Unaccounted for Gas“ means the amount of natural gas metered as received at a Receipt Point which is not metered as delivered at a Delivery Point, being natural gas which is lost through leakages in the Network or not accounted for due to metering errors or theft.

“Uranquinty Receipt Point“ means the outlet immediately downstream of the Metering Facilities owned and operated by the Transmission Operator located at Uranqunity Cross Road, Uranquinty.

“Volume Customer” means a customer who has an annual consumption of less than 10 terajoules at a single Delivery Point.

"Volume Delivery Point" means a Delivery Point to which the Volume Transportation Service is provided.

The “Volume Transportation Service” consists of:.

(a) receiving natural gas at a Receipt Point;




(e) reading the Metering Facilities at the Delivery Point at a frequency of monthly or quarterly;


(g) in the case of a Customer who is not connected to the Network, the provision of up to 50 metres of pipeline from the Network to the nearest point on the Customer’s property, where the provision of such pipeline is consistent with the Extensions/Expansions Policy set out in section 7 of the Access Arrangement and results in the economic feasibility test in section 8.16(b)(i) of the Code being passed.

"Volumetric Charge" means the charge for each GJ of gas delivered which is payable under the Reference Tariff for the Volume Transportation Service.

"Volumetric Payment" has the meaning given to it in clause 11.1.

"Year" means each twelve month period from 1 July to 30 June.

1.2 Interpretation

In this agreement headings are for convenience only and do not affect interpretation, and unless the context indicates a contrary intention:


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(a) a reference to any party includes that party's executors, administrators, successors, substitutes and assigns, including any person taking by way of novation;

(b) a reference to this agreement or to any other agreement, deed or document (including, without limitation any standard or code of practice) includes, respectively, this agreement or that other agreement, deed or document as amended, novated, supplemented, varied or replaced from time to time;


(d) a reference to a clause is a reference to a clause of this agreement;


(f) reference to any legislation or to any section or provision thereof includes any statutory modification or re-enactment or any statutory provision substituted for it, and ordinances, by-laws, regulations, and other statutory instruments issued thereunder.

2. Term

This agreement commences on the Commencement Date and, unless terminated earlier pursuant to clauses 14 or 15.5, will continue until the Termination Date. If this agreement incorporates the provision of a Transportation Service the minimum term of this agreement is 1 year and a the maximum term is 5 years.

3. Transportation services and Additional Services

3.1 Transportation Services

Country Energy Gas will provide, and the User will accept, Contract Transportation Services and/or Volume Transportation Services on the terms and conditions set out in this agreement.

3.2 Commencement of Transportation Services

Subject to clause 13 of this agreement, Country Energy Gas will have no responsibility to commence the Transportation Services unless Country Energy Gas in its sole discretion is satisfied that:

(a) each of the Delivery Points complies with Schedule 1 and the Safety and Operating Plan; and

(b) the User is entitled to take delivery of an appropriate quantity of natural gas at the nominated Receipt Points; and

(c) the natural gas which Country Energy Gas is to transport for the


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User conforms to the Australian Standard AS4564 – Specification for General Purpose Natural Gas;

(d) the natural gas which Country Energy Gas is to transport for the User is odourised in accordance with the requirements of AS1697 SAA Gas Pipeline Code; and

(e) the User has met the requirements of clause 13 of this agreement.

3.3 Additional Services

Country Energy Gas will provide, and the User will accept, the following Additional Services on the terms and conditions set out in this agreement.

(a) Meter Testing Service;

(b) Special Meter Reading Service;

(c) Connection Service; and

(d) Disconnection Service.

The Additional Services apply to Delivery Points for Volume Customers.

4. Nomination

4.1 Daily Estimated Input

(a) Country Energy Gas may by written notice require the User to nominate the quantity of gas it reasonably anticipates it will require Country Energy Gas to transport to each Delivery Point during the following Day (Daily Estimated Input) by no later than 10:00am each Day (or such other time as notified to the User by Country Energy Gas).

(b) If Country Energy Gas provides written notice to the User pursuant to clause 4.1(a) then:

(1) the User may provide Country Energy Gas with its Daily Estimated Input for 2 or more consecutive Days by providing Country Energy Gas with a schedule showing its Daily Estimated Input for those Days;

(2) if the User fails to provide Country Energy Gas with its Daily Estimated Input on any Day as required by this clause 4.1 then it will be deemed to have nominated the quantity of gas nominated in the last Daily Estimated Input it provided to Country Energy Gas under this clause 4.1 as its Daily Estimated Input on that Day;

(3) The User authorises Country Energy Gas to provide data in relation to the User’s Daily Estimated Inputs to third parties as


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required by the Gas Retail Market Business Rules.

5. Transportation and delivery of gas

5.1 Delivery of gas

Gas will be:

(a) delivered by the User to Country Energy Gas at the Receipt Points, for transportation by Country Energy Gas to a Delivery Point; and

(b) delivered by Country Energy Gas to the User, after transportation by Country Energy Gas, to a Delivery Point.

5.2 Maximum quantity

Upon connection to the Network, each User must ensure that each of its Volume Customers provides to Country Energy Gas the hourly Maximum Meter Flow Rate of the Metering Facilities at the Delivery Point serving that Customer. The User must:

(a) in respect of a Customer that is already connected to the Network, advise Country Energy Gas of any proposed change to the hourly Maximum Meter Flow Rate of the Metering Facilities; and

(b) ensure that the hourly Maximum Meter Flow Rate of the Metering Facilities is not exceeded, other than by prior written agreement with Country Energy Gas.

5.3 Balancing

(a) Country Energy Gas and Users must comply with the gas balancing arrangements set out in the Gas Retail Market Business Rules. The Network will be a no balancing network section, as defined in the Gas Retail Market Business Rules.

(b) For the purposes of gas balancing, each User will be deemed to deliver gas to the Bomen Receipt Point and the Uranquinty Receipt Point for a period in accordance with the following formula:

VolumeBomen = Total Deliveries x ReceiptsBomen (ReceiptsUranquinty + ReceiptsBomen) and VolumeUranquinty = Total Deliveries x ReceiptsUranquinty

(ReceiptsUranquinty + ReceiptsBomen) where

VolumeBomen is the total volume of gas (in GJ) deemed to have been delivered to the Bomen Receipt Point on behalf of the User


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in the time period

VolumeUranquinty is the total volume of gas (in GJ) deemed to have been delivered to the Uranquinty Receipt Point on behalf of the User in the time period

ReceiptsBomen is the total volume of gas received (in GJ) at the Bomen Receipt Point in the time period

ReceiptsUranquinty is the total volume of gas received (in GJ) at the Uranquinty Receipt Point in the time period

Total Deliveries is the total volume of gas delivered (in GJ) to the User’s Delivery Points in the time period

5.4 Notification of actual input

The User authorises Country Energy Gas to notify to third parties, as required by the Gas Retail Market Business Rules, the quantity of gas which the User has delivered, or is deemed to have delivered, to the Receipt Points on each Day.

5.5 No additional facilities

The Transportation Services are to be provided by utilising Country Energy Gas' existing facilities and, except as expressly provided otherwise, nothing in this agreement will be construed as obliging Country Energy Gas to construct any additional facilities.

5.6 Receipt pressure

The User will deliver gas to Country Energy Gas at the Receipt Points at a pressure of no less than 1800 kPag.

5.7 Delivery pressure

Country Energy Gas will deliver gas to the User at the Delivery Point at no less than the Minimum Delivery Pressure.

5.8 No ownership

Nothing under this agreement nor any use of the Network will confer on the User any right of property or interest in or to any of the Network or any other equipment owned or controlled by Country Energy Gas which is used to provide services to the User under this agreement. The User acknowledges that, except as expressly agreed in writing with Country Energy Gas, it will have no right, either directly or indirectly, to acquire ownership of such equipment.

5.9 Maintaining continuous transportation

Subject to the User delivering gas to Country Energy Gas for transportation through the Network at the Receipt Points, Country Energy Gas will use its


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reasonable endeavours to provide continuous Transportation Services.

5.10 Possession of gas

The risk, control and possession of gas will pass from the User to Country Energy Gas upon delivery of the gas into the Network at the Receipt Points and will be held by Country Energy Gas until that or equivalent gas is delivered to the User at a Delivery Point at which time the risk, control and possession of the gas at the Delivery Point will revert to the User.

5.11 Responsibility for gas

Country Energy Gas will be solely responsible for the gas delivered to it by the User on the basis set out in this agreement during the period commencing with the receipt by Country Energy Gas of the gas into the Network at the Receipt Points and terminating on the delivery of that or equivalent gas to the User at the Delivery Points and the User will be solely responsible for the gas at all other times.

5.12 Co-mingling of gas

Country Energy Gas will have the right to co-mingle the User's gas with other gas in the Network during transportation and to subject the gas to compression, cleaning and other processes consistent with Country Energy Gas' operation of the Network.

5.13 Design and construction of Delivery Points

The User warrants that any equipment at the Delivery Points or any equipment downstream of the Delivery Points will be designed, constructed, used and maintained to the standard necessary to ensure that the equipment does not adversely affect the operation of the Network and without limitation will meet the requirements of applicable laws and standards, including Australian Standards AS5601Gas Installation Code and AS3814 Code for Industrial and Commercial Gas Fired Appliances and the Safety and Operating Plan.

5.14 Title to fittings

Unless otherwise specified in Schedule 1, Country Energy Gas will own the equipment and fittings located at each Delivery Point and in any event such equipment and fittings will form part of the Network. The Network will for the purposes of this agreement be deemed to begin at the Receipt Points and end at the outlet of each Delivery Point.

6. Overruns and Increase in MDQ

6.1 Authorisation of Overruns

Subject to clauses 6.2 and 6.3, a User may apply in writing to Country Energy Gas 24 hours prior to an Overrun occurring to have that Overrun authorised.


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6.2 Conditions of Authorisation

Country Energy Gas may authorise an Overrun providing that in the opinion of Country Energy Gas the Overrun:

(a) does not compromise the safety of the Network;

(b) does not impact on Country Energy Gas’ commercial obligations; and

(c) there are no capacity constraints in the Network.

Such authorisation does not have any effect unless the authorisation is expressed in writing by Country Energy Gas.

6.3 No Authorisation

The User may not apply to have an Overrun authorised if more than five Overruns have been already authorised in that Year.

6.4 Reset of MDQ

If an Overrun that has not been authorised occurs more than three times in any one month, then Country Energy Gas will reset the MDQ for that Delivery Point to a level consistent with the highest unauthorised Overrun that occurred in that month. The revised MDQ shall be used to calculate the Monthly Capacity Charge and Capacity Payment for the duration of the agreement including the month in which the three unauthorised Overruns occurred.

6.5 Notification

Country Energy Gas will notify the User in writing in the event that the MDQ has been adjusted in accordance with clause 6.4.

6.6 Deeming Provision

No unauthorised Overrun will be deemed to have occurred if it is not possible to determine the quantity of natural gas withdrawn at the Delivery Point because of a failure or unavailability of Metering Facilities even if it is subsequently established that an Overrun would have occurred on the basis of the quantities subsequently estimated to have been withdrawn on that Day.

7. Quality

7.1 Gas

The User undertakes that all gas delivered by the User to Country Energy Gas at the Receipt Points will conform to the Australian Standard AS4564 – Specification for General Purpose Natural Gas and the requirements of AS1697 SAA Gas Pipeline Code.


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7.2 User indemnity

The User indemnifies Country Energy Gas against any cost, demand, expenses or liability (including without limitation liability to third parties) suffered or incurred by Country Energy Gas as a consequence of a breach by the User of an undertaking in clause 7.1.

8. Measurement of gas

8.1 Delivery Point measurement

Country Energy Gas will install, maintain, and operate, at or near each Delivery Point, Metering Facilities complying in all respects with Schedule 1 and the Safety and Operating Plan, such measuring equipment to measure the total amount of gas delivered by Country Energy Gas to the User at the Delivery Point.

8.2 Check metering

Country Energy Gas grants to the User the right to install and maintain check metering equipment to enable the User to check the bulk measuring equipment located at that Delivery Point provided that:

(a) such check metering equipment will not interfere in any way with any of Country Energy Gas' bulk measuring equipment located at that Delivery Point;

(b) such check metering equipment shall be installed and maintained at the cost of the User including the reimbursement of any costs incurred by Country Energy Gas; and

(c) any modifications to any part of the Network to allow for the installation or maintenance of the check metering equipment will require Country Energy Gas' prior written consent, which must not be unreasonably withheld.

8.3 Meter testing

The accuracy of each party's bulk measuring equipment and check metering equipment will be verified in accordance with the requirements of the Gas Supply (Gas Meters) Regulation 2002, provided that each party will have the right to be present at tests conducted by the other party to verify the accuracy of any bulk measuring equipment or check metering equipment installed by the other party. A party intending to conduct any such test shall give no less than 5 Business Days' notice of the nature of the test, the date, time and location of the test.

8.4 Meter reading

Country Energy Gas will take meter readings from meters installed under clause 8.1 in accordance with the Billing Period.

8.5 Customer agreements

The User will:


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(a) ensure that any agreement it enters into with a Customer for the supply of gas requires the Customer to grant Country Energy Gas, at the User's or Country Energy Gas' request, access to its land and/or premises where Country Energy Gas requires such access for metering, monitoring, operational or safety reasons; and

(b) at its own expense, take any action as required by Country Energy Gas to enforce the provisions of any agreement referred to in clause 8.5(a) including without limitation instituting legal proceedings.

9. Supply failure and right to interrupt transportation

9.1 Notification of supply failure

Country Energy Gas will, in accordance with its Supply Failure Notification Regime, notify the User and the User’s Customers of:

(a) an interruption to their gas supply as a result of a supply failure to or within the Network; and

(b) their subsequent reconnection when supply of gas to or within the Network, has been restored.

The User is required to comply with Country Energy Gas’ Supply Failure Notification Regime.

9.2 Load shedding

In the event of a gas supply failure to or within the Network, Country Energy Gas may, if it considers it necessary to preserve the integrity of the Network, implement Load Shedding Procedures in accordance with its Safety and Operating Plan.

9.3 Interruption of transportation

Without limiting clauses 9.2, 9.4 or 9.7, Country Energy Gas may interrupt or reduce the Transportation Services either totally or partially for any period which in the opinion of Country Energy Gas is necessary for the purposes of testing, adding to, altering, repairing, replacing or maintaining gas pipelines, meters, machinery, equipment or any other apparatus including structures and supports or for any other purpose which in the opinion of Country Energy Gas requires interruption or reduction of the Transportation Services. Subject to clause 9.4, in the event of an interruption to or reduction of the Transportation Services, Country Energy Gas will:

(a) use its best endeavours to give the User, and its affected Customers, 5 Business Days notice prior to carrying our any planned maintenance, inspections, repairs or testing which will interrupt or substantially affect the provision of the Transportation Service;

(b) include in the notice, in the form reasonably determined by


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Country Energy Gas, the following details:

(1) a general description of the planned activity;

(2) the expected commencement time and completion time;

(3) contact details for enquiries related to the activity;

(4) any actions that are required of Customers; and

(5) in the notice to the User only, the Delivery Points for which the User is responsible that will be affected by the interruption.

(c) to the extent practicable, keep the User informed as to variations in the notice provided under clause 9.3(a).

9.4 Immediate danger

Notwithstanding clause 9.3, if in the opinion of Country Energy Gas there is an immediate danger to any persons or gas pipelines, meters, machinery, equipment or other plant or property of whatever kind, Country Energy Gas may without notice to the User immediately interrupt or reduce the Transportation Services either totally or partially for any period as in the opinion of Country Energy Gas is necessary to remove the danger.

9.5 User to be informed of circumstances

In the event of any unplanned interruption or reduction of the Transportation Services (by reason of clause 9.4 or otherwise) Country Energy Gas will as soon as is reasonably practicable inform the User of the circumstances giving rise to the interruption to or reduction of the Transportation Services.

9.6 User to inform Country Energy Gas

The User will promptly notify Country Energy Gas upon becoming aware of any event or circumstances which could adversely affect the Network or Country Energy Gas' ability to operate it.

9.7 Right to suspend or limit delivery

In addition to its other rights under this agreement, Country Energy Gas will have the right to suspend or limit delivery of gas to a Delivery Point in the following circumstances:

(a) (failure to maintain or operate): following at least 10 Business Days notice in writing from Country Energy Gas where the User has failed to maintain or operate the Delivery Point (including any bulk measuring equipment) in accordance with this agreement, the Code and good pipeline industry practice and the User has not within such period rectified any such fault;

(b) (emergency): immediately, in situations of emergency;


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(c) (risk of serious damage): immediately, if in Country Energy Gas' reasonable opinion there is a significant risk of serious damage to the Network, any associated equipment or any other property whatsoever

(d) (injury to people): immediately, if in Country Energy Gas' reasonable opinion there is a significant risk of injury to any person;

(e) (non-compliance with law): immediately, if in Country Energy Gas' reasonable opinion non-compliance by the User could constitute or be deemed by any judicial or regulatory body which has jurisdiction over Country Energy Gas to constitute non-compliance by Country Energy Gas with any law;

(f) (Maximum Hourly Quantity exceeded): immediately, if on any Day the User takes delivery or seeks to withdraw a quantity of gas from a Delivery Point in that Day which exceeds the Maximum Hourly Quantity for that Delivery Point; and

(g) (no arrangements to ensure gas meets specifications) immediately, if the User is unable to demonstrate to Country Energy Gas ' satisfaction that it has arrangements in place to ensure that the gas it requires Country Energy Gas to transport conforms to the Australian Standard AS4564 – Specification for General Purpose Natural Gas.

9.8 Liability for interruptions to delivery

Country Energy Gas will not incur liability of any kind to the User arising from the exercise in good faith of its rights under this clause 9. A failure by Country Energy Gas on one or more occasions to exercise a right granted to it under this clause 9 will not prejudice Country Energy Gas' right to exercise that, or any other right, on any subsequent occasion.

10. Assignment and trading of capacity

10.1 Assignment and Trading

The User may assign or transfer MDQ in accordance with the provisions in section 6 of the Access Arrangement.

11. Charges

11.1 User liable

The User will pay to Country Energy Gas the total of the following amounts determined in relation to the services provided to the User in respect of each month, namely:


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(a) For Contract Transportation Services:

(1) a Capacity Payment, equal to the Monthly Capacity Charge, for each Delivery Point read in that month; plus

(2) a Metering Payment, equal to the Monthly Metering Charge, for each Delivery Point read in that month.

(b) For Volume Transportation Services:

(1) a Volumetric Payment, equal to the Volumetric Charge multiplied by the actual number of GJ delivered within the Billing Period, for each Delivery Point read in that month; plus

(2) a Fixed Payment, equal to the Monthly Fixed Charge multiplied by the Billing Period (in months), for each Delivery Point read in that month.

