COAG Energy: Regulatory test review for gas pipelines

Regulatory News

Oct 05
COAG Energy: Regulatory test review for gas pipelines

The Council of Australian Governments (COAG) Energy Council is currently consulting on whether a new test is required to determine if a gas transmission pipeline should be regulated.  The review team published a consultation paper on 4 October outlining the main issues, with submissions required by 18 October 2016.

This consultation paper seeks stakeholder feedback in response to the Australian Competition and Consumer Commission’s (ACCC) Inquiry into the East Coast Gas Market findings around:

  • the significance of the problems identified;
  • the effectiveness of the existing regulatory test;
  • the appropriateness of the ACCC’s proposed market power test; and
  • if a change in regulatory arrangements is required how this could be achieved.

The ACCC’s proposed market power test would ensure Australian gas transmission pipelines are more aligned with the treatment of transmission pipelines in America, New Zealand, Europe and the UK.  In these jurisdictions the determination of whether or not a pipeline is regulated is governed by the extent of market power exhibited by the pipeline operator and consequently most transmission pipelines are regulated as a result.  This is in contrast to Australia where the majority of transmission pipelines are unregulated.

The ACCC’s proposed market test would be triggered if the relevant Minister, is satisfied that:

  • the pipeline in question has substantial market power;
  • it is likely that the pipeline will continue to have substantial market power in the medium term; and
  • coverage will, or is likely to, contribute to the achievement of the National Gas Objective.

If some or all of the ACCC’s recommendations are adopted into the National Gas Law and Regulations, then these will also apply in Western Australia.

Background

In 2015, the ACCC conducted an inquiry into the competitiveness of wholesale gas prices and the structure of  upstream gas processing, transport, storage and marketing.  This formed a significant part of the COAG Energy Council’s ‘Inquiry into the East Coast Gas Market’.

Given the commercial confidentiality of gas contracts, prices and negotiations, the ACCC consulted with pipeline operators, including at private hearings, on findings of monopoly pricing and produced an evidence based report.  However, the ACCC did not formally consult on their recommendations.

The Energy Council determined that, following on from the ACCC’s inquiry, further consultation would be required as to how a new test for pipeline regulation should be applied and implemented.

‘Covered’ pipelines are subject to periodic review of access arrangements by the Australian Energy Regulator (AER) and uncovered pipelines are subject to ‘light handed regulation’ whereby pipeline owners determine their own tariffs but are required to publish relevant access prices and other terms and conditions on its website.