Regulatory classification of gas pipelines
Gas pipeline regulatory framework
Since 1 August 2017, all pipelines are subject to some form of regulatory oversight. Only pipelines that do not provide third party access can be exempt from all regulatory requirements.
There are two frameworks: one framework for ‘scheme pipelines’ is set out in Parts 8 to 12 of the National Gas Rules (NGR); the second for ‘non-scheme’ pipelines in Part 23 of the NGR. Both reflect the negotiate-arbitrate regulatory approach to pipelines. That is, to provide a framework for parties to negotiate access to services provided by a pipeline.
Neither the scheme or non-scheme regulatory frameworks aim to:
- control revenue or profits earned by pipeline operators
- limit the services provided by a pipeline
- restrict the ability of potential users and pipeline operators to negotiate a contract.
The National Gas Law (NGL) and National Gas Rules (NGR) provide a framework for the regulation of gas pipeline services.
Part 8 to 12 of the National Gas Rules
The Australian Energy Regulator (AER) regulates pipeline services in all jurisdictions except Western Australia where the Economic Regulation Authority holds this responsibility.
Based on an assessment of whether access to a pipeline would promote a material increase in competition in another market, the National Competition Council recommends whether a pipeline should be regulated (referred to as ‘covered’) under Part 8 to 12 of the NGR. This recommendation is considered by the jurisdictional minister who makes the decision.
In addition, covered pipelines have two forms of regulation available to them. The NCC decides which form – full or light – is relevant to the pipeline having regard to the market power of the pipeline and the costs and benefits of regulation.
For a fully regulated pipeline, the pipeline operator has to prepare an access arrangement for the regulator to approve. The access arrangement
- includes price and non-price terms and conditions for third parties to gain access to the pipeline
- provides a starting point for parties to negotiate access on commercial terms.
For a light regulation pipeline, a more limited access arrangement can be lodged where the pipeline operator determines its own tariffs. Alternatively, the pipeline operator can publish information, as specified by the NGR, on its website.
In the event of a dispute between the pipeline operator and a user or potential user, the National Gas Rules contain a dispute resolution mechanism (arbitration). This is available in relation to all services on full and light regulation pipelines.
You can find more information about how the AER regulates pipeline services on the AER's State of the Energy Market reports.
Part 23 of the National Gas Rules
On 1 August 2017 a new negotiate-arbitrate access regime was introduced into the NGR. This new access regime sits beside the original regime. Under the new Part 23 of the NGR, those pipelines that are not classified as ‘covered’ will be required to comply with the information provision requirements specified in this part. Part 23 also includes an arbitration framework for users of these pipelines to resolve disputes with pipeline operators.
Pipelines under Part 23 of the NGR are able to seek exemption from some requirements. The regulator is able to grant three types of exemption:
- Pipelines that do not provide third party access can be exempted from all (information and arbitration) provisions set out in Part 23 of the NGR.
- Pipelines that are single shipper pipelines can be exempt from all the information disclosure requirements.
- Pipelines with a daily capacity of less than 10 terajoules can be exempt from certain information disclosure requirements
Information on the regulatory history and key decisions made about pipelines can be found on the AEMC’s gas pipeline register.
The overall regulatory arrangement is illustrated in the figure below.
Scheme pipelines are those that satisfy the ‘coverage’ criteria in the National Gas Law (NGL). These criteria are focused on the question of whether access to the pipeline would improve competition in any other market. If this is found to be the case by the relevant minister then the pipeline is classified as a ‘covered’ pipeline.
Covered pipelines can be subject to one of two forms of regulation – full and light. The National Competition Council considers criteria regarding market power issues in deciding which form of regulation is most appropriate for a particular pipeline.
The regulator for covered pipelines is the Australian Energy Regulator (AER) for all states and territories with the exception of Western Australia. In Western Australia, the regulator is the Economic Regulatory Authority (ERA).
