On 2 July 2018, the Australian Energy Market Commission (AEMC) released its final report in response to the Council of Australian Governments’ (COAG) Energy Council request to undertake a review of Parts 8 – 12 of the National Gas Rules (NGR) to address various concerns expressed by AEMC, the Australian Competition and Consumer Commission (ACCC), and other stakeholders with respect to the economic regulation applied to covered pipelines (Report).
The AEMC considers that its 32 recommended changes to the NGL and the NGR will make it easier and cheaper to move gas around Australia to where it is most valued, helping to keep gas and electricity prices for consumers as low as possible.
Key recommended changes include a qualitative increase in regulation with the objective of ensuring:
The AEMC’s recommendations are likely to be adopted by the COAG Energy Council and implemented as amendments to the National Gas Law (NGL) and the NGR in due course.
Western Australia is a participating jurisdiction in the national gas regulatory scheme and applies the NGL and the NGR, with certain modifications, in Western Australia by way of the National Gas Access Act.1
Lavan recommends that pipeline owners, operators and users as well as large consumers of gas:
In summary, the AEMC’s key recommendations are:
Include all existing and future pipeline expansions as part of the relevant covered pipeline and allow service providers to include existing pipeline extensions as part of the relevant covered pipeline.
This reform is intended to support effective negotiations between service providers and users. It would also group related pipeline assets under one regulatory framework, thereby reducing the regulatory burden for some service providers.
The pipeline services that should be specified as reference services in a full access arrangement will be specified by establishing new criteria for determining appropriate reference services that allows for greater user input.
This reform is intended to avoid stakeholder concerns that in some circumstances reference services offered under a full access arrangement did not meet user requirements.
A full access arrangement is mandatory for fully regulated pipelines, which must outline reference tariff and non-tariff terms and conditions for each reference service on that pipeline.
The recommendations include:
This reform is intended to lower regulatory costs and improve the transparency of decision making for pipeline service providers, regulators, pipeline users and consumers.
For full regulation pipelines, increased regulation in relation to capital base determination and the assessment of capital and operating expenditure in order to:
This reform is intended to increase scrutiny on capital base determination and operating expenditure.
Further, the applicable regulator (either the Australian Energy Regulator or the Economic Regulation Authority of Western Australia) set an initial capital valuation for light regulated pipelines within 6 calendar months of the commencement of the amendments. This reform will have the effect of establishing an independent threshold for price negotiations on light regulated pipelines, which will also provide a baseline for arbitration arising out of those negotiations.
Pipeline operators in respect of light regulated pipelines will be required to publish more detailed capacity and utilisation information, which may in turn increase access seeker bargaining power during negotiations.
Further, the AEMC recommends:
In addition to users being sufficiently informed in the course of their access negotiations, the AEMC considers that the publication of accurate and relevant information in a timely manner by service providers will enable well-informed regulatory and policy decisions to be made.
Central to many of the recommendations is the idea that the negotiate/arbitrate model can only be effective if arbitration is a “credible threat” sitting behind negotiations.
Further, several AEMC recommendations respond to concerns that both the NGL and NGR require more robust dispute resolution processes, including:
The AEMC predicts that the revised dispute resolution framework will assist users in achieving access to pipeline services that are provided on an efficient basis, and that is consistent with the NGO.
The COAG Energy Council is likely to support the AEMC’s recommendations and seek their implementation by means of amendments to the NGL and the NGR.
We consider that pipeline owners, operators and users, as well as large gas consumers should: