A package of proposed reforms to the legislation regulating access to natural gas pipelines has been released for stakeholder feedback. The reforms, which are contained in the draft National Energy Laws Amendment (Gas Pipelines) Bill 2021, involve changes to the National Gas Law (NGL) and associated regulations, the National Gas Rules (NGR), and the National Energy Retail Law (NERL). They are intended to implement reforms that were agreed to by Energy Ministers in May 2021.
According to the Consultation Paper that accompanies the draft reform package, the agreed reforms provide for the implementation of a simpler regulatory framework to support the safe, reliable and efficient use of and investment in pipelines, while also:
The package also includes changes that have been developed to impose price reporting obligations on the operators of gas compression and storage facilities (to bring them into line with the reporting requirements that apply to gas pipelines).
The Consultation Paper identifies a number of specific matters about which stakeholder feedback is sought, as well as inviting feedback on the proposed changes more generally. The closing date for submissions in relation to the draft reform package is 5pm (AEDT) on Thursday 14 October 2021.
Following consideration of feedback received through the consultation process, the package of regulatory amendments will be finalised for enactment through the South Australian Parliament. Under the applied law regime the changes will then flow through to:
Western Australia has its own versions of the NGL and NGR under the National Gas Access (WA) Act 2009 and may give effect to the NGL and NGR changes by enacting amendments to this Act.
The key elements of the proposed reforms are summarised below.
Under the current regulatory framework, pipelines which are classified as “scheme pipelines” are subject to either full regulation or light regulation (if a light regulation determination is in place), whereas pipelines classified as non-scheme pipelines are subject to the provisions of Part 23 of the NGR, or fully exempt from regulation if the pipeline does not provide third party access. Under the agreed reforms, all pipelines will be required to provide third party access if it is sought. “Scheme pipelines” will be subject to a stronger form of regulation based on the existing full regulation (i.e. negotiate-arbitrate with reference tariffs approved by the regulator and a regulatory oriented dispute resolution mechanism). “Non-scheme pipelines” will be subject to a lighter form of regulation based on Part 23 (i.e. a negotiate-arbitrate model with information disclosure and a commercially oriented dispute resolution mechanism), which will be strengthened through the inclusion of a number of safeguards that currently apply to light regulation (but not the prohibition on inefficient price discrimination).
An exemption will be available to new pipelines, where it can be demonstrated that the pipeline is unlikely to have substantial market power over the exemption period. This exemption will replace the existing competitive tender and 15 year “no coverage” determination frameworks. It will provide the new pipeline with an exemption from being a “scheme pipeline” and therefore subject to the stronger form of regulation for a period of up to 15 years. However, the pipeline will be considered to be a “non-scheme pipeline” and accordingly will be subject to the lighter form of regulation. Notably, under the proposed amendments to the non-scheme pipeline access dispute provisions in the NGR, where a pipeline is subject to a greenfield incentive determination and it is determined by the relevant regulator that the pipeline was constructed as a result of a competitive tender process between two or more service providers, then the relevant regulator may approve prices and price escalation mechanisms for that pipeline. These are to be applied in any arbitration proceedings.
The draft legal package provides for expansions of both scheme and non-scheme pipelines to be treated as part of the same pipeline for regulatory purposes. Previously the regulatory framework provided service providers and the relevant regulator with some discretion as to whether expansions of a pipeline are to be treated as part of a scheme pipeline.
The definitions of “distribution pipeline” and “transmission pipeline” in the NGL are to be amended to make clear that a pipeline is to be classified in accordance with the licence or authorisation granted in respect of the pipeline under jurisdictional gas legislation, unless the relevant regulator has classified it differently under relevant provisions of the NGL and NGR. This change is intended to address the potential for pipelines to self-classify in order to avoid certain obligations under the NGR (such as reporting obligations) or provisions such as the Short Term Trading Market provisions (which only apply to distribution pipelines) or the capacity trading reform package (which only applies to transmission pipelines).
The coverage test that is currently applied to determine whether a pipeline should be classified as a “scheme pipeline” will be removed, as will the current form of regulation test that is used to determine whether a scheme pipeline should be subject to full regulation or light regulation. Instead, the form of regulation test will be modified as described below and used to determine whether a pipeline will be a “scheme pipeline” or a “non-scheme pipeline”. The body responsible for making form of regulation decisions will be the “relevant regulator’, being the AER in eastern Australia and the Northern Territory and the ERA in Western Australia (rather than the National Competition Council as is currently the case.)