(c) For Additional Services, the Connection Service Charges, the Disconnection Service Charges, the Meter Testing Service Charges and the Special Meter Reading Charges for each Additional Service provided to the User in that month; and

(d) Any other charge payable in accordance with this agreement, the Access Agreement or the Network Code.

11.2 Unaccounted for Gas

Charges for the Contract Transportation Service and the Volume Transportation Service will incorporate the level of Unaccounted for Gas set out in section 4.2.3 of the Access Arrangement.

11.3 Review of charges

The parties acknowledge and agree that:

(a) the charges payable by the User under clause 11.1 are governed by, and determined in accordance with, the Access Arrangement;

(b) under the Code Country Energy Gas may at any time submit the Access Arrangement to IPART for review in accordance with the terms of the Code; and

(c) the charges payable by the User under clause 11.1 will be varied to reflect any changes to the equivalent of those charges specified in the Access Arrangement made as a result of any review of the Access Arrangement referred to in sub-paragraph (b).


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12. Invoicing and payment

12.1 Invoicing

On or before the 10th Business Day of each month, Country Energy Gas will render to the User an invoice for all Transportation Services and Additional Services rendered in the previous month. The User will pay to Country Energy Gas the amount stated as payable on any such invoice by direct debit from the User's bank account from time to time specified by the User for this purpose or such other method as agreed in writing between the parties. Such payment will be made on or before the Due Date for Payment which is the later of the 15th Business Day of the month in which the invoice is supplied and 10 Business Days after the invoice is rendered.

12.2 Contents of invoices

Country Energy Gas will ensure that its invoices will include, without limitation, the following information:

(a) (gas received): the quantity of gas deemed to be received from the User at the Receipt Points in the month;

(b) (gas delivered): the quantity of gas delivered to the User at each Delivery Point in the month;

(c) (Capacity Payment): the Capacity Payment and Monthly Capacity Charge payable pursuant to clause 11 for the Billing Period for each Contract Delivery Point , as well as the MDQ for that Delivery Point;

(d) (Metering Payment) the Metering Payment and Monthly Metering Charge payable pursuant to clause 11 for the Billing Period for each Contract Delivery Point ;

(e) (Volumetric Payment): the Volumetric Payment and Volumetric Charge payable pursuant to clause 11for each Volume Delivery Point;

(f) (Fixed Payment): the Fixed Payment and Monthly Fixed Charge payable pursuant to clause 11 for each Volume Delivery Point;

(g) (Additional Services Charges): the number of each Additional Services provided during the month and the total Connection Service Charges, Disconnection Service Charges, Meter Testing Service Charges and Special Meter Reading Charges for that month.

(h) (other Amounts): any other charge payable by the User in respect of that month, including, without limitation, any amounts payable under clauses 12.3, 12.4, 12.6 and 12.7.

12.3 GST

(a) Notwithstanding any other provision of this agreement and subject to the approval of IPART, if Country Energy Gas is or


21

becomes liable to pay GST in connection with any supplies made pursuant to this agreement, (the "affected supplies"):

(1) Country Energy Gas may add to the price of all affected supplies the amount of GST for which Country Energy Gas is or becomes liable in respect of those affected supplies, as calculated by Country Energy Gas in accordance with the GST law;

(2) the User, in providing consideration for the affected supplies, will pay the amounts or provide any other consideration required to be provided under other provisions of this agreement for the affected supplies ("agreement price") plus the calculated amount in respect of GST;

(3) the additional amount or amounts will be payable by the User at the same time or times as the agreement price is required to be provided to Country Energy Gas under the other provisions of this agreement; and

(4) Country Energy Gas will issue a tax invoice which enables the User, if permitted by the GST law, to claim a credit or refund of GST on the same date as the User is required to pay the additional amounts.

(b) Where Country Energy Gas has become subject to any penalties or interest as a result of the late payment of GST where that late payment is a result of the failure of the User to comply with the terms of this agreement (including this clause) or through some other failure of the User to comply with its obligations under GST law with regard to this agreement, then the User shall pay to Country Energy Gas an additional amount on demand equal to the amount of those penalties and interest.

(c) "GST", "GST law" and other terms used in this clause 12.3 have the meanings used in the A New Tax System (Goods and Services Tax) Act 1999, provided that references to “GST law” includes any applicable rulings issued by the Commissioner of Taxation.

12.4 Taxes

If:

(a) (User required to deduct): the User is required by law to make any deduction or withholding from any amount paid or payable by it under this agreement; or

(b) (Country Energy Gas required to pay): Country Energy Gas is required by law to make any payment, on account of a tax, duty, levy, impost or other charge or in the nature of any such thing on or in relation to any amount received or receivable by it under this agreement or in relation to any Transportation Services provided under this agreement or which is payable as a result of entering


22

into or performing this agreement,

then:

(c) (does not exceed legal minimum): the User will ensure that any such deduction or withholding does not exceed the legal minimum and will pay any such tax or other amount required to be deducted or withheld to the relevant taxation or other authority before the date on which penalties attach thereto;

(d) (payment of equal net amount): the amount payable by the User under this agreement will be increased to the extent necessary to ensure that, after the making of the relevant deduction, withholding or payment, Country Energy Gas receives and retains (free from any liability in respect of any such deduction, withholding or payment) a net amount equal to the amount which it would have received and so retained had no such deduction, withholding or payment been made; and

(e) (receipt): the User will deliver to Country Energy Gas , within 20 Business Days after each deduction or withholding is required by law to be made, a receipt issued by the applicable taxation or other authority evidencing that such deduction or withholding has been made.

12.5 Disputed invoices

(a) Where a User disputes payment of all or any part of an invoiced amount the User must give a Notice of Disputed Amount to Country Energy Gas not less than 3 Business Days before the Due Date for Payment.

(b) A Notice of Disputed Amount given in accordance with clause 12.5(a) entitles the User to withhold payment on the Due Date for Payment of the Disputed Amount but does not entitle non-payment of any other amounts contained in the invoice.

(c) The parties will meet to try to resolve the dispute, and failing resolution within a further 10 Business Days, the dispute will be determined in accordance with clause 18.

(d) In the event the User complies with the provisions of this clause, Country Energy Gas will not, for that reason alone, have the right to suspend the provision of Transportation Services or Additional Services under this agreement.

12.6 Interest on unpaid amounts

(a) Where a User does not pay Country Energy Gas the amount specified in the invoice by the Due Date for Payment, the User is liable to pay interest on any Outstanding Amount.

(b) If part of a Disputed Amount is determined to be payable by a User in accordance with the applicable dispute resolution procedures the User is liable to pay interest in any unpaid


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amount from the Due Date for Payment until the amount is paid.

(c) Interest will be calculated:

(1) at the Default Rate applicable on the first Business Day of the months; and

(2) on actual days elapsed,

(3) on a 365 day year, and

is to be capitalised on the first Business Day of each month.

(d) Any interest accrued is to be included in the next invoice issued by Country Energy Gas as a proper charge payable by the User.

12.7 Adjustment of invoices

(a) This clause 12.7 applies if:

(1) the User has been overcharged or undercharged in any form whatsoever;

(2) the User has actually paid the invoices containing such overcharge or undercharge; and

(3) the overcharge or undercharge is in relation to an invoice which corresponds to Transportation Services provided within the preceding 12 months from the date of discovery of the overcharge or undercharge.

(b) This clause 12.7 also applies if the MDQ for a Delivery Point, is as a result of the operation of clause 6, increased so that increased Capacity Payments are payable for that Delivery Point in respect of that month.

(c) Within 20 Business Days after the overcharge or undercharge (as the case may be) has been discovered and the amount of the overcharge or undercharge has been agreed by the parties or determined pursuant to the provisions of clause 18, Country Energy Gas will refund to the User the amount of the overcharge (if any) and the User will pay to Country Energy Gas the amount of the undercharge (if any).

(d) Interest will be payable at a rate calculated in accordance with clause 12.6(c) on such amounts from the date of the payment of the incorrect invoice by the User until the date of payment of such undercharge or overcharge calculated on a daily basis.

13. Bonds and Credit Support

13.1 Requirement to Provide Security

(a) Before Transportation Services are provided to a User any User who does not meet Acceptable Credit Criteria must provide


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security for the User’s performance under this agreement. The security may be in the form of either:

(1) payment by the User to Country Energy Gas of a Bond which is reasonably estimated by Country Energy Gas to represent not less than 90 days of charges for the Contract Transportation Service and the Volume Transportation Service under this agreement (the Bond Amount); or

(2) the provision of Credit Support.

(b) Country Energy Gas may require the Prospective User to provide information to enable Country Energy Gas to assess whether the Prospective User does meet Acceptable Credit Criteria. Such information will be sought consistent with the provisions of the Privacy Act 1988.

13.2 Credit Support

Credit Support is an undertaking in writing from a person (a Credit Support Provider) which:

(a) is a guarantee or bank letter of credit in a form acceptable to Country Energy Gas; and

(b) is duly executed by the Credit Support Provider and delivered unconditionally to Country Energy Gas ; and

(c) constitutes valid and binding unsubordinated obligations of the Credit Support Provider to pay Country Energy Gas in accordance with the provisions of the Access Arrangement and this agreement; and

(d) permits drawings or claims by Country Energy Gas to an amount which is at all times not less than 90 days of charges for the Contract Transportation Service and the Volume Transportation Service under this agreement, as reasonably estimated by Country Energy Gas (the Credit Support Amount).

13.3 Expiry of Credit Support

Where a User’s current Credit Support is due to expire or terminate then the User:

(a) must notify Country Energy Gas at least 10 Business Days prior to the expiration of termination; and

(b) ensure that replacement Credit Support that complies with this clause 13 is in place prior to and effective from the date of termination.

13.4 Variation to MDQ

If a User has provided a Bond or Credit Support and the User and Country


25

Energy Gas agree to vary the User's MDQ, or in Country Energy Gas’ reasonable opinion the Credit Support Amount or Bond Amount calculated in accordance with clause 13.1(a)(1) or 13.2(d) has otherwise increased or decreased, or the User’s MDQ is increased as a result of the operation of clause 6, then Country Energy Gas will notify the User of the revised Credit Support Amount or Bond Amount and:

(a) if the Credit Support Amount or Bond Amount has decreased, within 5 Business Days Country Energy Gas will repay the User part of the Bond or agree to the reduction in the Credit Support Amount; or

(b) if the Credit Support Amount or Bond Amount has increased, the User will pay Country Energy Gas an additional amount of Bond or provide additional Credit Support within 5 Business Days such that the total amount of Bond or Credit Support is restored to the revised Bond Amount or Credit Support Amount.

13.5 Drawing on Bond or Credit Support

Country Energy Gas may draw on the Bond or Credit Support in respect of an Outstanding Amount where all of the following circumstances apply:

(a) Country Energy Gas has given the User a notice of intention to draw on the Bond or Credit Support stating:

(1) the date of the notice;

(2) that Country Energy Gas intends to draw on the Bond or Credit Support; and

(3) the date, being not less than 5 Business Days from the date of the notice, on which it will draw on the Bond or Credit Support.

(b) 5 Business Days have elapsed since Country Energy Gas provided the notice of Intention to draw on the Bond or Credit Support; and

(c) the Outstanding Amount remains unpaid on the date at which Country Energy Gas draws on the Bond or Credit Support.

13.6 Restoration of Bond or Credit Support

Where Country Energy Gas draws on the Bond or Credit Support with the effect that the remaining amount of the Bond or Credit Support is less than the Bond Amount or Credit Support Amount then the User must within 24 hours provide an additional amount of Bond or Credit Support such that the Bond or Credit Support is restored to the Bond Amount or Credit Support Amount.


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13.7 Releasing the Bond or Credit Support

In the event of the termination of this agreement, Country Energy Gas will release the Bond or Credit Support, less any Outstanding Amounts payable in accordance with this clause 13. Neither the provision of a Bond or Credit Support, nor any amount drawn on them by Country Energy Gas, will prevent Country Energy Gas from claiming from the User any amount payable under this agreement in circumstances where the Bond or Credit Support was insufficient to satisfy such amount.

14. Termination

14.1 Events of Default

If one or more of the following Events of Default occur in relation to a party, then the party which is not in default may terminate this agreement by notice in writing to the other party ("the defaulting party"), namely:

(a) (non-payment of money): if the defaulting party defaults in payment of any moneys payable under this agreement for a period of 10 Business Days or more;

(b) (other default): if the defaulting party defaults in the performance of any of the other obligations imposed upon it by this agreement and fails to remedy or remove the cause of causes of default within a period of 20 Business Days from the receipt of a notice from the other party to remedy or remove the cause of causes of default;

(c) (winding-up): if a resolution is passed or an order is made by a Court for the winding up of the defaulting party except for the purposes of reconstruction or amalgamation;

(d) (insolvency): if the defaulting party is unable to pay its debts as and when they fall due or is placed in liquidation;

(e) (composition with creditors): if the defaulting party makes or enters into or endeavours to make or enter into any composition, assignment or other arrangement with or for the benefit of either party's creditors;

(f) (ceases to be engaged in gas delivery): if Country Energy Gas ceases to be engaged in the delivery of natural gas; and

(g) (last resort supply event): if the User becomes subject to a Last Resort Supply Event in accordance with section 70 of the Gas Supply (Natural Gas Retail Competition) Regulation 2001.

14.2 Effects of termination

The termination of this agreement will not, of itself, relieve a party of due performance by such party of any obligation assumed by or imposed on that party under this agreement at any time prior to termination.


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14.3 Right of termination additional

The right of termination pursuant to clause 14.1 will be in addition to and not in substitution for any other rights and remedies available to the parties (including any rights and remedies which but for the inclusion of this clause 14.3 would have been available to the parties) whether pursuant to this agreement, at law, at equity or otherwise.

15. Force majeure

15.1 No liability

If either party fails to comply with or observe any provision of these terms and conditions and such failure is due to the occurrence of an event or circumstance of Force Majeure, that failure will not give rise to any cause of action or liability based on breach of that provision.

15.2 Notification of Force Majeure

Full particulars of any event or circumstances of Force Majeure must be notified by the party invoking clause 15.1 to the other party as soon as practicable after the event or circumstances of Force Majeure occurs or its consequences became apparent.

15.3 Party invoking

(a) The party invoking clause 15.1 will use all reasonable endeavours to:

(1) overcome or avoid the event or circumstances of Force Majeure; and

(2) mitigate the effects or consequences of the event or circumstances of Force Majeure.

(b) Nothing in this clause 15.3 will be construed as requiring the party invoking clause 15.1 to settle a strike, lock-out or other industrial disturbance by acceding against its judgment to the demands of opposing parties.

15.4 Obligation to pay

No event or circumstances of Force Majeure will relieve the party invoking clause 15.1 from its obligations to make payments of amounts due, including but not limited to the obligation to pay any money due under this agreement.

15.5 Termination

If the event or circumstances of Force Majeure is of such magnitude or will be (or it is more probable than not that it will be) of such duration that it is unlikely that Country Energy Gas will be able to recommence the provision of Transportation Services or Additional Services to the User and continue that supply, then either party may upon not less than 10 Business Days notice terminate this agreement.


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16. Liabilities and Insurance

16.1 Exclusions from Country Energy Gas' liability

Notwithstanding any other provision of this agreement and subject to any laws to the contrary, Country Energy Gas will not in any circumstance be liable to the User for:

(a) (momentary fluctuations): momentary fluctuations in the amount of natural gas delivered to the User at any Delivery Point or transported through the Network;

(b) (user's failure): any failure to deliver any natural gas to any Delivery Point or any other loss, damage or expense suffered by the User caused by any failure of a user of the Network (including the User) to observe or comply with an agreement to which it is a party;

(c) (unavailability of gas): any failure to deliver any natural gas to any Delivery Point or any other loss, damage or expense suffered by the User caused by no or reduced injection of supply of gas into, or, by no or reduced off take of natural gas from, the Network; or

(d) (fault in User's equipment): any failure to deliver natural gas to any Delivery Point or any other loss, damage or expense suffered by the User caused by any defect or abnormal conditions in the User's equipment or that belonging to any other user of the Network or other person connected to the Network.

16.2 Limitation of Country Energy Gas' liability

If there is any event or circumstance other than those described in clause 16.1, notwithstanding any other provision of this agreement, Country Energy Gas (including its directors, officers, employees, authorised agents, contractors, sub-contractors and professional advisers) will only be liable for:

(a) (direct loss or damage): the direct loss or damage to the User (excluding any loss of profit by the User or the amount of any damage awarded against the User in favour of, or moneys paid by the User by way of settlement to any third party and any costs or expenses of the User in connection with the same) arising from Country Energy Gas' failure to comply with or observe any provision of this agreement; and

(b) (total amount of liability): in respect of such direct loss or damage to the User, up to the maximum sum of $20,000 for any single event or circumstance of failure described in paragraph (a) above (and a series of such failures arising from the same event or circumstance of failure) and up to the maximum sum of $100,000 in respect of events or circumstances of failure described in sub-paragraph (a) above occurring in any one period of 365 consecutive Days.


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16.3 User indemnity

The User indemnifies Country Energy Gas against:

(a) any damage, expense, loss or cost Country Energy Gas suffers or incurs as a result of or in connection with, or arising out of the performance of this agreement by Country Energy Gas or by any breach of this agreement by the User including any consequential loss or loss of profits; and

(b) any claim, demand, action or proceeding whatsoever made or brought by any person in connection with any such breach of this agreement by the User.

16.4 User's liability

Notwithstanding any other provision of this agreement, the User will not in any circumstance be liable to Country Energy Gas for:

(a) (Country Energy Gas' failure): any failure by the User to perform, observe or comply with any provision of this agreement caused by Country Energy Gas' failure to perform, observe or comply with the same; or

(b) (fault in Network): any failure by the User to perform, observe or comply with any provision of this agreement caused by any defect or abnormal conditions in the Network.

16.5 Insurance

(a) The User will effect and keep current such policies of insurance as a prudent person in the position of the User would effect and on terms reasonably acceptable to Country Energy Gas on or before the Commencement Date until the termination of this agreement, including (without limitation):

(1) Public liability/products cover;

(2) Appropriate industrial special risks cover; and

(3) Worker's compensation and employee liability cover as required by law.

(b) the User will cause Country Energy Gas' interest to be duly noted on the policies and the User will provide Country Energy Gas with a schedule setting out details of those insurances and confirming the currency of them;

(c) the User must give full, true and particular information to the relevant insurer of all matters the non-disclosure of which might in any way prejudice or affect the policy or policies of insurance or the payment of any or all money under them;

(d) before the cancellation by the User of any insurance policy required to be effected under this agreement the User must first


30

provide details of the replacement insurance policy, which is proposed to be substituted for the policy to be cancelled;

(e) the User acknowledges that it is responsible for any policy deductibles;

(f) the User must during the continuance of the agreement, promptly notify Country Energy Gas :

(1) if it becomes aware that any of the conditions precedent to the issuance and operation of the insurance are not, or are no longer, satisfied;

(2) if it has made or is making claims under the insurance which may materially affect the cover provided by the insurance; or

(3) if it becomes aware that the insurance has been, or is about to be cancelled, or a notice of cancellation or other material notice under or in relation to the insurance has been or is about to be issued by the insurer (and, upon the issue of the notice, it must provide a copy to Country Energy Gas).

