No gas for McCormack

No gas for McCormack

APA boss Mick McCormack has a problem. Amid the myriad vested interests in the gas supply debate he is the easiest can to kick down the road.

That explains why, come December when COAG is due to sit down and talk gas issues again, more regulation of McCormack’s pipelines appears certain.

Everyone from Richard Cottee down is blaming McCormack for their problems.

McCormack has a legitimate beef in that gas prices have increased by 65 per cent since 2002 and transmission charges haven’t increased in real terms over the period.

Transmission costs amount to somewhere between 5 per cent and 10 per cent of retail gas costs, so McCormack argues that he’s not the villain in this puzzle. He is partly right, but the reality is that just because he hasn’t raised prices isn’t to say he doesn’t have too much market power and charges should be lower.

Politicians such as Victorian Premier Daniel Andrews can put their heads in the sand and say “no more exploration on my land to protect the farm vote”, but that won’t do much about getting more supply to consumers big and small. McCormack’s pipelines have arguably done their bit to get gas to new markets but in this debate he doesn’t stand a chance against the rural vote.

Next month he will sit down with Michael Vertigan and other members of the industry to talk through the issues ahead of the December COAG meeting.

ACCC chief Rod Sims has made his point and seemingly the politicians agree with him that existing regulations make no sense.

Only 15 per cent of APA’s pipes are regulated and the rest are virtual monopolies, which means they are subject to negotiation with the suppliers and the users.

The original regulation is based on a so-called coverage test, which looks at where the gas is going from and to and not whether the pipeline has market power.

It was a similar rule to the one governing Telstra when it controlled both the copper network and the retail phone market. Sims wants the test changed to a market power one, which would hit APA.

According to a Credit Suisse report out today, the impact would be enough to wipe 16 per cent from APA’s value, or $1.5bn from its present value of $9.3bn.

The report by Peter Wilson, together with broadcasts from Sims, are enough to have knocked 4.2 per cent from APA’s stock price, which closed at a six-month low of $8.38 yesterday.

McCormack thinks the market should wait and see what actually happens rather than jump at shadows. He has a point, but the reality is the gravy train is coming to a halt and from December it is virtually a certainty that more of APA’s network will be regulated.

Lower costs of transmission are one thing, but everyone knows the best way to get lower domestic gas prices is to take the limits off supply and that has nothing to do with APA.

It has everything to do with more powerful political lobbies that have got the ear of retail politicians like Victoria’s Andrews.

Maybe, as Sims argues, we should have both lower pipeline costs and more supply.

http://www.theaustralian.com.au/bus...e/news-story/3f1f844c76bff3524a19c39a5329c7af