Bills Digest no. 124 2006–07
Australian Energy Market Amendment (Gas Legislation)
Bill 2006
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Australian Energy Market Amendment (Gas
Legislation) Bill 2006
Date introduced: 29
November 2006
House: House of Representatives
Portfolio: Industry, Tourism and
Resources
Commencement:
A variety of dates as set
out below
The Bill
contains amendments to the Australian Energy Market Act
2004 and related legislation to facilitate the creation of a
national regulatory environment for the electricity and gas
infrastructure and the creation of a Greenfields Gas Pipeline
scheme.
The rules governing the operation of the gas
and electricity markets have undergone fundamental re-writes over
the preceding decade as policy makers, governments and industry
have moved towards a more national approach to market
regulation.
To date, the electricity market has seen the
most significant shift to a truly national regulatory environment.
Regulation of the gas market is now starting to catch up to the
electricity market with a series of regulatory reforms to the
current scheme currently under consideration.
In recent years, the Commonwealth, states and
territories have coordinated their energy regulation policy
development through the Ministerial Council on Energy (MCE) acting
under the Council of Australian Governments (COAG) as set out in
the Australian Energy Market Agreement signed in
2004.(1)
The Bills Digest to the Australian Energy
Market Bill 2004 explained the history of the MCE as
follows(2):
In June 2001, the Council of Australian
Governments (CoAG) established the Ministerial Council on Energy
(MCE) to provide effective policy leadership to meet the
opportunities and challenges facing the energy sector and to
oversee the continued development of a national energy policy.
The Council comprises Ministers with
responsibility for energy from the Australian Government and all
States and Territories. The Australian Government Minister for
Industry, Tourism and Resources chairs the Council and the
Department provides secretariat support.
The CoAG's Energy Market Review (the Parer Review)
was presented to Government in December 2002 in a report titled
Towards a Truly National and Efficient Energy
Market.(3)
The MCE has agreed to introduce a cooperative
national legislative framework for the Australian energy market on
a collaborative basis between Commonwealth, State and Territory
Governments and pursuant to a new inter-governmental agreement,
titled the Australian Energy Market Agreement, being
finalised by CoAG.(4) Under this agreement, the MCE is
to assume a national policy oversight role for the Australian
energy market, including for electricity and gas, superseding the
National Electricity Market Ministers Forum.
The Gas Access Regime sits alongside, and
interacts with, the national access regime for essential services
(which is set out in Part IIIA of the Trade Practices Act
1974 (TPA)).(5) Further information regarding the
background to and operation of the national access regime can be
found in the Bills Digest on the Trade Practices Amendment
(National Access Regime) Bill 2005.(6)
The Gas Access Regime puts in place an
infrastructure access regime which is specifically tailored to meet
the needs of Australia s natural gas sector. The Gas Access Regime
is a co-operative regime put in place by the Commonwealth, states
and territories.
One of the key features of the Gas Access
Regime is the Gas Code. The National Competition Council has
described the Gas Code as follows:
The National Gas Code is a key feature of National
Competition Policy (NCP) reforms and aims to promote free and fair
trade in gas. The code sets out principles for access to Australian
natural gas transmission and distribution pipeline services. It
allows third parties to negotiate access within an independent
regulatory framework, with arbitration available to resolve
disputes.(7)
The Gas Code was developed by the Gas Reform
Task Force, a working group comprising the Commonwealth, state and
territory governments, the gas pipeline industry, gas producers and
retailers, gas users and regulators.(8)
All jurisdictions agreed that the objectives
of the Gas Code should be to:(9)
(a) facilitate the development and operation
of a national market for natural gas;
(b) prevent abuse of monopoly power
(c) promote a competitive market for natural
gas in which customers may choose suppliers, including producers,
retailers and traders;
(d) provide rights of access to natural gas
pipelines on conditions that are fair and reasonable for both
service providers and users; and
(e) provides for resolution of disputes.
On 7 November 1997, the states, territories
and the Commonwealth signed the intergovernmental Natural Gas
Pipeline Access Agreement (intergovernmental
agreement).(10) This agreement had the objective of
establishing a uniform national framework for third party access to
natural gas pipelines. As a result of this agreement, the states
and territories agreed to enact the Gas Code as a law of each state
or territory.
