1. AER draft decision on the Roma to Brisbane Pipeline (RBP) access arrangement proposal 12 April 2012 to 30 June 2017 Public forum 17 May 2012

2. Housekeeping matters Please sign the attendance sheetPlease sign the attendance sheet A record of this meeting will be madeA record of this meeting will be made A queuing workshop, requested & chaired by APTPPL, will be hosted after lunchA queuing workshop, requested & chaired by APTPPL, will be hosted after lunch

3. Purpose of the forum This forum is being held to: assist users and prospective users to understand the AER’s draft decisionassist users and prospective users to understand the AER’s draft decision encourage submissions on the draft decisionencourage submissions on the draft decision

4. The proposal APTPPL submitted its access arrangement (AA) proposal for RBP on 12 October 2011APTPPL submitted its access arrangement (AA) proposal for RBP on 12 October 2011 The proposal was published on 16 November and is available on the AER’s websiteThe proposal was published on 16 November and is available on the AER’s website AER received six submissions. These are also available on the AER’s websiteAER received six submissions. These are also available on the AER’s website The draft decision on the access arrangement proposal was published on 30 April 2012The draft decision on the access arrangement proposal was published on 30 April 2012

5. Consultants Opex and capex forecasts: Wilson CookOpex and capex forecasts: Wilson Cook Capacity utilisation forecasts: SKM MMACapacity utilisation forecasts: SKM MMA Rate of return: McKenzie and Partington/ HandleyRate of return: McKenzie and Partington/ Handley PMA capex: Bird Cameron/Frontier EconomicsPMA capex: Bird Cameron/Frontier Economics Labour cost escalation: Deloitte Access EconomicsLabour cost escalation: Deloitte Access Economics Queuing: Frontier EconomicsQueuing: Frontier Economics

6. Total revenue

7. Total revenue continued APTPPL proposed total revenue of $296.4 m excluding Lytton Lateral and RBP8APTPPL proposed total revenue of $296.4 m excluding Lytton Lateral and RBP8 –73 % increase over earlier AA period APTPPL’s proposed total revenue of $339.3 m including Lytton Lateral and RBP8APTPPL’s proposed total revenue of $339.3 m including Lytton Lateral and RBP8 AER approved a total revenue of $263.4 m including Lytton Lateral and RBP8AER approved a total revenue of $263.4 m including Lytton Lateral and RBP8 –$75.8 m (22%) below APTPPL’s proposed figure AER’s draft decision is expected to increase a typical residential customer’s bill by around $2 in the first year of the AA periodAER’s draft decision is expected to increase a typical residential customer’s bill by around $2 in the first year of the AA period

8. Impact on prices – transmission charges Indicative reference tariff path for the RBP’s reference services ($/GJ, nominal)

9. Reference tariffs AER approved proposed reference tariff structure, comprising 95% capacity component and 5% throughput component AER decision results in reference tariffs 21.9 % lower than APTPPL's proposal

10. AER’s draft decision & APTPPL’s proposal Differences between the AER’s draft decision and APTPPL’s AA proposal are principally driven by: Rate of return – WACCRate of return – WACC –AER approved WACC 8.55% against 9.63% proposed by APTPPL Capital expenditureCapital expenditure –AER approved addition of Lytton Lateral and RBP8 and subtraction of PMA buyout contract Operating expenditureOperating expenditure –AER proposed adjustment to opex mainly due to labour cost escalation forecasts

11. AER’s draft decision – key issues Key aspects of the AER’s draft decision: Rate of return – WACCRate of return – WACC Capital expenditureCapital expenditure Operating expenditureOperating expenditure Capacity utilisationCapacity utilisation Extension and expansion requirementsExtension and expansion requirements Pipeline servicesPipeline services Queuing arrangementsQueuing arrangements

12. Rate of return Key WACC parameters Previous ACCC Decision APTPPL Proposal AER Draft Decision Risk free rate5.704.254.21 Equity beta1.0 0.8 Market Risk Premium6.07.06.0 Debt Risk Premium1.144.314.03 Inflation3.212.622.60 Nominal Vanilla WACC8.789.638.55

13. Capital expenditure APTPPL's proposed and AER approved capex ($m, nominal)

14. PMA contract buyout AER did not approve capitalisation of the Pipeline Management Agreement (PMA) contract buyout. AER requires APTPPL to remove $30.1 million ($nominal) from its opening capital base IssueAER draft decision Rule 69 of the NGR requires that capex be costs and expenditure of a capital nature incurred to provide, or in providing, pipeline services. It is not clear that expenditure on the goodwill of a purchased business is incurred to provide or in providing pipeline services. APTPPL has not demonstrated that the submitted expenditure was incurred for the provision of pipeline services for the RBP. Rule 79(1)(a) of the NGR requires capex to be as incurred by a prudent service provider acting efficiently, in accordance with accepted good industry practice, to achieve the lowest sustainable cost of providing services. AER calculations show expenditure on the PMA contract attributed to the RBP is greater than the cost of continuing with the PMA contract. It is therefore not expenditure to achieve the lowest sustainable cost of providing services. AER does not accept the ‘terminal value’ attributed to the PMA contract beyond 2020 when the contract would have expired.