17. Disclosure of confidential customer information

17.1 Confidentiality of Customer Information

Subject to clauses 17.2 and 17.3 Country Energy Gas agrees to use all reasonable care to ensure that, to the extent that Country Energy Gas obtains any Confidential Customer Information, that information will be kept confidential by Country Energy Gas and not disclosed to any third party except with the User's consent or where this is necessary for:

(a) the performance, enforcement or termination of this agreement;

(b) the provision of Transportation Services;

(c) a purpose referred to in the Access Arrangement; or

(d) Country Energy Gas to comply with any Law.

For the avoidance of doubt the parties acknowledge and accept that nothing in this clause 17.1 is intended to prevent Country Energy Gas from utilising any information about any Customers which is generated solely from its own records relating to services provided directly to Customers.

17.2 Multiple roles of staff

The User acknowledges that in certain circumstances members of Country Energy Gas' staff or the staff of its agents or contractors engage in multiple roles or functions and that Country Energy Gas shall not be deemed to have failed to take all reasonable care not to use Confidential Customer


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Information in breach of this clause 17 merely because Confidential Customer Information is provided, for purposes authorised by this clause 17, to a person who has multiple roles or functions.

17.3 Injunctive relief

Country Energy Gas acknowledges that breach by it of any of the provisions of clause 17 may cause the User damage for which monetary damages may not, by virtue of clause 16, be available. However, the absence of any such damages shall not be a bar to the User seeking injunctive relief against the breach or threatened breach of clause 17.1 by Country Energy Gas, in addition to any other remedies that may be available.

18. Dispute resolution

18.1 Best endeavours

The parties agree that they will use their best endeavours to resolve any dispute which arises in relation to any matter arising out of this agreement and, for that purpose, will meet together to make bona fide efforts to resolve any such dispute.

18.2 Referral

If, after using their best endeavours as required by clause 18.1, the parties are unable to resolve the dispute, either party may require the matter to be referred to an appropriately qualified expert from the Australian Commercial Disputes Centre (Expert) for resolution by expert determination.

18.3 Expert determination

If a dispute is referred to an Expert in accordance with clause 18.2, the referral will be on the following basis:

(a) the parties must provide the expert with any information or material reasonably requested by the Expert;

(b) the determination of the Expert will not be binding on the parties; and

(c) if the parties cannot agree on the basis of sharing costs between themselves, the responsibility for the costs of the dispute will be as determined by the Expert.

18.4 No court proceedings

Unless the provisions of clauses 18.1 to 18.3 have been duly complied with, no party may bring court proceedings in respect of any matter in dispute which arises in relation to this agreement.

18.5 Urgent relief

Nothing in this clause 18 will prejudice the right of a party to seek urgent


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injunctive or declaratory relief in respect of a dispute arising out of this agreement.

19. Notices

19.1 Requirement of Effective Notice

Any notice or other communication which must be given, served or made under or in connection with this agreement has no legal effect unless it is in writing and:

(a) delivered by hand at the address for service of the addressee;

(b) if the address is in Australia and the notice is being sent from within Australia, sent by security post, certified mail or postage pre-paid, to the address for service of the addressee;

(c) if the address is outside Australia or if the notice is being sent from outside Australia, sent by prepaid airmail to the address for service of the addressee;

(d) sent by facsimile to the facsimile number of the addressee; or

(e) if the addressee has notified an address, sent by electronic mail transmission or any other method of electronic communication to the electronic address of the addressee.

19.2 Deemed Delivery

Where the notice is delivered or sent in a manner provided by clause 19.1 it is deemed given to and received by the party to which it is addressed:

(a) if delivered, upon delivery;

(b) if mailed from within Australia to an address in Australia, on the day after actual delivery to that address;

(c) if mailed to an address outside Australia, or mailed from outside Australia, on the fifth Business Day (at the address to which it is mailed) after mailing;

(d) if sent by facsimile before 4 p.m. on a Business Day at the place of receipt, on the day it is sent and otherwise on the next Business Day at the place of receipt; or

(e) if sent by electronic mail transmission or any other method of electronic communication sent before 4 p.m. on a Business Day, on the day it is sent and otherwise on the next Business Day after the date of sending.

19.3 Provisions with respect to Facsimiles

Despite clause 19.2(d):


33

(a) a facsimile is not deemed given and received unless at the conclusion of the transmission the sender's facsimile machine issues a transmission report which indicates that the relevant number of pages comprised in the notice have been sent; and

(b) a facsimile is not deemed given and received if it is not received in full and in legible form and the addressee notifies the sender of that fact within three hours after conclusion of the transmission or by 12 noon on the Business Day on which it would otherwise be deemed given and received, whichever is the later.

19.4 Provisions with respect to Electronic Mail

Despite clause 19.2(e) an electronic mail transmission or any other method of electronic communication is not deemed given and received unless:

(a) the sender’s electronic service gives a notification which indicates that the Notice has been sent to the addressee; or

(b) the addressee gives a return acknowledgment in electronic form of receipt of the notice within three hours after sending the transmission or by 12 noon on the Business Day on which it would otherwise be deemed given and received, whichever is the later.

19.5 Facsimile Numbers

The facsimile numbers are as follows:

(a) Country Energy Gas: 02 6214 9853

Attention: Corporate Secretary; and

(b) User: [to be inserted]

Attention: [to be inserted]

20. Miscellaneous

20.1 Reports, records and information

(a) Each party will prepare and maintain proper books, records and inventories of all matters pertaining to this agreement.

(b) Each party may withhold from the other party confidential information or information not related to the performance of this agreement.

(c) Each party will have the right to examine at any reasonable time, the books, records and documents of the other to the extent necessary to carry out an audit for the purposes of verifying any


34

statement, computation or claim made under the provisions of this agreement.

20.2 Interpretation of standards

Country Energy Gas will be responsible for the interpretation of any standard or code of practice adopted or used for the design, installation, operation and maintenance of natural gas networks or which is referred to in this agreement where any issue concerning the interpretation of any such standard arises under or in connection with this agreement.

20.3 Governing law and jurisdiction

This agreement is governed by and is to be construed according to the laws of New South Wales. The parties submit unconditionally to the non-exclusive jurisdiction of the courts of New South Wales and courts with jurisdiction to hear appeals therefrom.

20.4 Severability

Any provision of this agreement which is illegal, void or unenforceable is only ineffective to the extent of that illegality, voidness or unenforceability, without invalidating the remaining provisions.

20.5 Amendments

This agreement may not be modified, amended or otherwise varied except by a document in writing signed by or on behalf of each of the parties.

20.6 Waiver

Any time or indulgence given to a party by the other party, or any failure, delay or neglect by a party in the exercise of its rights under this agreement, shall not constitute a waiver by that party of its rights or remedies hereunder or prejudice its ability to exercise such rights or remedies at a subsequent time.

20.7 Further acts

The parties will promptly do and perform all further acts and execute and deliver all further documents required by law or reasonably requested by any other party to carry out and effect the intent and purpose of this agreement.

20.8 Approvals

Subject to any law to the contrary, where the doing or execution of any act, matter or thing is dependent on the consent or approval of a party, that consent or approval may be given or withheld in the absolute discretion of that party, unless this agreement expressly provides otherwise.

20.9 Assignment

Subject to clause 10, neither party may assign or otherwise transfer any of its rights and obligations under this agreement without the prior written


35

consent of the other party.

20.10 Counterparts

This agreement may be executed in any number of counterparts, all of which taken together constitute one and the same document.

20.11 Expenses

The parties will each be responsible for all costs and expenses incurred by themselves in relation to the preparation and execution of this agreement.

20.12 Stamp duties and taxes

(a) (Payment of all duties): The User will pay all stamp duties, registration and similar taxes which may be payable to or required by any appropriate authority or determined to be payable in connection with the execution of this agreement.

(b) (Indemnity): The User will indemnify and keep indemnified Country Energy Gas against any loss or liability incurred or suffered by it as a result of the delay or failure by the User to make any payment referred to in sub- paragraph (a).


36

Schedule 1

Volume Customer

Residential & Small Business

Commercial Customers

Industrial Customers

Large Industrial Customers

Delivery Points As advised by the User and contained in Country Energy Gas’ billing system/database

hourly Maximum Meter Flow Rate

m3/hr

<10 <30 <85 <150

Monthly Fixed Charge $

[to be inserted] [to be inserted] [to be inserted] [to be inserted]

Volumetric Charge

$/GJ


Billing Period 3 months 1 month 1 month 1 month

Delivery Point Requirements

Nil Nil Nil Nil

Metering Facility Requirements

Nil Nil Nil Nil

User’s Equipment Nil Nil Nil Nil

Commencement Date


Termination Date [to be inserted] [to be inserted] [to be inserted] [to be inserted]


37

Contract Customer

Name of Customer

Name of Customer

Name of Customer

Name of Customer

Monthly Capacity Charge


Monthly Metering Charge $


hourly Maximum Meter Flow Rate

m3/hr


Billing Period 1 month 1 month 1 month 1 month

Delivery Point Requirements


Metering Facility Requirements


User’s Equipment [to be inserted] [to be inserted] [to be inserted] [to be inserted]

Commencement Date


Termination Date [to be inserted] [to be inserted] [to be inserted] [to be inserted]

The following Reference Tariffs will apply to Reference Services from 1 January 2005. Reference Tariffs will change over time in accordance with the procedures and formulae set out in section 3 and Appendix 3 of this Access Arrangement. A2.1 Contract Transportation Service A2.1.1 Monthly Capacity Charge

Initial Capacity Charge ($/GJ of MDQ per Year)

Monthly Capacity Charge – Bomen Zone 79.68

Monthly Capacity Charge – Central Zone 259.21

Monthly Capacity Charge – Fringe Zone 529.23

A2.1.2 Monthly Metering Charges Monthly Metering Charges for Contract Customers with the meter types in the table below at a Delivery Point, as at 31 December 2004 are:

Appendix 2 Initial Reference Tariffs

Reference Service Agreement Wagga Wagga Gas Distribution Network

Page 2

Meter Type Initial Monthly Metering Charge ($2003)

6GT 6,383.00 4GT 6,206.00

AL5000 6,688.00 AL2300 6,320.00 AL1000 5,581.00 7M175 5,620.00 5M175 5,191.00 3M175 5,838.00

Monthly Metering Charges for Customers who become Contract Customers since 31 December 2004 will be established on a case-by–case basis by Country Energy Gas and will be set to recover: (a) the capital cost of the Metering Facilities at the Delivery Point over a 15 year

period as well as a rate of return on those Metering Facilities; plus (b) annual operations, maintenance and testing costs, which will be set at 5% of the

capital cost of the Metering Facilities; plus (c) the cost of electronic meter reading of the Metering Facilities, which is $385 per

Year, subject to any increase under Section 3.3. A2.2 Volume Transportation Service

Initial Reference Tariff Customer type Maximum Meter Flow

Rate (m3/hr) Monthly Fixed Charge ($/Month)

Volumetric Charge ($/GJ)

Large Industrial 150 2,295.71 3.90 Industrial 85 1,300.90 3.90 Commercial 30 459.14 3.90 Residential and Small Business

10 153.05 3.90

A2.3 Additional Services

Reference Service

Initial Reference Tariff ($)

Business Hours Outside Business Hours

Meter Test Service 200.00 300.00 Special Meter Reading Service 50.00 100.00 Connection Service 50.00 100.00 Disconnection Service 80.00 N/A

This Appendix sets out the manner in which Reference Tariffs and other fees will change on 1 July 2005 and 1 July each Year thereafter throughout the Access Arrangement Period. A3.1 Reference Tariffs A3.1.1 Reference Tariff Control Formula Reference Tariffs will change on 1 July in accordance with the following formula: Pt+1

ij is the proposed price for component j of tariff i in the coming Year; Pt

ij is the price currently being charged for component j of tariff i Qt-1

ij is the quantity of component j of tariff i sold in the previous Year CPIt is the Change in the CPI, (as defined in the Glossary) minus 1 Xt+1 is the real change in average prices from year t to year t+1, as set out below As set out in section 3.4.5 amendments to Reference Tariffs as a result of a Pass Through Event are not taken into account when determining compliance with the formula in this Appendix 3.

n m

(1+CPIt-Xt+1) ≥ i=1 j=1 ∑ ∑ P * Q t+1 t -1

i=1 j=1

∑ ∑ n m

ij ij

t t-1

ij ij P * Q

Appendix 3 Tariff Formula


Page 2

A3.1.2 X Factors The X Factors to be used in the above formulae are as follows:

Prices for Year Xt+1 Factor 1 Jan 2005 -5.0%

2005-06 -17.2% 2006-07 0% 2007-08 0% 2008-09 0% 2009-10 0%

A3.2 Other Fees The fees provided for in the following sections of this Access Arrangement –

1.5.3 – application fee for information; 2.4.7 – fee for processing Request For Service; 6.5 – fee for application for transfer/assignment of MDQ and change in Delivery Point; 7.3.3 – commissioning fee; 7.4 – service removal fee;

will change on 1 July each Year by the Change in the CPI, except for 1 July 2005 where they will change by the following factor: (CPI for December quarter 2004 + CPI for September quarter 2004) (CPI for June quarter 2004 + CPI for March quarter 2004)

Country Energy Gas Pty Ltd (a subsidiary of Country Energy) ACN 083 199 839 30 Morisset Street QUEANBEYAN NSW 2670 Telephone 02 6214 9890 Fax: 02 6214 9888 email: [email protected] REQUEST FOR GAS TRANSPORTATION SERVICE This Request for Service is to be completed in accordance with the instruction sheet for completing this form, as provided by Country Energy Gas. 1. Country Energy Gas reserves the right to return the application if any

information provided is incomplete or incorrect 2. Completion of this Request for Service does not guarantee that Country Energy

Gas will make an offer for gas transportation 3. Any offer for gas transportation is subject to the terms and conditions of

Country Energy Gas’ Reference Service Agreement 4. The meter set, location requested and connected appliances must comply with

any gas fitting rules issued by Country Energy Gas, and other relevant standards

5. Completed applications are to be returned to Country Energy Gas at the above address or by fax

Appendix 4 Request for Service


Page 2

Request for Service

(A) SITE DETAILS

Site#: New Service Receipt Point ID

DPI CheckSum

Ind Com Res Premises Type: New Exist Site Type: Is End User converting from LPG?

U/ Lvl /Flat: Lot/St No: Street: :

City: Post Code: Suburb:

A2: Delivery Point Site Address:

A3: End User Site/Contact Names: Mr/Mrs/Ms First Intl Last/ Reg Business/Trading Name

Telephone: B/H#: A/H#: Fax#: Mobile#:

A1: Site, Premises Type & LPG Conversion:

( B) DELIVERY POINT DETAILS B1: Delivery Point (DP) Access and Requested Service Dates:

Is End User presence required for access to DP? Service Period Dates: End: Start:

B2: New Delivery Points - Preferred Location:

Building D r i v e w a y Note 2

Note 4

Note 3

Front Boundary Place X for preferred meter location Approximate length of service from

property boundary to delivery point

Relevant Information: Note 1. Meter shall not be located behind gate or fences.

Note 2. Acceptable meter location highlighted by shaded areas one metre from corner of building.

Note 3. If sufficient clearance is not available bollards shall be installed to protect the meter assembly.

Note 4. Meter may be located at rear line if accessible gas main is available and the meter is protected from third party damage. The meter be to be accessible for meter r eading and emergencies.

Yes No

Page 2 of 3

Page 1of 3


Page 3

(D) PLUMBER & RETAILER DETAILS

D1: Plumber/Gasfitter Details:

Phone#:

Fax#:

Mobile#:

Email:

Licence#: Plumber's Name:

Trading Name:

Address:

C3: Delivery Point Gas Load Requirements (to be completed where deli very point gas rates are greater than 100 MJ/h): Existing New/

Additional Final Total

Total Connected Gas Load, GJ:

Total Max Hourly Load, GJ:

Total Min Hourly Load, GJ:

Total Max Daily Load, GJ:

Total Annual Load, GJ:

Req Delivery Point Pressure, kPa :

Cooking Stored Hot Water Instant Hot Water Flued Heating Unflued Heating Central Heating

Spa/Pool Other: Total Gas Rate, MJ/h:

C1: Appliance Gas Load Information (to be completed for appliances w ith connected gas rates less than 100 MJ/h):

C2: Appliance Gas Load Information (to be completed for appliances w ith connected gas rates greater than 100 MJ/h): Design Rate

MJ/h Operating

Capacity % Hours per

Day Days per

Week Weeks per

Year Total Annual Load

MJ Appliance Description

D2: Retailer Details: Phone#:

Fax#:

Mobile#:

Email:

Retailer's Name:

Applicant Name:

Applicant Title:

Signature: Date:

Page 3of 3

Reg # Address Inlet Outlet kpa (final) kPa

1 City Gate 5500 9502 Bomen 200 2003 Estella / Boorooma4 Nth Wagga 950 1805 Cnr Copland/ Lawson 900 1706 Cnr Eldershaw/ Sacksville 900 407 Kooringal Rd (Christian Clge) 900 2408 Tarcutta /Hammond Pit 900 2409 Tarcutta /Hammond Cabinet 240 4010 Cross/Church 240 1011 Macleay/Railway 240 4012 Chaston/Docker13 Urana / RTA Kapooka14 Fernleigh/Idsal ring main

Fernleigh/Idsal Ashmont feed15 Pearson/Edward 900 35016 Bruce/Glenfield17 Red Hill / Hudson 240 4018 103 Red Hill Rd 240 4019 Plumpton/Lansdowne 240 4020 Plumpton/Springvale21 504 Kooringal22 Kooringal/Kulgoa 240 2023 Calvery ring main24 Simmons low pressure 230 10

Simmons medium pressure 230 4025 Sturt-Kapooka 400 4026 Flinders-Kapooka 400 4027 Red Hill / Glenfeild28 Glenfeild Rd29 Veal st 350 3532 Thorne/Esplanade34 Albury/Docker 40 1035 Spring/Shaw 40 736 Shaw- LeaguesClub 230 1837 Kincaid/Evans 40 838 Urana / RTA Ashmont39 12 Donnelly 900 24040 OppositeLot 64 Gregadoo 230 4041 Beckwith - nth side lagoon 40 742 Fox/Morgan 240 4043 Cnr Glenfield & Red Hill Rd 900 24044 Glenfield Rd. 900 4045 Pearson st. RTA 900 4046 Pearson st. RTA Kapooka 900 40047 Estella / Boorooma 900 15048 Fernliegh RD 900 4049 Chaston St. Med Pressure 900 4050 Chaston St. High Pressure 900 24051 Fernliegh RD 900 24052 551 Kooringal Rd 240 40

