Draft Financial Reporting Guidelines for Non-Scheme Pipelines
October 2017
Contents
1 Nature and authority 5
1.1 Introduction 5
1.2 Application of this Guideline 6
1.2.1 Legal framework 6
1.2.2 The role of the AER 6
1.2.3 Commencement 6
1.2.4 Application 7
1.2.5 Process for revisions 7
1.3 Interpretation 7
1.4 Definitions 7
1.5 Other issues 9
1.5.1 Establish and maintain accounts 9
1.5.2 Inflation 9
1.5.3 Currency and GST 9
1.6 Exemptions 9
1.7 Publication 10
2 Timing of information publication 11
2.1 Transitional arrangements 11
3 Requirement to publish financial information - entity financial statements 12
3.1 Obligations 12
3.2 Financial statements for the entity that owns the Pipeline 12
3.2.1 Required Statements 12
3.2.2 Compliance with accounting standards 12
3.2.3 Certification 12
4 Requirement to publish financial information – pipeline statements 13
4.1 Pipeline statements 13
4.1.1 Income statement 13
4.1.2 Balance sheet 15
4.1.3 Notes to the pipeline statements 16
4.2 Methods, principles and inputs used 17
4.2.1 Asset valuation principles 17
Pipeline assets 17
4.2.2 Capitalisation principles 18
Construction cost 18
4.2.3 Asset life principles 19
4.2.4 Allocation principles 20
4.2.5 Depreciation principles 22
4.2.6 Related party transactions 23
4.3 Financial performance metrics 23
4.4 Certification 24
5 Asset valuation in accordance with rule 569(4) 25
5.1 Certification 27
6 Requirement to publish weighted average price information 28
6.1 Obligations 28
6.2 Form and content 28
6.3 Methods, principles and inputs used 29
6.3.1 Estimates 29
6.3.2 Weighted average price calculations 30
6.4 Certification 30
6.5 Exemptions 30
7 Certification 31
7.1.1 Annual financial statements for the entity 31
7.1.2 Financial statements for individual non-scheme pipelines 31
7.1.3 Asset valuation in accordance with rule 569(4) 31
7.1.4 Weighted average price information 32
7.2 Access information standard 32
8 Compliance and enforcement 33
8.1 Maintaining compliance 33
1. Appendix A 34
2. Appendix B – Pipeline asset lives 35
Draft Financial Reporting Guidelines for Non-Scheme Pipelines 21
1 Nature and authority
1.1 Introduction
The National Gas (Pipelines Access-Arbitration) Amendment Act and Rule 2017, aims to facilitate access on reasonable terms to services provided by non-scheme pipelines by implementing an information disclosure and arbitration framework. A key component of the framework is to provide prospective users of non-scheme pipelines with increased information in an effort to reduce the imbalance in bargaining power they can face when negotiating with service providers.
Under Part 23 of the National Gas Rules (NGR), service providers for non-scheme pipelines are required to publish specific information, including financial information and weighted average price information. Financial and weighted average price information is intended to assist prospective users to carry out a high-level assessment of the reasonableness of the service provider’s standing price, as well as the terms and conditions associated with the service.
This Financial Reporting Guidelines for non-scheme pipelines (‘Guideline’) is published by the AER in accordance with rule557 of the NGR. Broadly the NGR require that the Guideline:
· provide for the publication of financial information about each non-scheme pipeline on a pipeline by pipeline basis and in respect of the financial year of the service provider for the pipeline;
· specify the methods, principles and inputs to be used to calculate weighted average price information and the form this information is to take;
· specify the level of detail of information required, which must be the level of detail reasonably required given the objectives of this Part and to provide a true and fair statement of the financial performance of the non-scheme pipeline and weighted average prices for pipeline services on the non-scheme pipeline;
· specify any accounting or audit standards that apply to the reported information; and
· provide for the manner in which the financial information and weighted average price information is to be certified as being true and fair.
The Guideline refers to the financial reporting template and sets out the requirements for service providers to complete the template. This Guideline is to be read in conjunction with the Financial Reporting Guidelines for non-scheme pipelines Explanatory Statement.