Light regulation pipelines
Under the National Gas Rules pipeline operators of pipelines in this category are required to either publish certain information relevant to the pipeline services on a website or submit a ‘limited access arrangement’ to the regulator for approval. In both cases, the information is made available to assist potential users of a pipeline negotiate a contract to use a pipeline service.
All services provided by a light regulation pipeline are subject to the negotiate-arbitrate framework. If parties cannot agree on access to pipeline services through negotiations, then they can seek to resolve the dispute with the dispute resolution body. In most states and territories the dispute resolution body is the AER. In Western Australia it is the WA Energy Disputes Arbitrator.
Currently there are five and a half light regulation pipelines:
- the Marsden to Wilton segment of Moomba Sydney Pipeline (NSW)
- Central West Pipeline (NSW)
- Carpentaria Gas Pipeline (Queensland)
- the Allgas and Envestra Queensland distribution pipelines
- Kalgoorlie to Kambalda Pipeline (WA)
In general, pipelines are able to seek to change from one classification to another upon application. However, certain pipelines cannot change from full to light regulation: all Victorian pipelines, South Australian distribution pipeline, Dampier to Bunbury Natural Gas Pipeline and the mid-west and south-west gas distribution pipelines in WA.
Full regulation pipelines
Under the National Gas Rules pipeline operators of pipelines in this category are required to submit a ‘full access arrangement’ to the regulator for approval. An access arrangement is a document that sets out the pipeline services and the terms and conditions of those services. A proposed access arrangement is assessed by the regulator through a multi-stage public consultation process. The NGR set out various criteria for the regulator, including that the prices reflect the costs that would be incurred by an efficient and prudent pipeline operator.
The outcome of the regulatory decision making process is an approved full access arrangement that sets out key pipeline services (called reference services), the prices (reference tariffs) for those services and the non-price terms and conditions for those services. While a potential user may wish to contract for a specified reference service, it may also negotiate for another service from the pipeline operator.
Full access arrangements are periodically revised at pre-set terms, or at any time requested by service provider, and only expire if:
- it was made voluntarily
- the pipeline changes to light regulation
- the pipeline becomes ‘uncovered’
- it was established through a competitive tender process
All services provided by a full regulation pipeline are subject to the negotiate-arbitrate framework. If parties cannot agree on access to pipeline services through negotiation, then they can seek to resolve the dispute with the dispute resolution body – either the Australian Energy Regulator or the WA Energy Disputes Arbitrator as relevant.
The non-scheme pipeline access regime commenced on 1 August 2017. Under Part 23 of the National Gas Rules pipeline operators are required to publish certain financial and non-financial information related to the available pipeline services. The information is required to be verified and reflect the regulator’s financial reporting guideline. However, the regulator is not required to make any assessment as to the efficiency of the costs or prices reported by the pipeline operator.
The purpose of publishing this information on a website is to support potential users in negotiating a contract to use a pipeline service. If parties cannot agree on access to pipeline services through negotiations, then they can seek to resolve the dispute with an arbitrator from a pool of arbitrators created by the regulator.
Exemptions to some of these Part 23 requirements can be sought by pipeline operators from the regulator. There are three categories under which pipeline operators may apply:
- Category 1 exemption for pipelines that do not provide third party access. These pipelines may be exempt from all information reporting and the arbitration provisions.
- Category 2 exemption for pipelines that do not provide third party access or are single shipper pipelines. These pipelines can be exempt from the information reporting provisions.
- Category 3 exemption for pipelines that have a daily capacity of less than 10 terajoules. These pipelines can be exempt from certain information reporting provisions.
Bulletin Board pipelines
All key transmission pipelines, production and storage facilities must provide certain information to the Natural Gas Services Bulletin Board. This is independent of any economic regulatory arrangements that may apply.
The Bulletin Board was created in 2008 to provide a more level playing field for participating in the gas sector by requiring certain information be provided to a central repository for use by all market participants and the public.