Reg Removed/Re-located

Appendix 5 Schematic Diagram of the Network

Access Arrangement Information

EXECUTIVE SUMMARY ...........................................................................................4 1. INTRODUCTION AND BACKGROUND.......................................................11

1.1 Basis for Access Arrangement Information...............................................11 1.2 Content of this Access Arrangement Information ....................................11 1.3 Interpretation ..................................................................................................12 1.4 Contact Details ..............................................................................................13

2. BACKGROUND TO THE NETWORK...........................................................14 2.1 Country Energy and the Wagga Wagga Network ....................................14 2.2 The First Access Arrangement Period.......................................................14 2.3 Material Changes compared to the First Access Arrangement .............18 2.4 Physical Characteristics of the Network ....................................................18

3. SERVICES TO BE OFFERED........................................................................20 3.1 Reference Services.......................................................................................20 3.2 Negotiated Services......................................................................................22 3.3 Service Standards and Quality....................................................................22

4. CAPITAL COSTS .............................................................................................24 4.1 The Opening Capital Base...........................................................................24 4.2 The Forecast Capital Base ..........................................................................27 4.3 Cost of Capital ...............................................................................................30 4.4 Return on Capital ..........................................................................................37 4.5 Return on Working Capital...........................................................................37

5. OPERATING AND MAINTENANCE (NON-CAPITAL) COSTS ...............38 5.1 Overview.........................................................................................................38 5.2 Projected Operating and Maintenance Expenditure................................38

6. FORECAST DEMAND FOR SERVICES ......................................................40 6.1 Overview of Gas Demand in Wagga Wagga ............................................40 6.2 Forecast Methodology, Assumptions and Inputs .....................................41 6.3 Forecast ..........................................................................................................42

7. TOTAL REVENUE REQUIREMENT AND X FACTORS...........................44 7.1 Total revenue requirement...........................................................................44 7.2 X Factors.........................................................................................................44

Table of Contents

2005 Wagga Wagga Gas Access Arrangement Information 31 December 2003

3

8. REFERENCE TARIFFS AND REFERENCE TARIFF POLICY................46 8.1 Calculation of Reference Tariffs..................................................................46 8.2 Reference Tariff Policy.................................................................................49

9. TERMS AND CONDITIONS............................................................................52 9.1 Gas Balancing Arrangements......................................................................52 9.2 Service Standards and Tariffs .....................................................................53

10. OTHER MATTERS...........................................................................................55 10.1 Revisions Submissions and Commencement Date .............................55 10.2 Capacity Management Policy..................................................................55 10.3 Queuing Policy...........................................................................................55 10.4 Extensions/Expansions Policy ................................................................56

APPENDIX 1 - KPMG REPORT ON COST OF CAPITAL


4

EXECUTIVE SUMMARY The Wagga Wagga gas distribution system (the Network) is owned and operated by Country Energy Gas Pty Ltd ACN 083 199 839 (Country Energy Gas ), a wholly owned subsidiary of Country Energy. Country Energy was formed on 1 July 2001 as a merger of Great Southern Energy, Advance Energy and NorthPower. The Network was formerly owned and operated by Great Southern Energy, following acquisition from the Wagga Wagga City Council in 1997. The Network is one of the smaller regulated distribution systems in Australia. It serves approximately 16,500 customers and generates annual revenue of approximately $7 million. Country Energy Gas also provides gas distribution services to a number of smaller towns in NSW, including the South West Slopes and Temora region (which are now unregulated following the revocation of coverage earlier this year) and areas including Cooma, Tumut and Bombala. The nature of the Network and Country Energy Gas ’ operations has a number of implications for the revisions to the Access Arrangement. Firstly, the small size of the Network and lower housing density mean that unit operating costs will be higher than in larger networks which serve a larger and more compact customer base. It also means that revenues are more exposed to fluctuations in demand from single large customers, and it is more difficult to absorb the impact of external factors that cause cost increases. Secondly, the added cost and complexity involved in establishing some of the more sophisticated mechanisms that are a feature of some other access arrangements (including in Victoria) cannot be justified in the Wagga Wagga context. This includes such regulatory mechanisms as:

• guaranteed service level arrangements (GSLs); • establishing a direct link between Reference Tariffs and service levels

(S-factors); and • efficiency carryover mechanisms.

This does not mean that Country Energy Gas is avoiding its responsibility to provide high service standards and meet required health and safety standards. Country Energy Gas takes pride in its high service levels, and in exceeding safety and health related requirements. These will not change under the proposed revisions to the Access Arrangement. Rather, it means that Country Energy Gas does not believe the high cost of negotiating and implementing these mechanisms is likely to exceed the benefits. The Review Process The small size of the Network is also an important consideration for the conduct of IPART’s assessment of the proposed revisions. Country Energy Gas recognises that the Code imposes certain procedural requirements on IPART, and that IPART must be satisfied of certain matters before approving the revisions. At the same time, it is clearly not in the interests of IPART, Country Energy Gas or, most importantly,


5

customers on the Network, for a highly-intrusive, forensic and costly process to be followed. This importance of minimising regulatory intrusion and costs has been a recurrent theme in the Australian regulatory industry in recent times. A key outcome of the Productivity Commission’s inquiry report into the national access regime in March 2001 and the finalisation of its inquiry in September 2002 was the deterrent effect of access regulation on investment. Importantly, the consequences of “getting it wrong” entailed significant risk. Setting access prices that are too low, in particular, was more harmful to society than setting access prices that are too high, because investment could potentially be deterred. For this reason, the Productivity Commission urged regulators not to be too ambitious in their attempts to remove perceived monopoly rents and expressed a clear view that “erring in favour” of providing an incentive to investors is consistent with good public policy. In August 2002, the Western Australian Supreme Court’s judgement in the Epic Energy case established some important principles that are applicable to regulatory practice generally. Firstly, the Court noted that what constitutes abuse of monopoly power is unclear. Secondly, the Supreme Court ruled that references to competitive markets were references to “workably competitive markets” rather than the theoretical “perfectly competitive market”. In the former, elements of market power may persist. This finding provides strong endorsement of the Productivity Commission’s view that zero monopoly profit is neither a realistic or appropriate target for regulators to aim for. More recently, on 15 December 2003 the Productivity Commission released its draft report on the gas access regime. Country Energy Gas is still in the process of examining and analysing all of the draft report’s recommendations. However the report emphasises that the costs of the existing regime and access arrangement process are unduly high and are preventing efficient outcomes from being reached. A key finding of the report (draft recommendation 8.1) was therefore that:

“The Gas Access Regime should be amended to provide for a lighter handed form of regulation whereby the application of the alternative regulation involving an access arrangement with reference tariffs would only occur in the more extreme circumstances. The lighter handed alternative should be a monitoring regime. It is important that the monitoring regime not develop into an intrusive and costly form of regulation.”

The Productivity Commission has also noted in section 7 of its report that:

“Regulators have responded to the demanding requirements of the Gas Access Regime by requesting highly detailed information from service providers and by meticulously applying methodologies such as the CAPM framework. This is costly and creates a misleading impression of precision. In reality, regulators are making decisions under uncertainty and so must make a wide range of debateable assumptions. This uncertainty cannot be removed by requesting more information from service providers, or by hiring consultants to undertake studies. The reality is that businesses do not operate in a world of certainty. That is why investors demand a higher expected rate of return than they can obtain from a virtually riskless asset like government bonds.”


6

Given the acknowledged high cost of the access arrangement process, it is also essential that IPART understand that interest in seeking access to the Network is extremely low and retail competition in Wagga Wagga is yet to materialise. During the First Access Arrangement Period:

• only 1 request for access to the Network was made; • no queues for access to Services were formed; and • no requests for trading of Capacity were made.

Country Energy Gas urges IPART to strongly bear in mind these matters when reviewing the proposed revisions. Outcomes of the existing Access Arrangement Period The outcomes of the existing regulatory period have a number of implications for the regulatory period commencing on 1 January 2005. During the existing regulatory period capital expenditure was substantially higher than forecast, as shown below: Capital Expenditure in the First Access Arrangement Period

Year Forecast Capital

Expenditure ($m2003)

Actual Capital


% Difference

1999 2.84 1.95 -31% 2000 1.55 3.58 +131% 2001 1.56 3.42 +119% 2002 1.32 2.24 +69%

2003 (est) 1.59 1.91 +20% Total 8.86 13.09 +48%

Areas where expenditure exceeded forecast included the following: • due to concerns regarding system security Country Energy Gas brought

forward the completion of the Southern gate station, which was originally scheduled to be completed in the forthcoming regulatory period. This has improved security of supply. The Rail Infrastructure Corporation has advised Country Energy Gas that major repairs to the Murrumbidgee rail bridge are anticipated to occur in 2005. Without the second gate station these repairs have the potential to create a substantial disruption to supply, at a time during the peak gas usage season. The second gate station not only provides additional security of supply but has also resolved pressure/supply problems in the southern areas of the Network, thus improving the standard of service to many customers;

• Country Energy Gas found that the extension of the Network to Uranquinty

would pass the economic feasibility test in the Code, particularly if constructed in conjunction with the completion of the southern gate station;

• significantly higher new connections than forecast as a result of rapid growth in

the new home market;


7

• additional costs associated with the introduction of full retail contestability. This expenditure has been deemed to be prudent by IPART following a review by PB Associates; and

• expenditure associated with Country Energy Gas’ Asset Management and

Operating Support System (AMOSS). This system will support the gas distribution business and provide the necessary system related data to enable more efficient network management and operation.

Partly as a result of the higher than forecast capital expenditure, the Capital Base has increased by around 50% from 1999 to 2004 (even if capital expenditure had been limited to forecast levels the Capital Base would have increased by almost 30%). This has placed upward pressure on prices and the level of the increase is primarily a function of the fact that the initial Capital Base, and prices, were initially set by IPART at a level below independent assessments of the optimised depreciated replacement cost (ODRC). Had the Capital Base and prices been set at a more realistic level, the relative increase in the Capital Base and prices in the forthcoming period would have been much lower. Operating expenditure was close to levels forecast by IPART, although under-spending in the first years of the regulatory period was offset by higher expenditure in the later years. This higher spending occurred largely as a result of a number of events that have been outside Country Energy Gas’ control: • higher than forecast growth in the network (including the Uranquinty

extension) and number of customers served. This has resulted in higher system operating and maintenance costs;

• more detailed and onerous regulatory compliance requirements; • the introduction of a number of codes and guidelines relating to the

management and operation of the Network; • increased insurance costs, particularly since 2001, associated with increased

risk of terrorism and corporate collapses in the Australian insurance market; • additional costs associated with the introduction and implementation of full

retail contestability; • administrative costs associated with the introduction of the GST; • increased workplace health and safety related standards; • labour market conditions have resulted in wages increasing above the CPI,

particularly in NSW; • increased security costs; and • the addition of the second (Southern) gate station. As the majority of these events are not once-off items, but rather have created a ‘step’ increase in expenditure, they will also be reflected in operating cost forecasts in the next regulatory period. Finally, despite the higher customer numbers, gas sales in the existing period were slightly below forecast for the volume market, and up to 20% below forecast for the contract market. This is attributable to relatively warm winter weather, higher penetration of reverse cycle electric air conditioners, and the lower than anticipated usage from major customers.


8

Projections for the Forthcoming Access Arrangement Period Country Energy Gas seeks a positive commercial outcome that provides incentive for investment, a fair and reasonable commercial rate of return, and ensures the ongoing viability of the gas distribution business. Country Energy Gas also believes it is important that IPART err in favour of providing positive incentive for investment, in light of the recent reviews of regulatory regimes cited above. Country Energy Gas has adopted a proposed pre-tax real WACC of 8.0% for the Network. This has been derived using the Capital Asset Pricing Model (“CAPM”) and is based upon an independent report on the cost of capital prepared by KPMG. The WACC sought is consistent with recent regulatory decisions in respect of key WACC parameters, and the current level of returns in the market. In respect of capital expenditure, Country Energy Gas has forecast the following expenditure levels in the next Access Arrangement period: Forecast New Facilities Investment

$’000 real 2003-04 Jan to June 2005

2005-06

2006-07

2007-08

2008-09

2009-10

Asset replacement & refurbishment - pipes 310 603 775 656 679 792 - meters 42 91 106 159 203 214 Growth Related 422 896 861 862 842 915 Non-system assets, FRC 129 264 270 276 282 289 Total 904 1,855 2,012 1,953 2,006 2,210

This expenditure will satisfy the requirements of section 8.16 of the Code in terms of passing the economic feasibility test, being required to maintain the operational integrity, safety, security and contracted capacity of the Network. Most of the capital expenditure is necessary to meet network growth or undertake asset replacement and refurbishment. The age of Country Energy Gas’ galvanised steel and cast iron network is now nearing the point where field data and engineering forecasts suggest that increasing replacement expenditure is necessary. Operating costs are forecast to remain steady in real terms. A Positive Commercial Outcome The factors described above combine to require a higher network revenue base than currently occurs. Country Energy Gas is therefore seeking the following X factors over the next regulatory period: X Factors (Real)

1/1/05 2005-06 2006-07 2007-08 2008-09 2009-10 Po -5% -17.2% X Factor 0% 0% 0% 0% The Po and X factor combination proposed by Country Energy Gas provides for prices to return to a cost-reflective position early in the regulatory period, with subsequent tariffs moving in line with CPI. Country Energy Gas accepts the need to


9

manage impacts on customers, however the need for an upward price adjustment must also be acknowledged. Country Energy Gas notes that the IPART Secretariat has proposed a ‘straight line smoothing’ approach to dealing with potential increases in electricity network prices. In its response to the Secretariat’s discussion paper, Country Energy has cited a number of reasons why this approach is not acceptable, including that it is inconsistent with the recent findings and conclusions of the Western Australian Supreme Court in respect of the Epic Energy case and the recent findings of the Productivity Commission’s review of access regimes, and the approach does not deliver NPV neutrality. Country Energy Gas also notes that such an approach cannot be adopted under the Code, which requires in section 8 that Reference Tariffs must be set to recover the total revenue requirement over the regulatory period. In order to allow the X factor adjustments to be met, Country Energy Gas does not propose that side-constraints apply to tariffs. Other Features of the proposed revisions The proposed revisions feature a number of changes to the existing Access Arrangement. These include: • amendments to the Access Arrangement and the standard transportation

contract to ensure consistency with the various codes and rules introduced since 1999, including the Gas Supply (Natural Gas Retail Competition) Regulation 2001, the Gas Network Code for full retail competition and the Gas Retail Market Business Rules;

• the inclusion of the Uranquinty distribution system in the Capital Base; • removal of the Queuing Policy which, following amendments to the Code, is

no longer required for distribution systems. Despite the formal removal of this policy, Country Energy Gas has retained the ‘first-in-first-served’ philosophy of the existing arrangement;

• clarification that meter testing, special meter reading, connection and disconnection services are Reference Services. The definition of these types of services are not clearly spelt out in the existing Access Arrangement;

• a separate definition of the Contract Transportation Service and the Volume Transportation Service;

• a simpler and more flexible approach to charging for Overruns; • consistent with proposed arrangements in the electricity industry, the X factor

is proposed to apply to a tariff basket of prices; • arrangements for a virtual delivery point to be established for gas balancing

purposes; • changes to the extensions/expansions policy, including the removal of the

1km limit to extensions automatically being covered and clarification of arrangements for developers in new subdivisions to fund or construct new pipelines; and

• better defined arrangements for annual tariff changes and adjustments associated with pass-through events.

In relation to this latter point, cost pass throughs and distribution prices are intrinsically linked, and are an important issue for service providers. Cost pass through should apply to those costs that are beyond the distributor’s control and


10

influence. Non-controllable costs are best borne by users of the Network, not distributors.

Pass-through mechanisms are particularly important in respect of the Network due to its small size and the reduced opportunity to absorb cost increases simply by accepting a reduction in the return on capital compared to larger networks.

Consistent with regulatory arrangements applying elsewhere, cost pass throughs are proposed in respect of changes in: • taxes, including new taxes or amendments to existing taxes; • regulatory arrangements such as changes in occupational health and safety

provisions, changes to regulatory instruments, changes to reticulator’s authorisation fees;

• market-events, such as those related to full retail contestability and retailer of last resort arrangements;

• insurance costs, which are important despite their low probability due to the potential high consequence to Country Energy Gas; and

• mandated changes in services. A summary of the demand forecast that underlies the forecasts of demand and calculation of tariffs is included in this Access Arrangement Information. Country Energy Gas will also provide IPART with a copy of the full demand forecast, as prepared for Country Energy Gas by independent consultants Infrastructure and Regulation Services. However, much of the information in this forecast contains confidential and commercially sensitive information regarding both the Network and Customers. Accordingly, the full report will not be made public.


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1. INTRODUCTION AND BACKGROUND

1.1 Basis for Access Arrangement Information

This Access Arrangement Information has been prepared by Country Energy Gas Pty Ltd ACN 083 199 839 (Country Energy Gas ) in accordance with the requirements of the National Third Party Access Code for Natural Gas Pipeline Systems (the Code) and applies to Country Energy Gas’ natural gas distribution system serving Wagga Wagga and surrounding areas (the Network). This Access Arrangement Information should be read in conjunction with the accompanying Access Arrangement.

1.2 Content of this Access Arrangement Information

The purpose of this document is to set out such information as is necessary to enable Users and Prospective Users to understand the derivation of the elements of the Access Arrangement and to form an opinion as to the compliance of the Access Arrangement with the provisions of the Code. In accordance with section 2.7 of the Code this Access Arrangement Information includes the categories of information described in Attachment A to the Code. However, in accordance with section 2.8 of the Code some information has been categorised or aggregated to ensure that it is not unduly harmful to Country Energy Gas’ legitimate business interests. This document is structured as follows: Section 2 provides background to the Network, the operation of the Network and the Access Arrangement in the period to 31 December 2004, and summarises key changes in the proposed Access Arrangement compared to the First Access Arrangement Period. Section 3 outlines the Services to be offered to Users and Prospective Users. Section 4 provides information on how the Capital Base has been calculated and how the return on capital, return of capital, and working capital elements have been calculated. Section 5 provides information regarding forecast Non-Capital Costs. Section 6 summarises Country Energy Gas’ forecasts of demand for Services . Section 7 brings together sections 4 to 6 and explains how the total revenue requirement has been calculated. Section 8 outlines how total costs have been allocated to Services to determine Reference Tariffs, and the rationale behind the proposed Reference Tariff Policy.


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Section 9 provides background to the proposed Terms and Conditions that will apply to the provision of Services. Section 10 addresses a number of miscellaneous matters, including the length of the Access Arrangement Period, and the manner in which capacity will be managed across the regulatory period.