This Guideline prescribes:
· the form and content of financial information required to be published;
· the methodology, principles and inputs used to calculate the financial information;
· the form and content of the weighted average price information to be published;
· the methodology, principles and inputs used to calculate the weighted average price information; and
· the manner in which the above information must be certified by an independent auditor.
1.2 Application of this Guideline
1.2.1 Legal framework
The National Gas Law (NGL) is set out in the schedule to the National Gas (South Australia) Act 2008 (SA). The NGL applies in each participating jurisdiction (other than Western Australia) under application legislation of each jurisdiction.
The NGR are made under the NGL and have the force of law.[1]
The National Gas (South Australia) (Pipelines Access—Arbitration) Amendment Act 2017 amended the NGL. It introduced a new section 83A (relating to information) and a new Chapter6A, amended section 271 and gave the South Australian Minister the power to make the initial rules about, among other things, access proposals, access disputes and arbitrations under Chapter 6A.
The initial rules made by the Minister comprise a new Part23 in the NGR and a new Schedule4 to the NGR. Schedule 4 sets out derogations and transitional provisions.
This Guideline should be read in conjunction with:
· the National Gas (South Australia) Act 2008 (NGL)
· the National Gas Rules (NGR) and, in particular Part 23
· the Non-scheme Pipeline Arbitration Guide
· the Gas Pipeline Information Disclosure and Arbitration Framework – Initial National Gas Rules Explanatory note, that was published by the GMRG on 2 August 2017.
1.2.2 The role of the AER
The AER is an independent statutory authority established under Part IIIAA of the Competition and Consumer Act 2010 (Commonwealth).
The AER has two roles under Chapter 6A of the NGL and Part23 of the NGR, as both regulator and scheme administrator. This Guideline is published by the AER in its capacity as regulator.
As regulator, the AER has the monitoring, investigative and enforcement powers conferred on it by the NGL.
1.2.3 Commencement
This Guideline commences on [xx December 2017]. Further detail regarding transitional reporting following this date is provided in Section 2.1.
1.2.4 Application
The information disclosure and arbitration framework, as articulated in Part 23 of the NGR, applies to non-scheme transmission and distribution pipelines. The term “non-scheme pipeline” is defined in section 83A of the NGL as a transmission or distribution pipeline that is not a scheme pipeline, while the term “scheme pipeline” is defined in section 2 of the NGL as:
· a covered pipeline;[2] or
· an international pipeline to which a price regulation exemption applies.
1.2.5 Process for revisions
The AER may amend or replace this Guideline from time to time, in accordance with rule 557(3) of the NGR and the standard consultative procedure in rule 8 of the NGR. A date of issue will identify each version of this Guideline.
1.3 Interpretation
In this Guideline, unless the contrary intention appears:
· A term in bold type that is expressly defined in Section 1.4 of this Guideline has the meaning set out in that Section.
· A term in bold type that is not expressly defined in Section 1.4 of this Guideline has the same meaning it has in the NGR.
· The singular includes the plural, and vice versa.
· A reference to any legislation, legislative instrument or other instrument is a reference to that legislation or instrument as in force from time to time.
· Explanations in this Guideline about why certain information is required are provided for guidance only. They do not limit in any way the AER’s objectives, functions or powers.
1.4 Definitions
In this Guideline:
· AASB means the accounting standards prescribed by the Australian Accounting Standards Board.
· AER refers to the Australian Energy Regulator.
· application date means:
a) in relation to a pipeline that is a non-scheme pipeline on the commencement date, the date falling five months after the commencement date
b) in relation to a pipeline that becomes a non-scheme pipeline within five months of the commencement date, the date falling five months after the commencement date
c) in relation to any other pipeline, the later of:
i. the date the pipeline is commissioned (as defined in section 12 of the NGL), and
ii. the date the pipeline becomes a non-scheme pipeline.
· capital base, in relation to a pipeline, means the capital value to be attributed, in accordance with this Guideline, to pipeline assets.
· commencement date means 1 January 2018.
· capital expenditure means pipeline expenditure of a capital nature that complies with the criteria specified in Section 4.2.2.
· depreciation means depreciation of the capital base.
· exemption means an exemption granted by the AER in accordance with Division 6 of the NGR.