The principles to be applied by the relevant regulator in making a “scheme pipeline” determination (and a greenfields incentive determination) will be based on the test currently contained in s. 122 of the NGL (which governs the making of light regulation determinations), amended as follows:
In the case of a greenfields incentive determination, the regulator will also have to have regard to the extent to which the form of regulation factors are likely to pose an effective constraint on the exercise of market power for the period that the determination is in effect.
Provision will also be made for service providers to elect for their pipeline to become a “scheme pipeline” (replacing the operation of the current voluntary access arrangement mechanism).
As mentioned above, the lighter form of regulation which is to apply to “non-scheme pipelines” (based on the current Part 23 of the NGR) will be strengthened by applying additional safeguards that currently apply to “scheme pipelines”. These safeguards include:
Note however that service providers of non-scheme pipelines that are exempted from the information disclosure obligations (discussed below) because they are not a third party pipeline will also be able to obtain an exemption from the ring fencing requirements and the associate contract provisions.
The draft legal package provides for pipeline interconnection principles to be set out in the NGR. These principles will apply to any form of interconnection to both “scheme pipelines” and “non-scheme pipelines” and are intended to enable any person to connect with a pipeline where it is technically feasible and consistent with the safe and reliable operation of the pipeline to do so, and where the person is prepared to fund the interconnection in its entirety. Service providers will be required to develop an interconnection policy containing information to be prescribed in the NGR, which will form part of the user access guide.
Under the agreed reforms, service providers of transmission pipelines (other than market carriage pipelines within a ‘declared transmission system such as the Victorian DTS) will be prohibited from increasing the charges payable by existing shippers to cross-subsidise the development of new capacity. The prohibition will not apply to distribution pipelines. The prohibition will be subject to certain limited exemptions which will be available if the relevant regulator is satisfied as to certain matters which are to be set out in the NGR.
The agreed reforms aim to address differences and inconsistencies between the reporting requirements applicable to different classes of pipelines, and deficiencies in the information reported by Part 23 pipelines. The draft legal package requires all service providers to publish the following information unless they obtain an exemption:
The draft legal package sets out the new information disclosure requirements in a new Part 10 of the NGR, which is modelled on the current Part 23 of the NGR, modified in various ways, and extended to apply to both “scheme pipelines” and “non-scheme pipelines”.
The following exemptions from disclosure will be available:
Single negotiation framework
A single access negotiation framework, representing a hybrid of the regulatory-oriented model applicable to “scheme pipelines” and the commercially-oriented model under Part 23 of the NGR, will apply to all pipelines. The key elements of the proposed framework are as follows:
The only circumstance under which a service provider will not be required to make an offer is if it is not technically feasible or consistent with the safe and reliable operation of the pipeline to provide the service.
To address deficiencies that have been identified with the dispute resolution mechanism applicable to “scheme pipelines” under full regulation, the mechanism will be amended to:
-an access determination is only binding on the parties if the shipper decides to enter into a contract that reflects the access determination; and
- if the shipper decides not to enter into such a contract, it is prohibited from seeking arbitration for the same or a substantially similar service for 12 months.
To address gaps that have been identified in the “non-scheme pipeline” dispute resolution mechanism, the draft legal package provides for:
To remove some of the duplication that currently exists between the regulatory oriented and commercially oriented dispute resolution mechanisms, the dispute resolution provisions in the NGL and the NGR will be consolidated (into a new Chapter 5 of the NGL and a new Part 12 of the NGR).
To strengthen the threat of dispute by smaller shippers, the draft legislative package:
The term ‘small shipper’ is not intended to refer to low volume gas users; it refers to shippers that are large enough to contract with service providers, but are small relative to other shippers that transport larger volumes of gas and have a greater degree of bargaining power. For the purpose of defining the term, the draft legal package adopts a capacity threshold of 5 TJ/day (across all services that a shipper has contracted or proposes to contract).
Under the agreed reforms, the relevant regulator (rather than the NCC/relevant Minister) will be responsible for:
The relevant regulator will also be required to more actively monitor the behaviour of service providers and to refer pipelines for a form of regulation assessment if it suspects that market power is being exercised.
The legislative package includes an extensive range of transitional provisions in the NGL and NGR to provide for an orderly transition to the new regulatory framework. These include provisions dealing with how, from the commencement of the reforms:
Be the first to receive the latest articles, news and publications.
Our update covers mining, oil and gas, electricity and renewable energy.
Nicholas Antonas, Special Counsel in Johnson Winter & Slattery’s Energy and Resources team, has co-authored a chapter on decommissioning in Sweet & Maxwell’s book Oil and Gas Contracts – Principles...