1.3 Interpretation

In this Access Arrangement Information where a word or phrase is capitalised and italicised the term has the meaning set out in the Code, unless the word or phrase is defined in the Glossary which forms part of the Access Arrangement. In such a case the word or phrase has the meaning given to that word or phrase in the Glossary. Further, in this Access Arrangement Information headings are for convenience only and do not affect interpretation, and unless the context indicates a contrary intention:

(a) a reference to any party includes that party's executors, administrators,

successors, substitutes and assigns, including any person taking by way of novation;

(b) a reference to this Access Arrangement Information, the Access Arrangement or to any other agreement, deed or document (including, without limitation any standard, code, guidelines or rule) includes, respectively, this Access Arrangement Information, Access Arrangement or that other agreement, deed or document as amended, novated, supplemented, varied or replaced from time to time;


(d) unless the context indicates otherwise, a reference to a section is a reference to a section of this Access Arrangement Information;


(f) reference to any legislation or to any section or provision thereof includes any statutory modification or re-enactment or any statutory provision substituted for it, and ordinances, by-laws, regulations, and other statutory instruments issued thereunder.


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1.4 Contact Details

General enquiries regarding this Access Arrangement Information and the Access Arrangement should be directed to: Group General Manager Regulatory Affairs Country Energy Gas Pty Ltd PO Box 172 BATHURST NSW 2795 Telephone: 02 6338 3424 Fascimile: 02 6332 6812


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2. BACKGROUND TO THE NETWORK

2.1 Country Energy and the Wagga Wagga Network

Gas has been available in Wagga Wagga since the late 1880s. Manufactured gas was provided from this time until 1981 when supplies from the Cooper Basin became available. Gas supply was managed by the Wagga Wagga City Council until the system was acquired by Great Southern Energy in June 1997. Great Southern Energy, along with Advance Energy and NorthPower, were merged together to form Country Energy on 1 July 2001. As part of this merger Country Energy Gas became the owner and operator of the Wagga Wagga gas network. Key extensions and expansions to the network in recent times include the construction of a second connection to the East Australia Pipeline Ltd transmission line, and the extension of the network to the township of Uranquinty. At present the network serves over 16,500 predominately domestic and small commercial customers, although several large Contract Customers account for around 48% of total gas sales. 2.2 The First Access Arrangement Period Following a relatively lengthy process, the First Access Arrangement was drafted and approved by IPART and came into effect on 1 October 1999. The First Access Arrangement was designed to operate until the end of 2003 however following a request from Country Energy Gas , IPART agreed to extend its operation to 31 December 2004, and to amend the date at which revisions were required to be submitted to 31 December 2003. 2.2.1 Expenditure, revenue and volume outcomes The tariffs and other arrangements set out in IPART’s final approval of the First Access Arrangement were based upon a number of factors, including forecasts of capital and operating expenditure, and gas sales. A brief comparison of the outcomes with the forecasts is set out below. Volume of Gas Sold Gas sales to Contract Customers were relatively stable, although substantially less than forecast, due both to less usage than forecast by most customers, and the loss of one major customer. Table 2.1 – Gas Sales in the First Access Arrangement Period – Contract Customers

Year Forecast Volume (TJ)

Actual Volume (TJ)

% Difference

2000 834 738 -12% 2001 834 717 -14% 2002 834 687 -18%

2003 est 834 670 -20%


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Volume Customer consumption was also less than forecast. This occurred despite substantially higher customer numbers than forecast due to substantial growth in the Wagga Wagga housing market. The lower usage may be attributed predominately to relatively warmer winter weather, decreasing number of persons per household, and reverse cycle electric air conditioners displacing gas for space heating. Table 2.2 – Gas Sales in the First Access Arrangement Period – Volume Customers

Year Forecast Volume

(TJ)

Actual Volume

(TJ)

% Difference

2000 763 759 -1% 2001 771 763 -1% 2002 779 748 -4%

2003 est 787 734 -7% Table 2.3 –Volume Customer Numbers in the First Access Arrangement Period

Year Forecast Actual % Difference 1999 14,470 14,674 1% 2000 14,615 15,370 5% 2001 14,761 16,127 9% 2002 14,909 16,651 12%

2003 est 15,058 16,798 12% Capital Expenditure In aggregate capital expenditure was substantially higher than forecast. Areas where expenditure exceeded forecast included the following: • due to concerns regarding system security Country Energy Gas brought

forward the completion of the Southern gate station, which was originally scheduled to be completed in the forthcoming regulatory period. This has improved security of supply. The Rail Infrastructure Corporation has advised Country Energy Gas that major repairs to the Murrumbidgee rail bridge are anticipated to occur in 2005. Without the second gate station these repairs have the potential to create a substantial disruption to supply, at a time during the peak gas usage season. The second gate station not only provides additional security of supply but has also resolved pressure/supply problems in the southern areas of the Network, thus improving the standard of service to many customers;

• subsequent to the First Access Arrangement being approved, Country Energy

Gas found that the extension of the Network to Uranquinty would pass the economic feasibility test in the Code, particularly if constructed in conjunction with the completion of the southern gate station;

• significantly higher connections to the network than forecast. The main driver

for this was the unprecedented growth in new housing connections created as a


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result of low interest rates and the introduction of the first home buyers grant. Effective marketing of gas to developers by Country Energy Gas also resulted in relatively high penetration rates for these new homes;

• additional costs associated with the introduction of full retail contestability. This

expenditure has been deemed to be prudent by IPART following a review by PB Associates; and

• expenditure associated with Country Energy Gas’ Asset Management and

Operating Support System (AMOSS). This system will support the gas distribution business and provide the necessary system related data to enable more efficient network management and operation.

The need to harness resources and divert expenditure to the areas described above resulted in expenditure on other items being less than forecast. For example, asset renewal and replacement expenditure was less than forecast. Table 2.4 – Capital Expenditure in the First Access Arrangement Period

Year Forecast Capital


Actual Capital


% Difference

1999 2.84 1.95 -31% 2000 1.55 3.58 +131% 2001 1.56 3.42 +119% 2002 1.32 2.24 +69%

2003 (est) 1.59 1.91 +20% Total 8.86 13.09 +48%

Operating Expenditure The regulatory regime provided Country Energy Gas with a strong incentive to ensure operating expenditure was at efficient levels, as additional expenditure within a regulatory period cannot be recouped from customers. Operating expenditure, in aggregate, was close to levels forecast by IPART, although under-spending in the first years of the regulatory period was offset by higher expenditure in the later years. This higher spending has occurred largely as a result of a number of events that have been outside Country Energy Gas’ control: • higher than forecast growth in the network (including the Uranquinty

extension) and number of customers served. This has resulted in higher system operating and maintenance costs;

• more detailed and onerous regulatory compliance requirements; • the introduction of a number of codes and guidelines relating to the

management and operation of the Network, including those set out in section 2.2.2 below;

• increased insurance costs, particularly since 2001, associated with increased risk of terrorism and corporate collapses in the Australian insurance market;

• additional costs associated with the introduction and implementation of full retail contestability;


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• administrative costs associated with the introduction of the GST; • increased workplace health and safety related standards; • labour market conditions have resulted in wages increasing above the CPI,

particularly in NSW; • increased security costs; and • the addition of the second (Southern) gate station.

As the majority of these events are not once-off items, but rather have created a ‘step’ increase in expenditure, they will also be reflected in operating expenditure for the next regulatory period. Table 2.5 – Operating Expenditure in the First Access Arrangement Period

Year Forecast Operating


Actual Operating


% Difference

1999 1.91 1.82 -4% 2000 1.89 1.81 -4% 2001 1.87 1.90 +1% 2002 1.85 1.97 +6%

2003 (est) 1.84 1.99 +8% Total 9.36 9.48 +1%

2.2.2 Operation of the First Access Arrangement

The First Access Arrangement has proved relatively robust, although in many areas its operation has been untested due to the very limited interest in seeking access from third parties. During the First Access Arrangement Period: • only 1 request for access to the Network was made; • no queues for access to Services were formed; • no requests for trading of Capacity were made; and • the curtailment procedures set out in the First Access Arrangement were not

invoked. Since the commencement of the First Access Arrangement on 1 October 1999, a number of additional compliance and other regulatory obligations have been imposed on NSW gas distribution businesses. These include obligations imposed by IPART and the NSW Government pursuant to the Gas Act and the licensing regime, and cover matters such as: • the introduction of full retail competition; • the introduction of the Gas Supply (Natural Gas Retail Competition)

Regulation 2001; • the introduction of the Gas Network Code for full retail competition on

20 December 2001; and • the establishment of the Gas Retail Market Business Rules on 23 May 2003.


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These regime changes are not reflected in the existing Access Arrangement.

2.3 Material Changes compared to the First Access Arrangement

The Access Arrangement has proven relatively robust throughout the First Access Arrangement Period, and as a result the proposed Access Arrangement does not incorporate major changes. Nevertheless, aside from the changes to deal with the matters set out in section 2.2, a number of amendments have been proposed, with key differences including: • amendments to the Access Arrangement, and particularly the standard

Reference Service Agreement, to ensure consistency with the new codes and rules noted above;

• the inclusion of the Uranquinty distribution system in the Capital Base; • removal of the Queuing Policy; • clarification that meter testing, special meter reading, connection and

disconnection services are Reference Services ; • separate definition of the Contract Transportation Service and the Volume

Transportation Service; • better defined arrangements for annual tariff changes and adjustments

associated with pass-through events; • the adoption of a tariff basket approach to establishing tariffs, and the ability

for Country Energy Gas to introduce and delete tariffs; • a simpler and more flexible approach to charging for Overruns. • arrangements for a virtual delivery point to be established for gas balancing

purposes; and • changes to the extensions/expansions policy, including the removal of the

1km limit to extensions automatically being covered and clarification of arrangements for developers in new subdivisions to fund or construct new pipelines.

2.4 Physical Characteristics of the Network 2.4.1 Network description Gas enters the Network through city gates located at Bomen and Uranquinty where it is preheated to approximately 35°C. The pressure at each city gate is reduced from approximately 7000kPa to approximately 1000kPa. The Bomen City Gate incorporates twin streams of two stage pressure reduction regulators with monitor override. A relief valve is also installed. The Uranquinty Gate comprises of a single stream single stage pressure reduction using an active/monitor configuration with over pressure protection. The gas is then supplied from the City Gates via steel mains (API 5L) to the various supply districts in Wagga Wagga. Each district is supplied through a district regulator. The domestic metering pressure in Wagga Wagga is predominately 1.5kPa, however 2.75kPa can be found in some districts. Industrial & Commercial metering pressures will vary from 7kPa to 100kPa. Large Contract Customers are typically supplied from the high pressure steel mains.


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A schematic diagram of the Network is set out in the Access Arrangement. 2.4.2 Network Operation

Country Energy Gas operates the Network at various pressures depending on the location and the piping medium. As set out in section 4, a rehabilitation program is in place which is targeting older areas using insertion or replacement of galvanised steel and cast iron piping systems. System pressures will be increased as the rehabilitation program is progressed. The reticulation system operates under the following pressure regime: High Pressure - >400-1050 kPa Medium High Pressure – 80-400 kPa Medium Low Pressure – 7-80 kPa Low Pressure - 7 kPa 2.4.3 Network Capacity

Peak flows within the system generally occur during normal business days at around 9 - 10am. Hourly flow rates of up to 19,000 standard cubic metres per hour have been registered at various winter peak times over the past several years. Coincident peak demand is driven by the temperature sensitive volume load and hence occurs in winter. Maximum peak demand occurred on 1 July 2002 of around 8,900 GJ and was distributed across the following zones and customer groups: Bomen Contract Zone - 2100 GJ Central Contract Zone - 300 GJ Fringe Contract Zone - 800 GJ Volume Customers - 5700 GJ


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3. SERVICES TO BE OFFERED

Sections 3.1 and 3.2 of the Code require Country Energy Gas to provide a Services Policy which describes one or more Services that Country Energy Gas will make available to Users or Prospective Users, including:

one or more Services that are likely to be sought by a significant part of the market; and

any Service or Services which in IPART’s opinion should be included in the Services Policy.

Consistent with the First Access Arrangement Period, Country Energy Gas proposes to offer a Contract Transportation Service and a Volume Transportation Service to Users. These Services , which are likely to be sought by a significant part of the market, will be Reference Services and will attract a Reference Tariff. Country Energy Gas also proposes to offer four non-transportation Services as Reference Services in the Access Arrangement Period. These Services , known as Additional Services, are: (1) a Meter Testing Service;

(2) a Special Meter Reading Service;

(3) a Connection Service; and

(4) a Disconnection Service.

As in the First Access Arrangement Period, Country Energy Gas will continue to offer Negotiated Services to Users.

3.1 Reference Services

As noted above, Country Energy Gas will continue to offer the same Transportation Reference Services as in the First Access Arrangement Period. Country Energy Gas has not received any requests for other forms of Transportation Reference Services, and is not aware of any changes in circumstances or future developments that suggest that these Services will not continue to be sought by a significant part of the market during the Access Arrangement Period. 3.1.1 Contract Transportation Service

The Contract Transportation Service is a Service provided to the Delivery Point of customers who use 10TJ or more at a single Delivery Point. The Contract Transportation Service includes: (a) receiving natural gas at a Receipt Point;





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3.1.2 Volume Transportation Service

The Volume Transportation Service is a Service provided to customers who use less than 10TJ at a single Delivery Point. The Volume Transportation Service includes: (a) receiving natural gas at a Receipt Point;




(e) reading the Metering Facilities at the Delivery Point at a frequency of at least quarterly;


(g) in the case of a Customer who is not connected to the Network, the provision of up to 50 metres of pipeline from the Network to the nearest point on the Customer’s property, where the provision of such pipeline is consistent with the Extensions/Expansions Policy set out in section 7 and results in the economic feasibility test in section 8.16(b)(i) of the Code being satisfied.

3.1.3 Additional Services

The following Additional Services are offered in respect of Volume customers: (a) Meter Testing Service: on request of a User, an off-site check to test the

accuracy and soundness of Metering Facilities in order to determine whether the Metering Facilities are accurately measuring the quantity of natural gas delivered. The Meter Testing Service will be provided in accordance with the relevant provisions of the Network Code.

(b) Special Meter Reading Service: the reading of a meter and forwarding the metering data to the User and other entities in accordance with the requirements of the Gas Retail Market Business Rules, outside of the normal billing cycle for that Delivery Point.

(c) Connection Service: The connection of a Customer to the Network, either for the first time or following the disconnection of a Customer. Where necessary, this service includes the connection, adjustment or reconnection of Metering Facilities and performance of a safety check.

(d) Disconnection Service: Isolation of a Customer from the Network by adjusting or removing the Metering Facilities to prevent the withdrawal of natural gas.


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These Services were offered in the First Access Arrangement Period but were not formally defined as Reference Services. However, Country Energy Gas believes it is useful to do so, in order to ensure that Users’ rights to access these Services are clarified under the Access Arrangement, and to ensure that both Country Energy Gas and Users comply with appropriate terms and conditions for the provision of these Services . Country Energy Gas notes that some of these Additional Services are currently contestable (or are proposed to become contestable), and that these services are not “sought by a significant part of the market”. Nevertheless, Country Energy Gas believes it is of benefit to Users for the arrangements for the provision of these Services to be set out in the Access Arrangement. The services are offered only in respect of Volume Delivery Points as the sometimes unique nature of Contract Delivery Points and customers’ individual requirements mean that it is not possible to define benchmark services and costs. It should be noted that the Disconnection Service does not incorporate the complete removal of the Customer from the Network including decommissioning of relevant assets. This activity is a Negotiated Service. These services will be provided consistent with the requirements of the relevant regulatory codes and rules.

3.2 Negotiated Services

A Negotiated Service is a service that is different from a Reference Service. As required by the Code, Country Energy Gas will negotiate in good faith with a User or Prospective User to provide a Negotiated Service.

3.3 Service Standards and Quality

Country Energy Gas will provide Services in accordance with the service standards and the terms and conditions set out in: (a) the Access Arrangement; (b) the Network Code, as amended from time to time; (c) the Gas Retail Market Business Rules, as amended from time to time; (d) relevant Laws ; and (e) the standard Reference Service Agreement, as amended by Country Energy

Gas, from time to time. 3.3.1 Service Standards and Tariffs

Country Energy Gas does not propose that tariff arrangements during the Access Arrangement Period establish a formal link at this time between service standards and tariffs for Reference Services, either in the form of rewards or penalties. There are a number of reasons for this, including:


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• service standards in the gas industry are already high, and asset management and planning is driven to a large extent by safety requirements. Any improvements generated by linking revenue to service standards are therefore likely to be marginal;

• there are practical issues in measuring quality of supply and customer service, and robust and accurate historical data is not available;

• there has been no concern expressed by Customers or Users regarding existing service quality levels, and no indication of a willingness to pay for improvements. No data is available on customer preferences in terms of the price/service quality tradeoff;

• many service interruptions are caused by events largely, if not entirely, beyond Country Energy Gas’ control;

• the absence of maturity in the existing regulatory framework, including an absence of quality and quantity of historic data; and

• the small size of the Network means that the cost of systems for data collection and analysis is likely to be significant on a per customer basis, and far outweigh any benefits.


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4. CAPITAL COSTS Category 2 of Attachment A to the Code requires Country Energy Gas to provide information on matters including asset values, depreciation and planned capital investment. This information is set out in this section 4.

4.1 The Opening Capital Base

Consistent with standard regulatory practice and the provisions of the Code, the opening value of the Capital Base at 1 January 2005 reflects: • the initial Capital Base as determined by IPART as at 1 January 1999; • plus actual annual capital expenditure (new facilities investment) that meets

the provisions of section 8.16 of the Code; • less allowed annual depreciation of the Capital Base; • less Redundant Capital and asset disposals; • with adjustments for changes in the CPI.

4.1.1 Initial Capital Base

The initial Capital Base of $28.0m as at 1 January 1999 was determined by IPART when the First Access Arrangement was approved in 1999.

4.1.2 New Facilities Investment over the First Access Arrangement Period

New Facilities Investment over the First Access Arrangement Period was as follows: Table 4.1 – New Facilities Investment in the First Access Arrangement Period $’000 real 2003-04 1999 2000 2001 2002 2003

(est) 2004 (est)

Asset replacement & refurbishment - pipes 251 373 271 147 250 734 - meters 295 476 319 136 83 82 Growth Related 1,277 1,752 1,380 1,408 1,087 752 Non-system assets, FRC 123 139 383 435 465 324 Southern Gate Station 0 840 1064 116 23 0 Total 1,946 3,580 3,416 2,242 1,908 1,893 Figures in the table exclude capital contributions by third parties. Capital expenditure to the end of 2004 is anticipated to be 43% greater than originally forecast and included in Reference Tariffs for the First Access Arrangement Period. The key reasons for this are set out in section 2. All capital expenditure incurred passes the test set out in section 8.16 of the Code. That is, it:

• has generated Anticipated Incremental Revenue that exceeds the New

Facilities Investment; or • had system wide benefits; or


25

• was necessary to maintain the safety, integrity or Contracted Capacity of Services .