15. PMA contract buyout continued IssueAER draft decision Rule 79(1)(b) of the NGR requires capex to be justifiable on a ground stated in r. 79(2) of the NGR. APTPPL justified the PMA contract buyout capex using r. 79(2)(a) of the NGR, requiring the overall economic value of the expenditure be positive PMA contract buyout does not result in a positive NPV and is therefore not conforming capex for the purposes of r. 79(2)(a) of the NGR AER does not accept the approach for calculating expected savings over the life of the PMA contract as set out in the KPMG report AER also considers that the PMA contract buyout capex is not justifiable under any other test under r. 79(2) of the NGR

16. Operating expenditure APTPPL opex – historical and forecast ($’000, 2011–12)

17. Capacity utilisation forecasts

18. Extension and expansion requirements AER accepted the majority of APTPPL’s extension and expansion requirements but did not approve the inclusion of fixed principles in the AAAER accepted the majority of APTPPL’s extension and expansion requirements but did not approve the inclusion of fixed principles in the AA APTPPL proposed that the capital investment, operating costs and usage associated with extensions and expansions be excluded from regulatory coverage for 20 years (through a fixed principle)APTPPL proposed that the capital investment, operating costs and usage associated with extensions and expansions be excluded from regulatory coverage for 20 years (through a fixed principle) AER considers offering developed capacity as a negotiated service during the current AA period is sufficient to support APTPPL’s investmentAER considers offering developed capacity as a negotiated service during the current AA period is sufficient to support APTPPL’s investment

19. Pipeline services AER did not approve APTPPL’s proposal to restrict the capacity and geographic reach of the covered pipeline to 2006 levelsAER did not approve APTPPL’s proposal to restrict the capacity and geographic reach of the covered pipeline to 2006 levels AER considers the AA applies to the entire covered pipeline as at the commencement of the access arrangementAER considers the AA applies to the entire covered pipeline as at the commencement of the access arrangement The effect of the AER’s draft decision is that the Lytton Lateral and the RBP8 expansion (if in operation before the AA commences) form part of the covered pipelineThe effect of the AER’s draft decision is that the Lytton Lateral and the RBP8 expansion (if in operation before the AA commences) form part of the covered pipeline

20. Pipeline services continued AER also examined the inclusion of additional reference services such as intra-day renomination, as available and backhaul servicesAER also examined the inclusion of additional reference services such as intra-day renomination, as available and backhaul services AER considers there is insufficient evidence to support the view that these services should be defined as part of the reference service, or as additional reference services in accordance with r. 101(2) of the NGRAER considers there is insufficient evidence to support the view that these services should be defined as part of the reference service, or as additional reference services in accordance with r. 101(2) of the NGR

21. Queuing requirements AER did not approve APTPPL’s proposed auction-based queuing requirements and requires APTPPL to revert to the existing queuing requirements, based on first- come-first-served IssueAER draft decision The negotiate-arbitrate model established by the joint operation of the NGL and NGR Chapter 6 of the NGL and part 12 of the NGR which provide the access dispute provisions Auctions to allocate capacity and set terms and conditions go beyond establishing positions in a queue. Users should always be able to choose the reference tariff and reference terms and conditions. Role of the arbitration process may not be maintained Rule 103(3) of the NGR requires that a process or mechanism for establishing an order of priority between prospective users must be established An order of priority may not always exist. Lack of clarity regarding when APTPPL will hold an auction, the amount of capacity which will be offered, the terms and conditions to apply and when negotiations rather than auctioning will take place

22. Queuing requirements continued IssueAER draft decision Rule 103(3) of the NGR requires prospective users to be treated on a fair and equal basis AER not satisfied users would be treated fairly and equally. Unclear how APTPPL will determine bid requirements and bid compliance. Insufficient detail on NPV ranking and how users will be treated Rule 103(4) of the NGR provides the example of a publically notified auction in which all relevant prospective users are able to participate Auctioning provided as example only. Queuing requirements must satisfy other requirements of the NGL and NGR Rule 103(5) of the NGR requires sufficient detail to enable prospective users to understand the basis on which an order of priority between them is determined Insufficient detail for users to understand the basis for order of priority between them. Insufficient detail to understand how the NPV ranking operates. Lack of clarity in processes prevents understanding how order of priority will be determined

23. Queuing requirements continued IssueAER draft decision Section 23 of the NGL - National Gas Objective (NGO): efficient operation, use of, and investment in, the pipeline Section 24 of the NGL - revenue and pricing principles: efficient investment in, or in connection with, a pipeline, the efficient provision of pipeline services and the efficient use of the pipeline with respect to the reference service Higher tariffs and larger revenues may distort incentives for pipeline and related investment by APTPPL and users Since NPV rankings would be determined by APTPPL using unclear methods, an inefficient outcome could result One-shot irrevocable bids create information asymmetry and negate effective negotiation Users bid for unspecified non-homogeneous product Unclear what is being auctioned, as the capacity and terms and conditions must be nominated by the user. Bidders may face difficulty in forming valuations for an imprecisely defined product. Bids may not accurately reflect the relative valuations of capacity across bidders - efficient allocation less likely

24. Submissions Interested parties can forward submissions on the draft decision and on APTPPL’s revised proposal to rbp@aer.gov.au, until 25 June 2012Interested parties can forward submissions on the draft decision and on APTPPL’s revised proposal to rbp@aer.gov.au, until 25 June 2012 rbp@aer.gov.au The AER’s access arrangement guideline provides guidance on making submissionsThe AER’s access arrangement guideline provides guidance on making submissions Timeframes under the NGL and NGR limit the AER’s ability to consider late submissionsTimeframes under the NGL and NGR limit the AER’s ability to consider late submissions

25. Indicative Timeline AER’s draft decision released 30 April 2012 Revised proposals to be submitted 25 May 2012 Submissions due 25 June 2012 Release of final decision August 2012