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GST Implications for the Electricity Supply Industry in Tasmania June 2000

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GST Implications for the Electricity Supply Industry in Tasmania June 2000 GST Implications for the Electricity Supply Industry in Tasmania Occasional Paper June 2000 iv Comments on the matters raised in this Paper should be directed to: Ms Heather Wilson Assistant Director Office of the Tasmanian Electricity Regulator GPO Box 770 HOBART TAS 7001 Telephone: 03 – 6233 5603 Facsimile: 03 – 6233 5666 Email: [email protected] Printed June 1999 Office of the Tasmanian Electricity Regulator Level 5, 111 Macquarie Street HOBART TAS 7000 AUSTRALIA ISBN 0724650199 Copyright © Office of the Tasmanian Electricity Regulator 2000 iii Table of Contents OVERVIEW ............................................................................................................................................................ v 1 INTRODUCTION...............................................................................................................................................1 1.1 BACKGROUND...................................................................................................................................................1 1.2 INDICATIVE ANALYSIS BY THE COMMONWEALTH TREASURY.......................................................................3 1.3 ESAA – ARTHUR ANDERSEN STUDY RESULTS ..............................................................................................3 1.3.1 ACCC Estimates ....................................................................................................................................5 1.3.2 Applicability to the Tasmanian Context...............................................................................................5 1.4 OTHER ISSUES...................................................................................................................................................6 1.4.1 GST and CPI-Linked Pricing................................................................................................................6 2 REGULATORY AND POLICY FRAMEWORK.........................................................................................9 2.1 ACCC GUIDELINES ..........................................................................................................................................9 2.1.1 Guidelines 1999.....................................................................................................................................9 2.1.2 Amendments to the 1999 Guidelines..................................................................................................10 2.1.3 Price Exploitation Regulatory Test....................................................................................................12 2.2 PRICING DETERMINATION ..............................................................................................................................12 2.3 OTHER POLICY CONSIDERATIONS..................................................................................................................13 2.4 REVIEW OF GST IMPLEMENTATION – AUDIT REQUIREMENTS ....................................................................13 2.5 ANALYSIS UNDERTAKEN BY THE ENTITIES ...................................................................................................14 3 HYDRO-ELECTRIC CORPORATION ESTIMATED IMPACT ON ENERGY PRICES...............15 3.1 BACKGROUND.................................................................................................................................................15 3.2 MONASH MODELLING....................................................................................................................................15 3.3 ASSUMPTIONS .................................................................................................................................................16 3.4 COMPARISON WITH OTHER GENERATORS.....................................................................................................18 3.5 COMPLIANCE PROCESS...................................................................................................................................18 3.6 ESTIMATED IMPACTS HYDRO TASMANIA......................................................................................................19 3.6.1 Recommended Pricing.........................................................................................................................19 3.7 CONCLUSION...................................................................................................................................................21 4 SYSTEM CONTROL.......................................................................................................................................23 4.1 BACKGROUND.................................................................................................................................................23 4.2 PRICING IMPACT .............................................................................................................................................23 4.2.1 Conclusion ...........................................................................................................................................24 5 TRANSEND ESTIMATED IMPACT ON TRANSMISSION PRICES..................................................25 5.1 METHODOLOGY..............................................................................................................................................25 5.1.1 Modelling Objective ............................................................................................................................25 5.1.2 Econtech Methodology........................................................................................................................25 5.2 MONITORING TO PASS ON ACTUAL COSTS .....................................................................................................27 5.3 ALTERNATIVE MODELLING OUTCOMES .........................................................................................................28 5.4 ESTIMATED IMPACTS......................................................................................................................................29 5.4.1 Main Findings at a Glance .................................................................................................................29 5.4.2 Major Costing Impacts on Transend..................................................................................................30 iv 6 AURORA – ESTIMATED IMPACT ON RETAIL ELECTRICITY AND OTHER SERVICES......33 6.1 ISSUES .............................................................................................................................................................33 6.1.1 Number of pass through rates for each service category .................................................................34 6.2 MODELLING APPROACH AND KEY ASSUMPTIONS........................................................................................35 6.3 ESTIMATED IMPACTS AURORA ENERGY........................................................................................................35 6.3.1 Electricity Prices:................................................................................................................................36 6.3.2 Other Services......................................................................................................................................38 6.3.3 Summary...............................................................................................................................................39 6.4 COMPARISON WITH OTHER MODELS..............................................................................................................39 6.5 NEXT STEPS ....................................................................................................................................................40 7 REGULATOR’S ASSESSMENT...................................................................................................................41 7.1 ISSUES .............................................................................................................................................................41 7.1.1 Potential Differences between a hydro and thermal based ESI. ......................................................41 7.1.2 Comparative Estimates .......................................................................................................................41 7.1.3 Comparison with other Jurisdictions.................................................................................................42 7.1.4 Limitations of Modelling.....................................................................................................................42 7.1.5 Savings arising from the New Tax System in Tasmania ...................................................................42 7.2 SUMMARY.......................................................................................................................................................44 7.3 FUTURE ACTION .............................................................................................................................................45 v Overview The Terms of Reference for the 1999 Electricity Supply Industry Pricing Policies Investigation required the Regulator to set maximum prices for the three years from 1 January 2000 for certain electricity services, being: § electricity generation on mainland Tasmania for tariff sales; § system control functions and ancillary services; § transmission
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