Under the regulatory regime Country Energy Gas has the commercial incentives to ensure that it:

• meets required service performance and compliance obligations at minimum expenditure, thus ensuring efficient asset planning and construction, and discouraging unnecessary expenditure; and

• applies Surcharges where a project would otherwise be uneconomic, on the basis that Surcharges increase revenue.

For these reasons, and in order to avoid the time consuming, costly and risk-creating alternative of “after the event” expenditure reviews by IPART, Country Energy Gas believes that IPART can infer that the expenditure passes the tests in 8.16 of the Code. Country Energy Gas notes that this approach has been adopted by the Essential Services Commission in Victoria. Country Energy Gas will provide specific information on a confidential basis to IPART to demonstrate that the cost of the extension to Uranquinty passes the economic feasibility test in the Code and hence can be included in the Capital Base. 4.1.3 Regulatory Depreciation over the First Access Arrangement Period

Country Energy Gas notes that there are two alternatives to determining regulatory depreciation in the First Access Arrangement Period. Under the first approach regulatory depreciation is simply the return of capital amount included in prices in the first regulatory period. Under the second approach regulatory depreciation is recalculated based on actual capital expenditure in the first period. Consistent with the approach proposed by Country Energy in respect of the electricity industry, Country Energy Gas has adopted the first approach due to the benefits of regulatory consistency, simplicity and the concept of maintenance of financial capital. No depreciation was forecast for the 2004 year in the original Access Arrangement. For this year Country Energy Gas has therefore simply adopted the depreciation value for 2003, increased by inflation. The amount used for depreciation in rolling forward the Capital Base is therefore: Table 4.2 – Regulatory Depreciation in the First Access Arrangement Period

$ ‘000 2003 1999

2000

2001

2002

2003

2004

Total 1,131 1,172 1,182 1,191 1,194 1,194

4.1.4 Redundant Capital and Asset Disposals

Country Energy Gas is not aware of any material assets that have become redundant over the First Access Arrangement Period. While one major Contract Customer, Laminex, ceased production during the period, this customer’s location close to the


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Bomen Gate Station and major distribution main meant that the displaced physical infrastructure was minimal. Therefore no Redundant Capital has been deducted in rolling forward the Capital Base. No material assets have been disposed of during the course of the First Access Arrangement Period. 4.1.5 Opening Capital Base

The Capital Base as at 1 January 2005 has therefore been calculated as follows: Table 4.3 – Calculation of the Capital Base at 1 January 2005

Year 1999 $m

2000 $m

2001 $m

2002 $m

2003(est) $m

2004(est) $m

Opening Capital Base 28.000 29.124 32.355 36.187 38.443 40.454 Capital Expenditure 1.713 3.197 3.156 2.176 1.908 1.893 Depreciation 0.996 1.032 1.041 1.049 1.051 1.051 Asset Sales 0 0 0 0 0 0 Redundant Capital

0 0 0 0 0 0

Indexation 0.407 1.066 1.717 1.129 1.154 0.921 Closing Capital Base 29.124 32.355 36.187 38.443 40.454 42.217 Indexation of the Capital Base has taken place using the following CPI adjustment factors. These factors are based on the index number for the weighted average of eight capital cities as published by the ABS. Table 4.4 – CPI indexation of capital base

CPI 1999

2000

2001

2002

2003

2004

Total 1.41% 3.47% 5.06% 3.03% 2.93% 2.22% The Capital Base of $42.217m at 1 January 2005 represents a 50% increase in value since 1999. In part this reflects the fact that capital expenditure was higher than forecast. The 50% increase, and resultant upward pressure on prices, is also a function of the fact that the initial Capital Base, and prices, were initially set by IPART at a level below independent assessments of the optimised depreciated replacement cost (ODRC). The ‘line in the sand’ approach adopted by IPART was also inconsistent with the approach adopted by regulators in respect of gas networks in other states. Had the Capital Base and prices been set at a more realistic level, the relative increase in the Capital Base and prices in the forthcoming period would have been lower.


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4.2 The Forecast Capital Base

The forecast Capital Base over the Access Arrangement Period reflects: • the opening Capital Base as at 1 January 2005, as determined above; • plus forecast annual capital expenditure (new facilities investment) that is

anticipated to meet the provisions of section 8.16 of the Code; • less forecast annual depreciation of the Capital Base; • less forecast Redundant Capital and asset disposals; • with adjustments for forecast changes in the CPI. 4.2.1 Capital Expenditure

Table 4.5 sets out Country Energy Gas’ proposed New Facilities Investment over the forthcoming regulatory period. Table 4.5 – Forecast New Facilities Investment $’000 real 2003-04 Jan to

June 2005

2005-06

2006-07

2007-08

2008-09

2009-10

Asset replacement & refurbishment - pipes 310 603 775 656 679 792 - meters 42 91 106 159 203 214 Growth Related 422 896 861 862 842 915 Non-system assets, FRC 129 264 270 276 282 289 Total 904 1,855 2,012 1,953 2,006 2,210 Asset replacement and refurbishment Appropriate asset replacement and refurbishment is essential to ensuring the continuing safety and reliability of the Network, and minimising asset lifecycle costs. If asset replacement and refurbishment does not occur at appropriate levels there will be increased costs associated with leak repairs, more frequent interruptions, and greater levels of Unaccounted for Gas. Asset replacement and refurbishment expenditure includes general replacement and refurbishment of the galvanised steel and cast iron network, as well as replacement of meters. Replacement and refurbishment expenditure in the existing regulatory period was less than the long term average required, due to the need to divert resources to other capital expenditure projects. The majority of Country Energy Gas’ galvanised steel network was constructed between 1950 and 1980. Field data and engineering forecasts suggest that a median life of 50 years for these pipelines is likely, and probability analysis suggests that a growing proportion of the network will require replacement over the period to 2017. Country Energy Gas proposes to replace 2.5% of the network each year over the forthcoming regulatory period. Country Energy Gas ’ operates some 44 kilometres of cast iron main. The last of the cast iron mains were laid in the early 1990s and a proportion of the system has already been rehabilitated. A section of cast iron will be replaced primarily where leak


28

survey information indicates it is prudent to replace a section of main compared to repairing individual leaks, or where insufficient capacity on the main is available. Country Energy Gas’ meter replacement costs are based on the meter replacements numbers set out in Table 4.6. Replacements occur when meters reach 15 years of age, in order to ensure compliance with the Gas Supply (Gas Meters) Regulation 2002. Table 4.6– Meter Replacement requirements

Jan to June 2005

2005-06 2006-07 2007-08 2008-09 2009-10

Number of meters replaced 251 533 609 885 1,107 1,160 Growth Related Growth related expenditure includes expenditure on new connections and new mains. New connection expenditure is based upon the number of new connections to the system set out in the demand forecast in section 6. It includes expenditure on the connection to the main, the service pipeline, and the cost of a meter. It is assumed that a proportion of the new connections will be funded through capital contributions from customers or developers, and hence forecast expenditure is adjusted to take this into account. Table 4.7 – Expenditure on New Connections

$ nominal Jan to June 2005

2005-06

2006-07

2007-08

2008-09

2009-10

Residential 70,433 182,294 133,342 106,581 65,040 141,716 Industrial/Commercial 30,008 61,275 61,972 64,005 65,397 65,871 Less Capital Contributions -8,225 -21,313 -15,757 -12,466 -7,611 -16,831 Total 92,216 222,256 179,557 158,120 122,826 190,756 New mains expenditure is based upon a forecast of an average of 5,000 metres of new mains being constructed each year. In reality, annual expenditure will vary from year to year. Non-system assets Non-system assets includes direct expenditure on IT systems and hardware, telephones, furniture and fittings and instruments, which are required to support the gas distribution business.


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Table 4.8 – Expenditure on Non System Assets

$ nominal Jan to June 2005

2005-06 2006-07 2007-08 2008-09 2009-10

IT Systems/Software 122,669 250,796 256,374 262,077 267,907 273,866 Computer Hardware 2,556 5,225 5,341 5,460 5,581 5,706 Telephones 511 1,045 1,068 1,092 1,116 1,141 Furniture & Fittings 1,022 2,090 2,136 2,184 2,233 2,282 Other/Instruments 2,556 5,225 5,341 5,460 5,581 5,706 Total 129,314 264,380 270,261 276,273 282,418 288,700 4.2.2 Asset Sales and Redundant Capital

No Redundant Capital or material asset disposals are forecast over the Access Arrangement Period. 4.2.3 Depreciation

Consistent with the approach adopted in the first regulatory period, depreciation has been calculated on a straight line basis as follows: Table 4.9 – Projected Depreciation

$m nominal Total Economic Life (yrs)

Average Remain.

Life

Jan to June 2005

2005-06

2006-07

2007-08

2008-09

2009-10

System Assets 56 38 0.538 1.094 1.149 1.206 1.263 1.325 Non-System Assets 10 5 0.263 0.505 0.571 0.640 0.711 0.786 Total 0.801 1.600 1.720 1.846 1.975 2.110

4.2.4 The Projected Capital Base

The Capital Base forecast by Country Energy Gas for the forthcoming regulatory period is as follows: Table 4.10 – Projected Capital Base

Year Jan to June 2005

$m

2005-06 $m

2006-07 $m

2007-08 $m

2008-09 $m

2009-10 $m

Opening Capital Base 42.217 42.799 44.028 45.321 46.458 47.545 Capital Expenditure 0.904 1.855 2.012 1.953 2.006 2.210 Depreciation 0.801 1.600 1.720 1.846 1.975 2.110 Asset Sales 0 0 0 0 0 0 Redundant Capital

0 0 0 0 0 0

Indexation 0.480 0.973 1.002 1.030 1.056 1.082 Closing Capital Base 42.799 44.028 45.321 46.458 47.545 48.727 Average Capital Base 42.508 43.413 44.674 45.889 47.001 48.136


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4.3 Cost of Capital

Category 2 of Attachment A to the Code requires Country Energy Gas to provide information on matters including the rate of return, equity structure and cost of debt. Under section 8.30 of the Code, the rate of return on the Capital Base should

“…provide a return which is commensurate with prevailing conditions in the market for funds and the risk involved in delivering the Reference Service (as reflected in the terms and conditions on which the Reference Service is offered and any other risk associated with delivering the Reference Service).”

The appropriate rate of return or weighted average cost of capital (WACC) to apply to Country Energy Gas’ Capital Base is intended to reflect the commercial rate of return that an investor in the Network would require, at a minimum, to commit to investing capital into the business. Country Energy Gas’ preferred form of WACC is one that is expressed in pre-tax real terms, where the tax rate applied is a statutory corporate tax rate. This form of WACC:

• is consistent with a capital base that is valued in current cost terms;

• includes an allowance for the cost of tax that does not undermine the public policy intent of tax concessions introduced by the Federal Government; and

• is consistent with IPART’s preferred position as expressed in its earlier Discussion Papers on WACC.

A pre-tax real WACC of 8.0% is proposed for the Network. This has been derived using the Capital Asset Pricing Model (“CAPM”) and is based upon an independent report on the cost of capital prepared by KPMG. A summary of the methodology and key parameters proposed by KPMG and supported by Country Energy Gas is provided below, while a full copy of the KPMG report is attached as Appendix 1 to this Access Arrangement Information.

4.3.1 Capital Structure

In Australia, an assumed gearing level of 60% has emerged as the industry norm for regulated network businesses. Comparable company analysis undertaken by KPMG indicates that this is not an unreasonable assumption. On this basis, Country Energy Gas has adopted a debt / equity ratio of 60% / 40% for the purpose of establishing an appropriate WACC. 4.3.2 Risk free rate of return and inflation

Nominal risk free rate

Country Energy Gas has adopted a risk free rate of return of 5.7% for the purpose of estimating an appropriate WACC. This estimate is based on a 20 day historical average (up to 7 November 2003) of the yield on 10 year government bonds, and is consistent with the practice that IPART has adopted in previous determinations.


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It is noted that the 10 year government bond has been accepted by all Australian regulators as the benchmark risk free asset, with the exception of the ACCC, which has elected to adopt as its benchmark risk free asset, a government bond with a term to maturity matching the length of the regulatory period. Country Energy Gas does not support the ACCC’s justification for its approach. The ACCC’s approach is internally inconsistent with its measure of the market risk premium, which is conventionally defined as a premium over the 10 year government bond.

Real risk free rate

Country Energy Gas has adopted a real risk free rate of 3.4%. This rate is based on the 20 day historical average of the yields (to 7 November 2003) derived by interpolating between the August 2010 and August 2015 Index Linked Government Bond.

Inflation

Collectively, these assumptions imply an expected inflation rate of around 2.2%, determined using the Fisher equation. 4.3.3 Market Risk Premium

The equity market risk premium (“MRP”) represents the additional return over the risk free rate of return that an investor would require as compensation for the risks of investing in a diversified equity portfolio. It is essentially a measure of investors’ appetite for risk. The methodology that is most commonly applied to measure the MRP is a historic approach. Under this approach, past observations of the MRP are applied in the CAPM. In Australia, there are a number of studies available using this methodology. Data from these studies indicates that whilst there is a wide range in the results, the majority of the historical evidence on Australia’s MRP lies in the range of 6% to 8%. In Australia, most regulators have tended to adopt 6% as a point estimate for the MRP, with the exception of IPART. In previous decisions, IPART has adopted an MRP in the range of 5% to 6%, based on a view that measurements of the MRP based on “more recent” data suggests that the MRP may have declined from the levels observed in the past. The notion that factors such as globalisation and technology had eliminated market risk and therefore permanently reduced risk premiums was popularised by many economists in the period before the September 11 terrorist attacks in the USA. However, the global impact of the terrorist attacks, and the recent spate of large corporate collapses, highlight that conclusions of permanent reductions in risk premiums were premature. Country Energy Gas therefore considers that 6% represents a reasonable point estimate for the MRP, for the purposes of estimating an appropriate WACC for its covered pipeline system.


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4.3.4 Betas and risk issues

Asset and equity beta

The equity beta for the Network has been estimated by considering:

• recent empirical evidence on the betas of comparable publicly listed companies; and

• the equity betas adopted by Australian regulators in recent regulatory decisions.

Empirical evidence suggests that the asset betas for gas transportation businesses fall within a range of 0.02 to 1.28. However, there is substantial variation in the observed equity betas and de-levered asset betas. Empirical measurements of beta are also intrinsically volatile over time. Recent decisions by the ACCC and the Essential Services Commission of Victoria have therefore tended to place greater weight on betas adopted in other regulatory decisions, and correspondingly less weight on recent market evidence. A review of the betas used in regulatory decisions on similar businesses suggests that an asset beta in the range of 0.40 to 0.55 and an equity beta in the range of 0.93 to 1.16 is commonly adopted for gas network businesses. In considering where, within these ranges, an appropriate beta value for the Network would lie, regard should be had to the following factors:

• the Network serves customers located in a regional township. Economic

conditions in these relatively remote areas, which are usually driven by seasonal fluctuations, can therefore have a significant impact on business operations; and

• Due to the geographic areas it serves, gas usage volumes are driven by domestic gas space heating. Mild weather conditions during peak usage periods can therefore have a significant effect on revenues generated.

Notwithstanding that such risks are predominantly and, strictly speaking, diversifiable risks, the impracticality and difficulties associated with measuring such risks means that it is appropriate to account for them within the estimate of the appropriate asset beta. A reasonable asset beta for the Network – given the risks faced by the business – is therefore around 0.50. Based on an asset beta of 0.50, and the assumptions adopted in relation to other relevant parameters, Country Energy Gas believes an reasonable estimate of equity beta for the Network to be in the range of 1.00 to 1.241.

1 Estimated using the Monkhouse formula.


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Debt beta

Country Energy Gas believes that the appropriate debt beta (βd) is likely to be relatively low or negligible. The WACC therefore assumes a debt beta in the range of 0.0 to 0.16. 4.3.5 Value of imputation credits (γ)

γ is the market value of every dollar of the tax credit associated with a franked dividend distributed to a shareholder. In our view, there are currently two points of issue surrounding this parameter – the appropriate value to attribute to γ, and the appropriate benchmark investor assumption to adopt.

Value of γ

Most of the available empirical evidence on the value of γ employ a methodology known as dividend drop-off analysis. Other methodologies that have been employed include analysis of national taxation statistics and specially developed equilibrium pricing models. Recently, the value of γ has also been estimated by comparing differences in the pricing of certain derivative securities and their underlying shares. This methodology was employed by Cannavan, Finn and Gray (2001). The authors consider the methodology used in their study provides a better indication of the value of imputation credits for large companies, as compared with dividend drop-off analysis, due to the stronger statistical properties of their results. The key proposition emerging from the study is that: “…in contrast to conventional wisdom, for large companies with substantial foreign investment the market value of these tax credits is close to zero after recent changes to tax laws that effectively prevent their transfer.” Other than IPART, regulators around Australia have to date adopted a value of 50% for γ. IPART, in contrast, has tended to adopt a range of 30% to 50%. The ACCC, in particular, has from time to time suggested that the value of γ should lie closer to 100%. One justification advanced by the ACCC was based on an analysis of how share prices would behave if domestic investors held all of the shares in the Australian stockmarket and if regulators continued to use an “average” value of γ for setting rates of returns. However, the analysis lacks credibility given that the assumption that domestic investors are the only investors in the Australian stockmarket is not borne out in reality. Evidence drawn from expert reports on takeovers to support such practices was provided in recent analysis by Wayne Lonergan. Lonergan notes that few reports make an allowance to reflect dividend imputation and Lonergan also provides a long list of conceptual grounds cited in reports for not adjusting for the value of imputation credits.


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The benchmark investor assumption To date, Australian regulators have based the value attributed to imputation credits from the perspective of the Australian investor, rather than the foreign investor. In our view, this benchmark assumption is inappropriately defined. In theory, the CAPM measures the marginal cost of capital or the required rate of return from the perspective of the marginal investor. The question that arises is therefore whether the marginal investor in the Australian stockmarket is a domestic or foreign investor. Professor Robert Officer has previously expressed the view that the marginal investor – the one who sets the price of Australian stocks - is the foreign investor. Cannavan, Finn and Gray (2001) also support this view. If the marginal investor in the Australian stockmarket is in fact a foreign investor, the value of y is likely to be closer to zero than the 50% that is currently being used in regulatory decisions. The use of a marginal investor concept for attributing an appropriate value to γ is not only underscored by basic CAPM concepts but is also dictated to a large extent by the available empirical evidence. All of the empirical studies available on γ implicitly measure the value of γ from the perspective of the marginal investor in the Australian market because:

• this basis of measurement is evident from the underlying data analysed in each

study, which is share price data on Australian companies, all of whom would display a mix of investors on their share register; and

• it is accepted that share prices are set by the marginal investor.