South Australia passed the first piece of
legislation to enact the Gas Code [Gas Pipeline Access
(South Australia) Act 1997].(11)
This Act applied the Gas Pipelines Access Law (comprising
Schedule 1 (which is called Third Party Access to Natural Gas
Pipelines ) and Schedule 2 (which is called National Third Party
Access Code for Natural Gas Pipeline Systems the Gas Code)
of the Act as a law of South Australia.
All other states (apart from Western
Australia) and territories passed application legislation applying
the Gas Pipeline Access Law as law of that jurisdiction. Western
Australia enacted the Gas Pipelines Access (Western Australia)
Act 1998 and applied the Gas Pipelines Access Law as set out
in the Schedules to the Western Australian Act as law of the state
of Western Australia.
The Commonwealth also passed legislation to
facilitate national coverage of the gas access regime. In
particular, the Commonwealth passed the Gas Pipelines Access
(Commonwealth) Act 1998. This legislation applies the gas
access regime that is contained within the South Australian
legislative scheme to offshore waters and adjacent areas and
covered interstate pipelines. It also gives Commonwealth bodies
powers in relation to the operation of the gas access
regime.(12) Relevant provisions were also included in
the Petroleum (Submerged Lands) Act 1967.
It is beyond the scope of this digest to
explore in detail the operation of the gas access regime. The
following is a brief summary of the key aspects of the regime and
an explanation of the interaction between the gas access regime and
the national access regime in Part IIIA of the TPA. Further
information may be found in the Productivity Commission Report
Review of the Gas Access Regime (PC
Report).(13)
There are three key aspects to the gas access
regime;
- certification of state and territory access regimes as
effective access regimes in accordance with clause 6(3) of the
Competition Principles Agreement
- coverage of pipelines
- access agreements
As stated above, the Gas Access Regime is an
industry-specific access regime that operates alongside the
national access regime in Part IIIA of the TPA. It is linked to the
national access regime through the process of certification.
The Productivity Commission has explained the
link in the following useful way:
Certification involves each State and Territory
government submitting its Gas Access Regime to the NCC to establish
that the regime satisfies clause 6(3) of the Competition Principles
Agreement. The NCC makes a recommendation to the Australian
Government Minister, who then makes the final decision on whether
the regime is certified as effective.
The aim of certification is to avoid regulatory
duplication of, and possible forum shopping among regimes that meet
the Competition Principles Agreement criteria for an effective
regime. Once an access regime is certified as effective, access
seekers cannot use Part IIIA of the TPA to seek access to
infrastructure covered by that regime.(14)
Therefore, the state and territory gas access
regimes operate alongside the Commonwealth access regime in Part
IIIA of the TPA so that where state or territory access regimes
have been certified by the National Competition Council (NCC) as
operating in accordance with the principles in Clause 6 of the CPA,
access to gas infrastructure regulated by this regime cannot be
sought under Part IIIA of the TPA.(15) Access can only
be sought under the state/territory based access regime.
Apart from Queensland, all states and
territories have had their gas access regimes certified by the NCC,
as an effective access regime under Part IIIA.(16)
In each state and territory, the Gas Code
applies to pipelines that are covered by it. A gas pipeline can
become covered in a number of ways including automatic coverage
where the pipeline was listed in schedule A of the Gas Code at the
time the Code was enacted or by any person applying to the NCC
requesting coverage. In determining whether to recommend to the
Minister that the pipelines be covered, the NCC must consider
whether the pipeline meets all of the criteria in section 1.9 of
the Gas Code.
Once a pipeline is covered the pipeline
operator must comply with provisions in the Gas Code. Section 2 of
the Gas Code requires that the Service Provider establish an Access
Arrangement that satisfies the independent regulator. For
transmission pipelines the independent regulator has usually been
the ACCC and for distribution, the independent regulator is the
state or territory regulator (see Table 3.1 below).
