We have found that TAHE has complied with the ceiling test in the Undertaking for its Hunter Valley Coal Network for the 2020-21 compliance year.
Across all access seekers, TAHE under recovered its costs of servicing the combined coal and freight group of access seekers on the network by $2.2 million in 2020-21, after reducing charges for coal customers by 20% in 2020-21. Previously, RailCorp (TAHE’s predecessor organisation) had over-recovered revenue from its access seekers for many years, resulting in a cumulative over-recovery balance of $11 million.
TAHE’s under-recovery in 2020-21 has reduced this cumulative balance to $8.8 million as at June 2021.
Returning the over-recovery balance to access seekers
In February, we made a Draft recommendation that TAHE should attempt to return the over recovery to a zero balance within the next 12 months, consistent with the requirements of the Undertaking.
TAHE has proposed to instead maintain prices at current levels below the ceiling to return the over-recovery balance to zero over four years, noting the emerging issues around whether it will be able to recover the value of its assets.
Because there is a possibility that the current Undertaking could allow for higher access charges to be negotiated in the future, we consider that TAHE’s approach of maintaining prices at current levels below the ceiling has some merit until:
- IPART’s review of the Undertaking is finalised, and
- the impact on the ceiling as a result of the recent changes in the coal industry is better understood.
TAHE’s proposed approach may lead to less price volatility for access seekers and reduce the financial risk of asset stranding, compared to returning the over-recovery within 12 months.
Final decisions and recommendations
Our final decisions are that:
- TAHE has complied with the ceiling test for the Hunter Valley Coal network, as it received less revenue than the economic costs of providing the infrastructure for each group of access seekers.
- TAHE has complied with the asset valuation roll forward principles in the NSW Rail Access Undertaking in 2020-21 for the Hunter Valley coal network. These are used to calculate TAHE’s economic costs.
Our final recommendation is that:
TAHE establishes an unders and overs account policy in consultation with access seekers and submits it to IPART for approval as required under clause 4(t) of Schedule 3 of the Undertaking within 12 months.