Proposed value of γ

Based on the evidence considered, and in view of the degree of debate that continues to surround the measurement of γ, Country Energy Gas considers that it is appropriate to adopt a value for γ in the range of 30% to 50%. This range of values is consistent with the range that IPART has adopted in other regulatory decisions in NSW. In addition, whilst new evidence that has emerged suggests that the appropriate value of γ should be closer to zero, it is acknowledged that such research is relatively new and not yet subject to widespread scrutiny. 4.3.6 Taxation

The main issue with the appropriate tax rate is whether the cost of tax should be explicitly quantified in cash flow terms so that an effective tax rate can be applied in the calculation of the pre-tax real WACC, or whether the effective tax rate should be deemed to be equal to the statutory corporate tax rate. Country Energy Gas notes that the ACCC and the Essential Services Commission of Victoria have adopted the former view, whilst IPART has indicated in its recent Discussion Paper in relation to the NSW electricity distributors2, that it is inclined to adopt the latter view. The ICRC in the ACT has adopted the latter view in its recent draft decisions in relation to ActewAGL and ACTEW’s electricity and water services.

2 IPART, 2004 Electricity Distribution Review – Preliminary Analysis, Secretariat Discussion Paper,

DP66, September 2003.


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Country Energy Gas supports the position that IPART intends to adopt. Country Energy Gas is fundamentally opposed to the use of an effective tax rate that takes into account the business’ entitlement to accelerated tax depreciation benefits in the calculation of the allowance for taxes. This approach effectively requires a business to fully and immediately pass on such benefits to its customers. In our view there are two major problems with this approach. Firstly, by requiring businesses to fully and immediately pass on the tax savings associated with accelerated tax depreciation, regulators are in effect confiscating the regulated business’ entitlement to such benefits. Such action effectively undermines the public policy intent of the Federal Government’s initiative, which was to provide incentives for businesses to invest. Secondly, in requiring businesses to fully and immediately pass on the tax savings associated with accelerated tax depreciation to customers, regulators are in effect seeking to replicate the outcome in a perfectly competitive market. Perfect competition, however, is not an appropriate standard of efficiency to apply. This issue was recently ruled upon by the Western Australian Supreme Court in the DBNGP decision. Other relevant matters in relation to the use of an effective tax rate include:

• the assets owned by network businesses are typically long-lived. The concerns

over the statutory tax rate exceeding the effective tax rate is one that exists only if regulators choose to view the issue from a short-term perspective rather than a long term “whole of life” perspective;

• the mechanics involved in determining the effective tax rate are complex, and raises the prospect of regulatory error;

• the cash flow based approach to determining the effective tax rate may be more analytically rigorous however it is debatable as to whether any greater degree of precision in results is achieved; and

• the process for determining the effective tax rate is intrusive and requires regulators to make prescriptive judgements about an element of the business that is complex and highly specific to the circumstances of individual businesses.

4.3.7 Debt margin and the cost of debt

The pre-tax required return on debt is conventionally expressed in terms of a margin or premium over the risk free rate of return. The required margin for gas and electricity network businesses can be determined as the sum of a number of components. Credit margin

This component reflects the credit cost of lending to the relevant business, which is based on the credit worthiness of the entity. In estimating this component of the debt


36

margin, regulators have assumed that regulated businesses would seek to target an investment grade credit rating (i.e. BBB- or better)3. The data reviewed suggests that the debt margin for BBB+ rated bonds averaged over the 20 days to 7 November 2003 was 95 basis points, and for BBB rated bonds, 109 basis points. Hedging costs

CPI-X regulated entities can be expected to hedge their debt in real terms (i.e. in line with changes in revenue). Many corporations do so by borrowing from the nominal debt market and using CPI swaps to hedge the CPI component of the nominal cost of debt. In estimating an appropriate debt margin, it is therefore appropriate to build in an allowance for the cost of CPI swap hedging costs. An allowance of 20 to 50 basis points has previously been estimated as being appropriate4. Debt establishment costs

This component represents the transaction costs associated with raising debt capital and is paid to the bank or financial institution arranging the debt. Such costs will vary with each transaction, however, an indicative allowance is normally around 10 to 20 basis points. We are aware that in recent regulatory decisions, the ACCC has allowed an allowance of up to 12.5 basis points for such costs, as has the ICRC in its recent decisions. Proposed value of Debt Margin and Cost of Debt The appropriate debt margin to adopt should be consistent with assumptions adopted in relation to gearing levels and target credit ratings, and should reflect prevailing market conditions. Based on the information reviewed, it is considered that a debt margin in the range of 1.3% to 1.7% is appropriate for the Network given a gearing level of 60%. The resulting pre-tax cost of debt would therefore fall within a range of 7.0 % to 7.4%.

4.3.8 Summary of WACC parameters and WACC range

Table 4.11 below summarises the WACC parameters and WACC estimate adopted by Country Energy Gas:

3 The validity of this assumption is cross-checked in regulatory decisions by forecasting the projected

cash flows implied by the decision, and computing various required financial ratios. 4 Refer page 125 of Citipower’s submission to the Victorian Essential Services Commission which is

available at http://www.esc.vic.gov.au/apps/page/user/pdf/citicht4.pdf


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Table 4.11– WACC parameters

Parameter Lower limit of range

Higher limit of range

Midpoint of Range

Nominal risk free rate 5.7% 5.7% 5.7% Real risk free rate 3.4% 3.4% 3.4% Inflation expectation 2.2% 2.2% 2.2% Asset beta 0.5 0.5 0.5 Equity Beta 1.00 1.24 1.12 Debt Beta 0.16 0.00 0.08 Market Risk Premium 6.0% 6.0% 6.0% CAPM cost of equity 11.7% 13.2% 12.5% Equity Proportion 40% 40% 40% Debt Proportion 60% 60% 60% Pre-tax cost of debt 7.0% 7.4% 7.2% Debt Margin 1.3 1.7 1.6 Corporate tax rate 30% 30% 30% Value of imputation credits 30% 50% 40% Nominal ‘vanilla’ WACC 8.9% 9.7% 9.3% Post-tax nominal WACC 7.1% 7.5% 7.3% Pre-Tax real WACC, using forward transformation

7.8% 8.3% 8.0%

4.4 Return on Capital

The return on capital component of the building block is calculated by multiplying the cost of capital by the average Capital Base in each year. This has been calculated as follows: Table 4.12– Return on capital calculation

Year Jan to June 2005

2005-06 2006-07 2007-08 2008-09 2009-10

Average Capital Base ($m) 42.508 43.413 44.674 45.889 47.001 48.136 Cost of Capital (%) 8.00% 8.00% 8.00% 8.00% 8.00% 8.00% Return on Capital Base ($m)

1.718 3.485 3.586 3.684 3.773 3.864

4.5 Return on Working Capital

Consistent with the approach adopted by IPART in its draft decision on electricity distribution revenue in NSW, Country Energy Gas has included a small return on the cost of holding working capital in determining its total revenue requirement. Table 4.13– Return on working capital

$m nominal Jan to June 2005

2005-06

2006-07

2007-08

2008-09

2009-10

Return on Working Capital 0.048 0.097 0.099 0.101 0.104 0.106


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5. OPERATING AND MAINTENANCE (NON-CAPITAL) COSTS

5.1 Overview

Categories 3 and 4 of Attachment A to the Code require Country Energy Gas to provide information on matters including operating and maintenance costs. Country Energy Gas has therefore prepared the following forecasts of operating and maintenance costs for the Network. In accordance with section 8.37 of the Code these costs are consistent with those that would be incurred by a prudent Service Provider in operating the Wagga Wagga network, acting efficiently, in accordance with accepted and good industry practice, and to achieve the lowest sustainable cost of delivering Reference Services. In respect of many operating cost categories, this has been achieved through market testing and tendering out of activities under medium term contractual arrangements. As provided for in Attachment A to the Code, some cost categories sought in Attachment A have been aggregated for commercial and confidentiality reasons, but also to reflect that Country Energy Gas’ information systems do not necessarily generate information under the specific category headings sought by the Code.

5.2 Projected Operating and Maintenance Expenditure Country Energy Gas has forecast full year operating costs of $2.17 million in real terms. Given forecast increases in customer numbers, this represents a real per customer reduction in costs over the forecast period. A substantial proportion of Country Energy Gas’ operating costs were tendered out to the market earlier in 2003 and contractual arrangements which commenced on 1 July 2003 now apply until 30 June 2005. The forecast costs for 2005 and beyond are based on an assumption that expenditure will continue at existing levels. Table 5.1– Operating Cost Forecast

$ real 2003-04 Jan to June 2005

2005-06

2006-07

2007-08

2008-09

2009-10

Network operating and Maintenance costs 476,500 953,000 953,000 953,000 953,000 953,000 Marketing 70,000 140,000 140,000 140,000 140,000 140,000 Direct network gas management 213,988 427,976 427,976 427,976 427,976 427,976 Corporate Allocation 289,979 579,955 579,955 579,955 579,955 579,955 FRC - - - - - - Regulatory Costs 25,000 50,000 50,000 50,000 50,000 50,000 Service Standards Administration 10,000 20,000 20,000 20,000 20,000 20,000

Total 1,085,467

2,170,931

2,170,931

2,170,931

2,170,931

2,170,931


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Network operating and maintenance costs includes the direct operating and maintenance costs of operating the Network. This category includes such things as city gate maintenance, regulator maintenance, leak repairs, inventory and supplies, network engineering, environmental management, technical assurance, subscriptions to standards and code preparation bodies, cost of gas control and network planning. Marketing costs includes the cost of Country Energy Gas’ promotional program, including spending to ensure new properties are connected to the network, and (predominately) the promotion of gas and gas appliances to existing connections. Direct network gas management includes the directly attributable costs of managing the gas network. Relevant functions include asset management functions, network data and billing, and strategic planning and compliance activities. Corporate allocation includes Country Energy Gas’ corporate costs which have been allocated to the Network on a causal basis. The corporate costs include billing, accounts payable, credit control, call centres, emergency response, finance and accounting, payroll, business development, property management, customer relations, and human resources. The manner in which these costs have been allocated to the Network is as follows:

• total corporate costs have been allocated to gas on the basis of an independently prepared cost allocation methodology that was developed for use in the 2002-03 regulatory accounts;

• gas corporate costs have been allocated between the gas network and gas retail functions on the basis of the relative share of revenue realised by each function; and

• gas network corporate costs have been allocated to the Wagga Wagga Network on the basis of the Wagga Wagga Network’s relative share of direct expenditure as a proportion of total gas network expenditure in 2003/045.

Regulatory costs includes the costs of preparing, submitting and negotiating the access arrangement with the regulator, activities in relation to Country Energy Gas’ reticulator’s licence, regulatory compliance and generally managing the interface with the regulator. The costs have been forecast on an average annual basis, although in practice regulatory costs will peak in the last two years of the regulatory period when access arrangement documentation for the next period is revised. Service standards administration includes the general management and administration of customer service standards for gas distribution as proposed by IPART. For example, this includes notification of planned interruptions to supply.

5 Country Energy Gas’ other networks include the systems serving towns including Cooma, Tumut,

Bombala, Culcairn, Holbrook and Temora.


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6. FORECAST DEMAND FOR SERVICES Category 5 of Attachment A to the Code requires Country Energy Gas to provide information on matters including volume forecasts and customer numbers. The forecasts of operating costs, capital costs and projected revenues set out in this Access Arrangement Information are based upon an independent load forecast prepared for Country Energy Gas by Infrastructure and Regulation Services (IRS). This section summarises the methodology adopted in preparing the load forecast, as well as the forecast itself. A complete version of the load forecast has been provided to IPART by Country Energy Gas. However, many aspects of the forecast contain sensitive and confidential information relating both to Country Energy Gas and the customers it serves. In accordance with section 7.11 of the Code, Country Energy Gas has advised IPART that the forecast is of a confidential and commercially sensitive nature.

6.1 Overview of Gas Demand in Wagga Wagga

The Wagga Wagga system serves over 16,500 customers who purchase a total of approximately 1.5 PJ of gas each year, which is transported through 559 km of pipes/mains. The vast majority of the gas consumers are Volume Customers, each using less than 10 TJ of gas per year. The domestic market represents approximately 45% of the total load, and about 200 Volume based commercial and industrial customers consume approximately 7%. There are also a small number (currently 15) of Contract Customers, who consume the remaining 48% of the total load. These customers are concentrated in three zones: • the Bomen zone, covering all the area serviced by the network that is north of

the Murrumbidgee River; • the Central zone, covering the main area of the City of Wagga Wagga; • the Fringe zone, covering customers located on the extensions of the network

to the Kapooka and Forest Hills areas. The Bomen zone is closest to the northern city gate, and historically, customers in the Bomen zone have been most susceptible to bypass. Around 80 percent of domestic households are connected to the Network. Similar to other regional centres, commercial uses of gas include wool combing, hospital services, plywood manufacture and asphalt production. Gas is also used by large army and air force establishments, and by Charles Sturt University.


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6.2 Forecast Methodology, Assumptions and Inputs

6.2.1 Methodology The approach taken by IRS in preparing the load forecast is consistent with the methodological approach described in “Review of AGLGN Gas Demand Forecasts A Report to IPART by ACIL Consulting”, July 1999. The forecast has been prepared on two separate bases: • micro-analysis informed by survey of customers, market analysis (including

major changes such as contestability in the retail market) and plans to extend the network; and

• macro-analysis driven by historical trends and relationships between drivers of gas demand, including population growth and weather.

The micro-analysis was the main source of information where there were identified customers and good knowledge existed about their demand over the forecast period. The macro-analysis formed the foundation for forecasting demand from groups of homogeneous customers for which it was not practical to survey. As part of the micro analysis approach, discussions were held with major customers to assist in planning for system demand, particularly where demand is based on economic activity outside the region. This micro analysis was conducted through direct consultation between the gas network business and the consuming customers by staff with existing customer relationships. This analysis has revealed that in general the Contract Customers do not envisage any significant increases or decreases in usage patterns over the forecast period. The second portion of the micro analysis was to examine changes in individual contract loads over the data period to determine if there have been any shifts in load levels over the data period. The contract loads were also tested for temperature sensitivity. Where a high correlation with climatic data indicated temperature sensitivity, the contract load was forecast relative to the forecast climatic conditions. The purpose of the macro analysis is to examine the relationship between gas consumption and potential drivers among homogenous customer groups. An analysis of customers numbers, population and demographic data, historic metering data and climatic variables was undertaken and single and multi-variable sensitivity analysis was then conducted to test the impacts of:

• temperature sensitivity; • average vs trend Heating Degree Days; • effect of removing 2003 HDD data; • population and household growth scenarios; • market penetration of new development; • number of disconnections per year; • use per household; and • Unaccounted for Gas.


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6.2.2 Inputs and Assumptions The following key inputs and assumptions underpin the forecast: • household forecasts are based on a forecast prepared by NIEIR for Country

Energy Gas . The forecast predicts a small decrease in population in Wagga Wagga;

• a 90% penetration of new residential developments; • the existing downward trend in Heating Degree Days will continue; and • new customers consume gas at the same rate as the current system

average.

6.3 Forecast

The load forecast for the Network is summarised below: Table 6.1 – Load Forecast for Volume Customers

Annual Load per volume customer Year Heating

Degree Days

Base Load per year (GJ)

Temperature Sensitive Load (GJ)

Total (GJ)

No of Volume

Customers

Total Load

Forecast (GJ)

2004/05 1,441.0 15.88 30.82 46.69 16,946 737,345

2005/06 1,434.5 15.88 30.68 46.55 17,091 746,517

2006/07 1,428.0 15.88 30.54 46.41 17,201 753,202

2007/08 1,421.4 15.92 30.40 46.32 17,291 759,702

2008/09 1,414.9 15.88 30.26 46.13 17,353 763,350

2009/10 1,408.4 15.88 30.12 46.00 17,463 770,203

Table 6.2 – Load Forecast for Contract Customers

Year Bomen Zone (GJ)

Central Zone (GJ)

Fringe Zone (GJ)

Total Contract Load (GJ)

2004/05 471,800 58,310 137,671 667,781

2005/06 471,612 58,246 137,436 667,295

2006/07 471,424 58,183 137,202 666,809

2007/08 471,236 58,120 136,968 666,323

2008/09 471,047 58,057 136,733 665,838

2009/10 470,859 57,994 136,499 665,352


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Table 6.3 – Total Forecast Load

Year Volume Load (GJ)

Contract Load (GJ)

Total Load (GJ)

2004/05 737,345 667,781 1,405,126

2005/06 746,517 667,295 1,413,812

2006/07 753,202 666,809 1,420,011

2007/08 759,702 666,323 1,426,026

2008/09 763,350 665,838 1,429,368

2009/10 770,203 665,352 1,435,555


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7. TOTAL REVENUE REQUIREMENT AND X FACTORS

7.1 Total revenue requirement

Table 7.1 brings together the elements of the total revenue requirement as set out in the previous sections. Table 7.1 – Total Revenue Requirement

$m 2005-06 2006-07 2007-08 2008-09 2009-10 Depreciation 1.600 1.720 1.846 1.975 2.110 Return on Capital 3.485 3.586 3.684 3.773 3.864 Operating and Maintenance Costs 2.269 2.319 2.371 2.423 2.477 Return on Working Capital 0.097 0.099 0.101 0.104 0.106 FRC Costs 0.213 0.213 6 month adjustment 0.448 Total Revenue Requirement 8.112 7.938 8.001 8.275 8.557 Table 7.1 includes amounts for 2005-06 and 2006-07 in relation to costs associated with full retail contestability, which were approved by IPART in 2002. Country Energy Gas and IPART have previously agreed that these costs should be incorporated in tariffs for the next regulatory period, rather than via a re-opening of the existing Access Arrangement. The annual figures for 2005-06 and 2006-07 each represent half of the total approved costs. In order to compensate Country Energy Gas for the revenue foregone by the absence of a full price change for this first six months, Country Energy has added an amount of $448,403 to the total revenue requirement in 2005-06. This amount represents the NPV of revenue foregone, calculated by comparing the proposed revenue requirement for the half year ending 30 June 2005 with the revenue that will be realised by increasing 2004 prices on 1 January 2005 by a lower percentage than is required to recover the full revenue requirement.