As noted above, under the Gas Code, covered
pipeline operators must submit their access arrangements to an
independent regulator for approval. An access arrangement must set
out the terms and conditions of access, including reference tariffs
for reference services (benchmark prices for services likely to be
sought by a significant part of the market). The regulator
undertakes a public consultation process in deciding whether to
approve a proposed access arrangement, and may require amendments
to the arrangement.(17)
Third parties can gain access to covered
services on the terms and conditions set out in the access
arrangement. Parties are free, however, to negotiate around the
reference tariffs.
Under the Intergovernmental Agreement, the
states and territories have been able to appoint their own
regulatory body, determine who the responsible Minister would be
and decide on an appeals body. As a result, different states and
territories have different institutional arrangements for
transmission and distribution products.
The following is a table extracted from the PC
Report which sets out the institutional arrangements for the
different jurisdictions at the time the Report was
released.(18)
Decision making bodies for the gas access
regime
Since the Gas Access Regime was established,
it has been subject to a number of reviews. The Productivity
Commission produced its report titled Review of the Gas Access
Regime(19) (PC Report) which contained a broad
range of suggested amendments to the current Gas Access Regime.
As well as producing a written response to the
PC Report,(20) the Ministerial Council on Energy has
developed a draft new National Gas Law (NGL) and National Gas Rules
(NGR) which will be implemented by state and territory Parliaments
later in 2007.
Many of the amendments in the Australian
Energy Market Amendment (Gas Legislation) Bill 2007 (the Bill)
relate to the arrangements made for the operation of the gas access
regime. In particular the Bill will:
- For that part of the gas access regime for which the
Commonwealth has jurisdiction, namely the offshore area, the Bill
will pass laws to put in place the new regime as contained within
the NGL and NGR.
- Give the Australian Energy Regulator regulatory responsibility
for gas transmission and distribution (note discussion on page 6-7
regarding relevant regulators)
- Vest the Australian Energy Market Commission with
responsibility for making new NGR.
Most importantly, most of the changes to the
Commonwealth legislative scheme are contained within the new NGL
and NGR. Once the NGL and NGR are enacted by the South Australian
and Western Australian Parliaments, they will be automatically
picked up and applied as Commonwealth laws, by virtue of the
amendments contained within this Bill. Therefore, if there are
concerns about the implications, at the Commonwealth level, of the
detail contained within the NGL or NGR, then those concerns should
be raised during the debate on the Bill.
The National Electricity Market (NEM) was
established in 1999 and it covers the Southern and Eastern parts of
Australia. Under the co-operative scheme, New South Wales,
Victoria, Queensland, South Australia and the Australia Capital
Territory are participants in the NEM.(21)
The first National Electricity Law was enacted
as a schedule to the National Electricity (South
Australia) Act 1996 (SA). It was adopted by
corresponding legislation in the other participating states. The
NEL was reviewed and the changes to the law commenced on 1 July
2005.
The Trade Practices Amendment (Australian
Energy Markets) Act 2004 established the Australian Energy
Regulator (AER). The National Electricity (South Australia) Act
1996 (SA) established the Australian Energy Market Commission
(AEMC). The Australian Energy Market Act 2004 and the
National Electricity Rules (NEL) combined to vest power in the
Australian Energy Regulator (AER) to perform the function of
regulating electricity transmission, a task which was previously
performed by state and territory regulators.(22) The
AEMC has been vested with the power to make the rules for the
electricity market.
Some of the amendments contained within the
Bill make small changes to the current commonwealth legislative
arrangements for the regulation of electricity.
Schedule 1, Part 1, item 1
amends the Administrative Decisions (Judicial Review) Act
1977 (AD(JR) Act). Schedule 3 of the AD(JR) Act lists state
and territory Acts that are enactments for the Act s purposes. The
Bill inserts new paragraphs (d), (daa) and
(dab) into schedule 3. These new paragraphs
include in schedule 3 of the AD(JR) Act the National Gas Law in
schedule 1 to the National Gas (South Australia) Act 2007,
an enactment of the South Australian Parliament, and as adopted by
any other state, the ACT or the NT, and the National Gas Access Law
in schedule 1 to the National Gas Access (Western Australia)
Act 2007, an enactment of the Parliament of Western Australia.
