Services

HG Alert: National Gas Queensland - Oct 08

The Queensland National Gas Act commenced on 1 July 2008, at the same time as the South Australian National Gas Act and Part 6 of the Commonwealth National Gas Act came into force.

Objectives

The Act in Queensland implements a common legislative framework, similar to that which exists for electricity, for access to and pricing for gas transmission and distribution networks under the National Gas Law (NGL). The Act abolishes the Queensland Gas Pipelines Access Act 1998 (GPAQ) and the National Third Party Access Code for Natural Gas Pipelines Systems (Gas Code).

The new NGL is designed to promote efficiencies in investment, operation and use of gas services with respect to price, quality, safety, reliability and security of supply through:

  • Access - the maintenance of a system of ensuring access on reasonable terms to pipelines with monopoly power;
  • Pricing - reducing the costs of regulation and ensuring that the access provisions do not discourage much needed new investment in gas transmission;
  • Governance - strengthening energy market governance arrangements; and
  • Investment - improving the climate for investments in the State’s energy sector.

Access

The Act provides for the establishment of a National Gas Services Bulletin Board, the Australian Energy Regulator and a review process by the Australian Competition Tribunal which replaces the Gas Appeals Tribunal.

Bulletin Board

The Bulletin Board will display production, transmission and demand information on a website and provide facilities for a voluntary trading platform in gas. It is also designed to assist in the management of a gas emergency.

Australian Energy Regulator (AER)

Under the Act, gas pipeline access regulation will come under the jurisdiction of the AER and the Australian Energy Market Commission (AEMC) as the national economic regulator and enforcement body. The AER assumes responsibility for regulation of all gas distribution networks and transmission pipelines from the commencement of the Act. This should provide for a more nationally consistent approach to the regulation of pipelines.

Australian Competition Tribunal

The Act provides for a limited merits review by the Tribunal of the AER’s decisions in certain circumstances. A range of affected parties, including service providers, users and users’ associations, will be able to seek review of certain decisions made under the NGL.

Pricing

A service provider subject to light-handed regulation will be free to negotiate prices for access. The AER will resolve disputes. The service provider will be required to state the price and terms and conditions of service in a limited access arrangement.

The Act introduces specific revenue and pricing principles to guide the AER in determining the tariffs that apply to access to regulated gas pipelines or distribution systems. In addition, under the new governance arrangements the AEMC will have the power to make changes to the NGL, on application by interested parties, and to conduct enquires into gas-related matters as directed by the Ministerial Council on Energy.

Governance

Light regulation

All service providers will be able to apply to the National Competition Council (NCC) for light regulation of their transmission services. ‘Light’ regulation of pipelines is intended to reduce the costs of regulation. Access seekers will still have a framework for negotiating access to pipelines with dispute resolution provided by the AER.

Eligibility

The NCC published an Exposure Draft relating to guidelines for eligibility for light handed regulation on 20 August 2008 which should be finalised in November 2008. In principle the NCC must consider the effectiveness and cost of each form of regulation applicable to a pipeline based on the factors set out in s 122 of the Act. This includes the national gas objective, regulation factors and any other relevant factors. The test is intended to be a 'future with and without' analysis looking at what would be the likely result of the pipeline being subject to the full regulation regime as opposed to the light regulation regime.

This is to be compared with the ‘authorisation test’ by the Australian Competition and Consumer Council when granting immunity (except conduct amounting to a misuse of market power) on public benefit grounds against action under the competition provisions of the Trade Practices Act.

Economic regulatory decisions

The Act introduces new arrangements for the review of the AER’s economic regulatory decisions. Limited merits reviews relate to:

  • ministerial decisions in relation to coverage of gas pipelines;
  • determinations by the National Competition Council on the form of regulation to apply to gas pipelines (including whether the light handed regulation determined should apply, a ‘light-handed regulation determination’);
  • AER network revenue for pricing determinations for electricity and gas; and
  • other decisions as described by regulations.

The NGL also provides for review of the Merits Review Scheme within 7 years after commencement of the NGL to assess its effectiveness.

Transition arrangements

The Act includes specific savings and transition provisions for the Queensland gas regime. The Act allows regulations to be made specifying transitional arrangements for 3 transmission pipelines to protect tariff arrangements approved by the Queensland Government prior to the start of the new access regime. These are the:

(a) South-West Queensland Pipeline;

(b) Carpentaria Gas Pipeline; and

(c) Queensland Gas Pipeline.

These pipelines, prior to the enactment of the GPAQ, had tariffs agreed by the Queensland Energy Minister at the time, prior the commencement of the regime. Under the Australian Energy Market Agreement, Queensland is obliged to use reasonable endeavours to:

  • phase out derogations from the uniform national regime; and
  • achieve certification of the Queensland gas access regime.

This was done to give a level of certainty for those pipelines in a period of regulation reform. These pipelines are also regulated pipelines, except in relation to tariffs. In the absence of special transitional provisions in the Act, the pricing principles of the NGL and rules might displace the pre-existing agreements which have been vital in fostering the development of the Queensland natural gas market.

Investment incentives

The NGL replicates the provisions of the GPAQ relating to incentives for greenfield and international pipelines by providing for a 15 year no-coverage determination for greenfield pipelines and a 15 year ‘holiday’ from tariff regulation for international pipelines. The pricing regulation holiday is designed to give investors certainty at the planning stage, as a coverable determination typically taking around 12 months has the potential to deter investors.