· financial reporting template means the financial reporting template for non-scheme pipelines developed in accordance with this Guideline using the format, structure and calculation methodology provided.
· GMRG refers to the Gas Market Reform Group.
· Guideline refers to the financial reporting guidelines for non-scheme pipelines.
· initial financial reporting and average weighted prices has the meaning set out in Schedule 4 Part 1 of the NGR and refers to the information prepared for an initial six month period.
· NGL refers to the National Gas Law.
· NGR refers to the National Gas Rules.
· operating expenditure means operating, maintenance and other costs and expenditure of a non-capital nature incurred in providing pipeline services.
· pipeline has the meaning in the NGL.
· service provider of a pipeline has the meaning given in section 8 of the NGL.
· pipeline assets in relation to a pipeline, means capital assets that constitute the pipeline or are otherwise used by the service provider to provide services, including construction costs capitalised (or acquisition costs capitalised where allowed by the Guideline), capitalised maintenance and any other capital improvements.
· prospective user has the meaning in section 216B of the NGL and is used to refer to existing and prospective shippers (it is used interchangeably with the term shipper).
· related body corporate has the meaning given to it in the Corporations Act 2001, this term is used interchangeably with the term related party.
· reporting entity means the body that prepares financial statements, which may be the service provider or a direct parent entity where the service provider does not prepare financial statements.
· reporting period means the annual financial year for which the reporting entity ordinarily prepares financial information.
· return of capital has the meaning specified in Section 5.
· shared supporting assets are assets used to support the operation of multiple pipelines and/or other revenue generating activities other than just the pipeline. Where an asset is used to support the operation of multiple pipelines or other revenue generating activities, an apportionment of the asset is required as outlined in Section 4.2.4.
· weighted average price information has the meaning defined in section 556 of the NGR.
1.5 Other issues
1.5.1 Establish and maintain accounts
In order to meet the certification requirements discussed at Section 7 of this Guideline (below), a service provider must establish and maintain appropriate internal accounting procedures. These internal accounting procedures must allow the service provider to demonstrate the extent and nature of transactions associated with each non-scheme pipeline, and the allocation of applicable revenues, costs, assets and liabilities.
1.5.2 Inflation
No values provided in the financial reporting template for the current or previous year are to be restated for inflation.
1.5.3 Currency and GST
All amounts provided in the financial reporting template are required to be provided in Australian Dollars and exclusive of goods and services Tax (GST). Where currency is required to be converted to Australian dollars, the requirements in the relevant AASB standard should be followed.
Where a foreign owned entity is the reporting entity, in accordance with Section 3, the reporting entity is able to provide audited entity financial statements in the currency they are prepared in.
1.6 Exemptions
For the avoidance of doubt, this section is for information only, and does not alter or qualify the AER’s discretions or functions relating to exemptions under Part 23 of the NGR.
A non-scheme pipeline service provider may apply to the AER for an exemption from the information disclosure and arbitration framework where the pipeline satisfies a relevant exemption criteria as stipulated in rule 585. There are three categories of exemptions for non-scheme pipelines as outlined in Table 1.1.
Table 1.1: Exemptions available under Part 23 of the NGR
Exemption category / Exemption criteria /Category 1: Exemption from arbitration of access disputes / The pipeline does not provide third party access
Category 2: Exemption from information disclosure provisions / Either of the following:
§ The pipeline does not provide third party access.
§ The pipeline is a single shipper pipeline.
Category 3: Exemption from publishing service usage information, service availability information and financial information / At any time, the average daily injection of natural gas into the non-scheme pipeline calculated over the immediately preceding 24 months is less than 10TJ/day.
The AER determines whether or not an exemption is granted. Exemptions may be time-limited, subject to conditions and varied at the AER’s discretion.
Exemptions do not apply automatically. To receive an exemption, the service provider for the non-scheme pipeline must apply to the AER under Division 6 of Part23 and be granted the exemption.
A service provider who wishes to apply for an exemption must complete the application form available on the AER website. All applications will be assessed by the AER in accordance with the NGR.
Non-scheme pipelines that hold an exemption will be identified in a public register of exemptions on the AER website. The public register contains additional information including the location and/or part of the pipeline, the category of exemption, the date the exemption was granted and applicable conditions.