The effect is that, when a Commonwealth officer or authority makes
a decision (of an administrative character) under the National Gas
Law or the National Gas Access Law (WA) it will potentially be
subject to judicial review under the ADJR Act.
The Bill in item 45, extends
the application of the Administrative Decision (Judicial
Review) Act 1977 to other regulatory bodies involved in the
regulation of the electricity market.
Items 2 to 30 amend section 3
of the Australian Energy Market Act 2004 (AEMA), by
removing redundant definitions and inserting definitions relevant
to the new National Gas regime.
Item 30 repeals the existing
sections 4 and 5 of the AEMA, and inserts new sections 4 and 5.
These sections relate to the application of the Act and associated
laws to the Crown, and the extra-territorial operation of the
National Gas regime. New section 4 provides that
the Crown is bound by the Commonwealth laws and regulations enacted
under the regime. New section 5 is intended to
extend, as far as possible, the operation of the National Gas
regime laws and regulations. The explanatory memorandum to the Bill
explains that it is necessary to extend the operation of the laws
extraterritorially to ensure, for example, that contractual
arrangements entered into outside of Australia are not used to
undermine the regime .(23)
The Bill in items 32-50
divides Part 2 of the AEMA into 3 divisions, dealing with
electricity laws, gas laws, and uniform energy laws,
respectively.
The amendments made in relation to electricity
are mainly technical in nature. Item 38 inserts new section
10A into the Act specifically confirming that the
Australian Competition Tribunal has the functions and powers
conferred on it under the National Electricity (Commonwealth) Law
and Regulations. This provision in combination with a conferral of
powers by the states and territories, gives this Australian
Competition Tribunal the power to conduct a merits review of the
decisions made by the Australian Energy Regulator.
Item 43 inserts Division 2
which has a number of new provisions in relation to gas laws.
Areas adjacent to Australia and its
external territories and some selected external territories
Subdivision A of Division 2
sets out the arrangements for the Commonwealth s application of the
National Gas Laws apart from in relation to offshore Western
Australian pipelines. In summary, the Commonwealth will apply the
laws set out in the Schedule to the National Gas (South
Australia) Act 2007 and regulations as amended from time to
time to areas adjacent to and in certain Australian Territories
apart from offshore Western Australian pipelines (proposed
section 11A and 11B).
Subdivision A also confirms
that the Australian Energy Market Commission and the Australian
Energy Regulator have the functions and powers that are conferred
on them by the National Gas (Commonwealth) Law and Regulations
(proposed section 11C and 11D). In essence, the
Australian Energy Market Commission will be responsible for the
development of new Gas Rules and the Australian Energy Regulator
will be the industry regulator, taking over functions that were
previously performed by the Australian Competition and Consumer
Commission and state and territory regulatory bodies (refer to
table 3.1 above).
Proposed sections 11E, 11F and
11G in Subdivision A confirms that the
National Competition Council, the Australian Competition Tribunal
and the Commonwealth Minister has such functions and powers that
are conferred by the National Gas (Commonwealth) Law and
Regulations.
Subdivision B sets out the arrangements for
Offshore Western Australian Pipelines. As noted above, the Western
Australian gas regime will be established by the National Gas
Access (Western Australian) Act 2007. The Bill picks up and
applies this Western Australian legislation as Commonwealth
legislation for the purpose of regulating offshore Western
Australian pipelines (proposed section 11J and
11K). The Western Australian legislation makes the
Economic Regulatory Authority (ERA) (rather than the Australian
Energy Regulator) the regulator for the purposes of gas
legislation.
The Bill also confirms that the Australian
Energy Market Commission, the National Competition Council, the
Australian Competition Tribunal and the Western Australian Minister
have such functions and powers that are conferred by the Western
Australian Pipelines (Commonwealth) Law and Regulations
(proposed section 11L, 11N, 11P and 11Q).
The Bill makes some technical amendments to
the Trade Practices Act 1974 to facilitate the operation
of the new regime.
The Bill makes some amendments to facilitate
the operation of the Greenfields gas pipelines arrangements. These
arrangements were established by amendments to the Gas
Pipelines Access (South Australia) Act 1997
and changes to the Commonwealth regime made by the Energy
Legislation Amendment Act 2006.
