QCA Draft Decision on Aurizon Network's Maximum Allowable Revenue Submission
The Queensland Competition Authority (QCA) has today published its Draft Decision on Aurizon Network's Maximum Allowable Revenue submission as part of the 2014 Draft Access Undertaking applying to the Central Queensland Coal Network.
The Draft Decision provides the QCA's draft determination on the components of the 'building blocks' that comprise Aurizon Network's Maximum Allowable Revenue (MAR) for the period of the next Access Undertaking.
For the four year period of the Access Undertaking the Draft Decision has detailed an overall unsmoothed maximum revenue of $4.02 billion including a Weighted Average Cost of Capital of 7.17%.
Aurizon Network is disappointed by the draft revenue decision which is below the $4.86 billion submitted in April 2013 and the $4.75 billion submitted as part of our revised financial model in December 2013. Aurizon Network is concerned about the negative signal this Draft Decision will send for future investment in the Central Queensland Coal Network, together with the impact it could have on the level of maintenance activities required to provide a safe, reliable and high-capacity network for customers.
Based on our initial analysis, there is a potential upside to the transitional tariffs previously agreed for Financial Year 2014 and 2015, however Aurizon disputes a number of the methodologies and assumptions used by the QCA in the calculations to arrive at the MAR for the period of the Access Undertaking.
We are encouraged by the QCA's openness to consider further information for its final decision. Aurizon Network will be making a robust case for changes during the consultation period on the Draft Decision with a particular focus on the maintenance allowances.
We believe Aurizon Network's MAR proposal is consistent with the pricing principles in the QCA Act, most notably section 168 (a), under which it can charge a price for access that at least provides a return on investment commensurate with regulatory and commercial risks involved.
Please refer to the table below which details the building blocks of the MAR, comparing the QCA Draft Decision and the Aurizon Network submission.
Aurizon Network submitted the 2013 Draft Access Undertaking (DAU) to the QCA on 30 April 2013 for approval.
Aurizon Network resubmitted an amended 2014DAU to the QCA on 11 August 2014 and retained the 2013DAU supporting material relating to the MAR. The 2014DAU amendments were based on consultation and feedback from industry stakeholders over the previous 15 months.
In considering the 2014DAU, the QCA has elected to divide its draft decisions into two discrete parts, namely, the MAR decision and the Policy and Pricing decision. The QCA will provide a combined Final Decision.
The MAR is the total revenue Aurizon Network is able to earn each year over the 2014DAU period by providing regulated access to the Central Queensland Coal Network (CQCN). It reflects the efficient costs of developing, maintaining and operating a highly reliable world class rail network with safety as its core value.
The Policy elements include the 2014 Draft Access Undertaking, Schedules and Standard Access Agreements. These elements govern the way in which Aurizon Network must provide access to the CQCN. The Policy draft decision (including reference tariffs and pricing principles) is expected to be published by the QCA on 19 December 2014.
QCA's consultation process on the MAR Draft Decision is open for 10 weeks with submissions due on 12 December 2014.
Aurizon Network is committed to working with the QCA, rail operators and the coal industry in delivering an approved Access Undertaking by 30 June 2015.
For more information:
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- Differences between Apr and Dec 2013 submissions are mainly due to scenario analysis on revised WIRP timing (i.e. delay to FY16).
- Total adjusted MAR includes UT3 Capital Carryover amounts to account for differences to capital expenditure estimated during UT3.
- There may be minor differences to the QCA Draft Decision numbers due to rounding.
 Total adjusted MAR is $3.88bn when including the impact of the UT3 capital carryover amounts to account for differences to capital expenditure estimated during UT3