7.2 X Factors

Country Energy Gas has calculated the X and Po factors set out below by using a revenue smoothing approach that equates the NPV of revenue from Reference Services (given the load and customer number forecasts and X and Po factors) with the unsmoothed total revenue requirement. Table 7.2– Po and X Factors

Real Price Adjustments

1/1/05 2005-06 2006-07 2007-08 2008-09 2009-10

Po -5% -17.2% X Factor 0% 0% 0% 0%


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The Po and X factor combination proposed by Country Energy Gas provides for prices to return to a cost-reflective position early in the regulatory period, with subsequent tariffs moving in line with the assumed CPI from section 4.3.2 of approximately 2.2%. Country Energy Gas notes that the IPART Secretariat has proposed a ‘straight line smoothing’ approach to dealing with potential increases in electricity network prices. In its response to the Secretariat’s discussion paper, Country Energy has cited a number of reasons why this approach is not acceptable, including that it is inconsistent with the recent findings and conclusions of the Western Australian Supreme Court in respect of the Epic Energy case. Country Energy Gas also notes that such an approach cannot be adopted under the Code which requires in section 8 that Reference Tariffs must be set to recover the total revenue requirement over the regulatory period.


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8. REFERENCE TARIFFS AND REFERENCE TARIFF POLICY

8.1 Calculation of Reference Tariffs

8.1.1 Allocation of Total Revenue Requirement to Services

In order to provide information on the cost of providing services to various customer classes, and to enable tariff levels to be determined, Country Energy Gas engaged IRS to undertake a cost of supply analysis for the Network. The approach adopted in the analysis was as follows: • All asset related costs and all operating expenses were identified, including

corporate overheads (in aggregate these costs equalled the total revenue requirement.)

• The function that each cost is incurred to perform was determined. These functions generally relate to the services provided by the business, for example metering, high pressure mains and low pressure mains. Where some costs are incurred to perform more than one function, additional analysis was undertaken to determine the extent to which a cost can be attributed to each function.

• The costs were classified according to the drivers which cause the functionalised costs to vary. Some costs vary by system throughput, some are driven by the number of customers, and others are driven by the level of peak demand. Some costs, for example high pressure mains, vary through a combination of drivers, and some analysis and judgement was required to ascertain the extent to which each driver causes variability in the relevant cost.

• Costs were then distributed to the various customer classes (and even particular customers) based on the extent to which those customers impact the system. For example, the billing function tends to vary by the number of customers, so the largest customer class (Volume domestic) bore the majority of those costs.

This process enabled the costs assigned to each customer class to be identified, and for Country Energy Gas to identify if current revenue levels are inconsistent with costs. 8.1.2 Reference Tariff Structure

The structure of the Reference Tariffs for Transportation Services remains fundamentally unchanged from the First Access Arrangement Period. The tariff for the Volume Transportation Service comprises a Monthly Fixed Charge based on the flow rate of the Metering Facilities, plus a Volumetric Charge based on actual gas deliveries. The tariff for the Contract Transportation Service comprises a Monthly Capacity Charge (based on MDQ), plus a Monthly Metering Charge designed to recover the


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specific costs associated with meter provision, meter reading and data handling and provision. 8.1.3 Overruns

The Access Arrangement proposes a new arrangement for charging for Overruns. Under the relatively complex formula that applied in the First Access Arrangement, each Overrun effectively required a higher capacity payment to be paid, with the magnitude of the payment increasing (due to being based on the highest Overrun amount recorded) if an Overrun occurred more than 3 times in a month or 10 times in a year. Country Energy Gas proposes to change this approach to an arrangement where: • Users may apply to have Overruns authorised (provided that no more than 5

authorisations have already been granted in that Year) in which case no additional charge will apply; and

• where more than 3 unauthorised Overruns occur in a month, the MDQ will be reset consistent with the highest unauthorised Overrun in that month, and hence higher Capacity Charges will apply going forward.

Country Energy Gas believes the new approach is preferable, in that it: • recognises that single or small Overrun events are unlikely to impose

additional costs on the system in the short run, and hence there is limited justification for applying higher charges;

• but that repeated Overruns indicate that system capacity and security is reduced and hence that additional costs are likely to be incurred in the medium term; and

• is much simpler, easier to understand and easier to administer than the previous formula-based approach.


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8.1.4 Other fees Country Energy Gas has proposed a scale of fees to apply to the following: Table 8.1– Other fees

Section in Access

Arrangement

Fee item Fees cover Fee

1.5.3 Application fee for inform ation

Costs of compiling information on the network (that is not included in the Access Arrangement documentation) and on customer usage

$80 plus $80/hr after first hour.

2.4.7 Fee for processing

Request For Service Costs of assessing whether requests for service can be met and entering information in billing data base.

$80 plus $80/hr after

first hour 6.5 Fee for application for

transfer/assignment of MDQ and change in Delivery Point

Costs incurred by Country Energy Gas in determining whether the transfer or assignment of MDQ or Delivery Point is commercially and technically feasible and reasonable.

$80 plus $80/hr after first hour.

Maximum of $300

7.3.3 Commissioning fee Pre-commissioning checks, inspection and safety tests of each Delivery Point within the New Development.

$80/lot for first 10 lots,

$50/lot for each one thereafter

7.4 Service removal fee Costs incurred in removing the meter and capping off the service mains

$500

These fees have been calculated based on the estimated resources, and unit cost of those resources, required to perform the relevant function. In most cases the charge will vary according to the time taken to complete the function. As noted in section 7, revenue from these fees is anticipated to be small. 8.1.5 Unaccounted for Gas

Existing arrangements for the provision of Unaccounted for Gas will continue. That is, Country Energy Gas will add a defined percentage to the volume of gas withdrawn from Delivery Points in order to calculate the volume of gas upon which tariffs will be set. This percentage reflects Unaccounted for Gas in the Network. This approach provides Country Energy Gas with the incentive to reduce the level of Unaccounted for Gas in the Network The percentage of Unaccounted for Gas is forecast to decline over the next regulatory period, but has increased from the level adopted in the existing Access Arrangement. This reflects: • that the percentages set for the current regulatory period were over-optimistic

and unachievable; and • that rehabilitation and replacement of the older parts of the Network did not

proceed at the anticipated rate during the current regulatory period, due to diversion of resources to other capital projects.


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8.2 Reference Tariff Policy

8.2.1 Form of Price Control

The Access Arrangement proposes that Reference Tariffs be adjusted in accordance with a tariff basket approach. Under this approach • individual tariffs and tariff components can move consistent with a cap which

defines the overall movement in average prices; • average prices are determined by multiplying tariff components by relevant

volumes incurred in the previous year; • distribution businesses take the risk associated with higher or lower gas

usage. The tariff basket approach has been adopted in the gas and electricity industry in other jurisdictions (notably Victoria) and has been proposed by IPART for application in the NSW electricity industry. 8.2.2 Pass-Throughs

Section 3.4 of the Access Arrangement permits material changes in certain cost items which are beyond Country Energy Gas’ control and influence to be passed through to customers. These include changes to: • taxes, including new taxes or amendments to existing taxes; • regulatory arrangements such as changes in occupational health and safety

provisions, changes to regulatory instruments, changes to reticulator’s authorisation fees;

• market-events, such as those related to full retail competition and retailer of last resort arrangements;

• insurance costs, which are important despite their low probability due to the potential high consequence to Country Energy Gas; and

• mandated changes in services. Pass-through mechanisms are particularly important in respect of the Network due to its small size and the reduced opportunity to absorb cost increases simply by accepting a reduction in the return on capital compared to other larger networks. The proposed approach is consistent with sound risk management principles and similar provisions are a feature of other access arrangements. However, customers interests are protected to the maximum extent possible, in that: • IPART must approve any tariff change and can appoint an auditor to review

the effects of the costs; • the provision is symmetric and IPART is able to initiate a change in tariffs

should Pass-Through Items reduce or be removed; and • unless prescribed otherwise by law, tariffs must be adjusted consistent with

the basis upon which Reference Tariffs were originally determined. This


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ensures that individual customers or customer groups do not inappropriately bear the burden of price changes.

To minimise costs and ensure that Users do not have to deal with more than one price change each year, Country Energy Gas proposes that changes to tariffs as a result of the Pass Through Event occur at the same time as the annual price changes. 8.2.3 Addition and Deletion of Tariffs

Section 3.5 of the Access Arrangement enables Country Energy Gas to add or delete tariffs during the Access Arrangement Period. Country Energy Gas does not have any plans to amend its tariff structure at this time. Nevertheless, such flexibility will enable it to respond in the event that cost structures or demand change throughout the Access Arrangement Period. The bulk of the provisions in this section clarify the manner in which the tariff basket price control will be complied with in the event that tariffs are added or deleted. 8.2.4 Other Matters

Country Energy Gas has not proposed that any Fixed Principles apply to the forthcoming regulatory period, noting IPART’s general opposition to Fixed Principles in previous decisions. Country Energy Gas has not proposed that a formal efficiency sharing mechanism apply, either in respect of outcomes of the First Regulatory Period, or in relation to the forthcoming period. Country Energy Gas notes that the IPART Secretariat has not supported a carryover mechanism in the electricity industry for a number of reasons, and believes that the complexity and potential problems of such a mechanism make it particularly unsuitable for application to the small Wagga Wagga Network. Country Energy Gas believes that side constraints should not apply to prices in the forthcoming regulatory period. There are a number of reasons for this: • in comparison to Country Energy’s electricity network, the existing gas

network tariff structure is relatively simple and Country Energy Gas has no plans at this stage to alter its tariff structure;

• the majority of revenue is raised from a single group of (domestic) customers

who all face the same tariff arrangements, the CPI-X tariff basket proposed operates as an effective side-constraint for these customers in any case;

• larger customers do not require additional protection in the form of limits on

price movements; • due to the relatively compact geographical area served, cost factors affecting

one group of customers are likely to similarly affect others, thus creating little reason for Country Energy Gas to impose differential tariff impacts in the first place;


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• Country Energy Gas has the incentive to manage prices in a way that is both efficient and equitable, while maintaining a positive public profile. Thus it has the incentive to minimise price shocks where possible; and

• Country Energy Gas’ observations of the impact of side-constraints in the gas

and electricity industries in NSW and elsewhere suggests that side-constraints run a very real risk of restricting businesses from earning a reasonable return, despite the fact that this may not have been their original intention.


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9. TERMS AND CONDITIONS Section 3.8 of the Code requires that an Access Arrangement describe the ‘terms and conditions’ upon which the Reference Service will be made available, and that these terms and conditions be ‘reasonable’ in the regulator’s opinion. Since the commencement of the First Access Arrangement on 1 October 1999, a number of additional compliance and other regulatory obligations have been imposed on NSW gas distribution businesses. These include obligations imposed by IPART and the NSW Government pursuant to the Gas Act and the licensing regime, and cover matters such as: • the introduction of full retail competition; • the introduction of the Gas Supply (Natural Gas Retail Competition)

Regulation 2001; • the introduction of the Network Code for full retail competition on

20 December 2001; and • the establishment of the Gas Retail Market Business Rules on 23 May 2003. In defining the terms and conditions upon which services will be offered, Country Energy Gas has reflected the requirements of these documents. Documentation has also been issued in respect of the NSW electricity industry. Where possible, Country Energy Gas has attempted to ensure consistency with relevant provisions in both industries. Where relevant provisions do not exist and terms and conditions are left to Country Energy Gas to determine, Country Energy Gas has attempted to ensure consistency between the provisions in the Access Arrangement and standard Reference Service Agreement and the electricity Market Operation Rule (Network Use of System Agreements) No. 2 of 2001. This approach is in the interests of both Country Energy Gas and Users and Prospective Users in that it reflects existing arrangements with which both are familiar (most Users and Prospective Users operate in both industries), and allows Country Energy Gas to minimise the costs of its internal systems.

Country Energy Gas’ approach to defining the terms and conditions are consistent with good industry practice and are ‘reasonable’ in that they: • are sufficiently well defined, so that the likelihood of a dispute over the terms

and conditions of access is minimised; and

• are designed to protect the legitimate business interests of Country Energy Gas as well as Users and Prospective Users.

To ensure consistency and avoid duplication ,the Reference Service Agreement applies to both the Transportation Reference Services and the Additional Reference Services . However, a number of clauses – for example clauses 4 to 10 – are only relevant to Transportation Reference Services. 9.1 Gas Balancing Arrangements

The Network has two delivery points, one at Bomen and another located at Uranquinty some 28 kilometres away. In 2002/03 1424 TJ of natural gas was


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delivered into the Network. Approximately 67.7% of this was received at the Bomen Receipt Point and the other 32.3% at the Uranquinty Receipt Point. The supply of gas to the Network is predominately from the Moomba gas fields. The additional cost to deliver gas to Uranquinty using APT’s FT Service is 1.42 cents per GJ at 100% load factor or 2.75 cents per GJ at 50% load factor. This amounts to an additional cost of $6,593 pa or $12,768 pa respectively. At present the Network is a No Balancing network section as defined in the Gas Retail Market Business Rules. Line pack (gas stored) in the Network is minimal and it is appropriate to deem that deliveries to the Receipt Points on any Day are equal to deliveries to customer Delivery Points on that day. Country Energy Gas believes this position should be maintained as the additional costs associated with the introduction of complex balancing mechanisms for the allocation of up to $12,768 each year is not justified, particularly given the small number of Users. Country Energy Gas therefore proposes to establish a ‘virtual delivery point’ where each User is deemed to have delivered gas to Bomen and Uranquinty Receipt points in direct proportion to the total receipts at each of these Receipt Points. Each User will be deemed to deliver gas to the Bomen Receipt Point and the Uranquinty Receipt Point for a period in accordance with the following formula: VolumeBomen = Total Deliveries x ReceiptsBomen (ReceiptsUranquinty + ReceiptsBomen) and VolumeUranquinty = Total Deliveries x ReceiptsUranquinty (ReceiptsUranquinty + ReceiptsBomen) where VolumeBomen is the total volume of gas deemed to have been delivered (in GJ) to the Bomen Receipt Point on behalf of the User in the time period VolumeUranquinty is the total volume of gas deemed to have been delivered (in GJ) to the Uranquinty Receipt Point on behalf of the User in the time period ReceiptsBomen is the total volume of gas received (in GJ) at the Bomen Receipt Point in the time period ReceiptsUranquinty is the total volume of gas received (in GJ) at the Uranquinty Receipt Point in the time period Total Deliveries is the total volume of gas delivered (in GJ) to the User’s Delivery Points in the time period 9.2 Service Standards and Tariffs

Country Energy Gas does not propose that tariff arrangements during the Access Arrangement Period establish a formal link at this time between service standards and tariffs for Reference Services, either in the form of rewards or penalties. There are a number of reasons for this, including:


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• service standards in the gas industry are already high, and asset management and planning is driven to a large extent by safety requirements. Any improvements generated by linking revenue to service standards are therefore likely to be marginal;

• there are practical issues in measuring quality of supply and customer service, and robust and accurate historical data is not available;

• there has been no concern expressed by Customers or Users regarding existing service quality levels, and no indication of a willingness to pay for improvements. No data is available on customer preferences in terms of the price/service quality tradeoff

• many service interruptions are caused by events largely, if not entirely, beyond Country Energy Gas’ control;

• the lack of maturity of the existing regulatory framework including lack of quality and quantity of historic data; and

• the small size of the Network means that the cost of systems for data collection and analysis is likely to be significant on a per customer basis, and far outweigh any benefits.


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10. OTHER MATTERS

10.1 Revisions Submissions and Commencement Date

Country Energy Gas has proposed an Access Arrangement Period of 5.5 years and a Revisions Submission Date of 30 June 2009. Country Energy Gas has sought a 5.5 year Access Arrangement Period in order to place the Access Arrangement on a financial year basis rather than calendar year at present. The move to a financial year is consistent with most regulatory periods in other States and Country Energy Gas notes that IPART has a preference to move onto a financial year basis. Country Energy Gas’ proposal for a 5.5 year period is predicated upon the existence of an appropriate mechanism for the pass-through of material unforeseen costs, as proposed in section 3.4 of the Access Arrangement.

10.2 Capacity Management Policy

Consistent with existing arrangements in NSW, section 5.1 of the Access Arrangement provides that the Network will continue to be a Contract Carriage Pipeline.

10.3 Queuing Policy

Recent amendments to the Code mean that distribution pipelines are no longer required to (although they may) include a formal Queuing Policy. Further, the level of Spare Capacity on the Network meant that no queues formed during the First Access Arrangement Period and it is extremely unlikely that a queue will form during the forthcoming Access Arrangement Period. Country Energy Gas has therefore not included a formal Queuing Policy in the Access Arrangement. Nevertheless, to provide Users and Prospective Users with some clarity and certainty regarding the manner in which Requests for Service will be processed, section 2.4.6 of the Access Arrangement provides that: (a) Requests for Service will generally be processed according to their Priority

Date; and

(b) where there is insufficient capacity to satisfy all requests a queue will be formed. In order to achieve efficiencies in network design Country Energy Gas may investigate Developable Capacity alternatives and elevate the priority of other Prospective Users in the queue where reasonable to do so.

This approach will ensure the economically efficient operation of the Network and protect the relevant business interests of both Country Energy Gas and Prospective Users. Importantly, Country Energy Gas will not discriminate according to the identity of the Prospective User.


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Country Energy Gas notes that proposed section 2.4.6 is consistent with arrangements approved by the Essential Services Commission in the Victorian gas distribution industry.

10.4 Extensions/Expansions Policy

Section 7 of the Access Arrangement sets out the Extensions and Expansions Policy for the Network. It identifies the circumstances under which any extensions to or expansions of the Network will be covered and the tariff arrangements to apply to any extension or expansion. In the Access Arrangement, references to extensions or expansions are references to extensions or expansions to the Network as it will exist on 1 January 2005. In general, most extensions and expansions to the Network will be covered and prevailing Reference Tariffs will apply unless the New Facilities Investment does not pass the economic feasibility test in section 8.16 of the Code. The economic feasibility test will be applied on a case-by-case basis. Where it is not passed then consistent with provisions in the Code, Country Energy Gas may apply a Surcharge, seek a Capital Contribution or propose revisions to the Access Arrangement. The Extensions and Expansions Policy also contains provisions relating to the extension of the Network into New Developments. Consistent with proposals to open up extensions of the Network and connection of customers to competition, amongst other things the policy provides the ability for Developers to arrange for the construction of New Facilities themselves (subject to compliance with relevant Laws and/or documentation issued by Country Energy Gas, and to paying for appropriate supervision and commissioning of facilities). This approach is generally consistent with that adopted in the electricity industry in Wagga Wagga, where developers are required to construct or pay for new facilities to serve customers. It will allow New Facilities to be provided on the most efficient basis and will thus lead to lower tariffs for all customers over the longer term. New Facilities that are constructed or funded by Developers will enter the Capital Base at zero value. Finally, Country Energy Gas proposes to charge Users where the User requests that New Facilities be constructed to enable a new customer to connect to the Network, but subsequently the customer elects not to connect. This has become increasingly common in recent years, and usually occurs where the User has not properly communicated with the potential customer. The proposed approach will ensure that the User has the financial incentive to make sure that the customer does wish to connect to the Network before requesting Country Energy Gas to construct the New Facilities.


Appendix 1 KPMG Report on Cost of Capital

· abn 37 428 185 226 craig murray – managing director, country energy cnr littlebourne street...

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