The Greenfield pipeline arrangements are
designed to promote investment in new gas pipeline infrastructure
by providing a regulatory regime that gives new pipeline owners an
upfront ruling on whether the full price regulation in the gas
access regime applies to a new pipeline (24) and
exemptions from price regulation under the gas access regime for 15
years.(25)
The Bill, in items 74-79,
makes some amendments to facilitate the operation of the Greenfield
pipeline arrangements.
Concluding comments
The Bill forms part of a package of bills
designed to bring about a more national approach to the regulation
of access to gas pipelines. The Bill makes a series of amendments
with one of the key changes being that it picks up and applies the
revised National Gas Laws and National Gas Rules as enacted by the
Parliament of South Australia and Western Australia, and applies
them as Commonwealth laws in some external territories and offshore
areas. The Bill also vests the Australian Energy Regulator with
significantly broader regulatory powers.
- Energy Legislation Amendment Bill 2006,
Explanatory Memorandum, p. 2.
- Peter Prince and Mike Roarty, Bills
Digest No 171 2003-04, Australian Energy Market Bill
2004, http://www.aph.gov.au/library/pubs/bd/2003-04/04bd171.htm,
p. 2.
-
http://www.industry.gov.au/assets/documents/itrinternet/FinalReport
20December200220040213110039.pdf?CFID=242389&CFTOKEN=11377123
- Energy Legislation Amendment Bill 2006,
Explanatory Memorandum, p. 1.
- Productivity Commission, Review of the Gas
Access Regime Productivity Commission Inquiry Report No. 31, June
2004, p. 76.
- Susan Dudley, Bills Digest No.
186 2004-05, Trade Practices Amendment (National Access Regime
Bill, http://www.aph.gov.au/library/pubs/bd/2004-05/05bd186.htm
[26 March 2006]
- National Competition Council web-site,
http://www.ncc.gov.au/sector.asp?sectorID=6,
[22 February 2007].
- National Competition Council web-site,
http://www.ncc.gov.au/sector.asp?sectorID=6
[22 February 2007].
- Intergovernmental Natural Gas Pipeline Access
Agreement (intergovernmental agreement). A copy of this
agreement is located at [http://www.coag.gov.au/ig_agreements/natural_gas_pipelines.htm]
[22 February 2007]
- ibid.
- Gas Pipelines Access (South
Australia) Act 1997
[http://www.legislation.sa.gov.au/LZ/C/A/GAS%20PIPELINES%20ACCESS%20(SOUTH%20AUSTRALIA)%20ACT%201997.aspx].
- Productivity Commission, op cit., p.
68.
- ibid, p. 61-82.
- ibid. p. 76.
- Susan Dudley, Bills Digest No. 186
2004-05, Trade Practices Amendment (National Access Regime
Bill, http://www.aph.gov.au/library/pubs/bd/2004-05/05bd186.htm.
[23 March 2006]
-
http://www.ncc.gov.au/actInSector.asp?actID=31§orID=5&page=
- National Competition Council Website,
http://www.ncc.gov.au/sector.asp?sectorID=6,
[26 March 2006].
- Productivity Commission, op cit., p.
75. This is table 3.1 in the Productivity Commission Report.
- ibid.
- Ministerial Council on Energy Decision,
Review of the National Gas Pipeline Access Regime, May 2006,
http://www.mce.gov.au/assets/documents/mceinternet/FinalMCEDecisionGasAccessReview20060508160235%2Epdf
- S G Corones, Competition Law in
Australia, Fourth edition, Law Book Company, 2007,
p. 650.
- S G Corones, Competition Law in
Australia, Fourth edition, Lawbook Company, 2007,
p. 649.
- Australian Energy Market Amendment (Gas
Legislation) Bill 2006 Explanatory Memorandum, p. 16.
- Energy Legislation Amendment Bill 2006
Explanatory Memorandum, p. 4.
- Energy Legislation Amendment Bill 2006
Explanatory Memorandum, p. 4.
Susan Dudley
27 March 2007
Law and Bills Digest Section
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