NATIONAL GAS (SOUTH AUSTRALIA) BILL

Second Reading

Adjourned debate on second reading.

(Continued from 9 April 2008. Page 2728.)

Mr WILLIAMS (MacKillop) (12:00): This is a very large and complex piece of legislation, and very technical in its nature. Indeed, it may have significant impact yet, as I stated to the house in I think November last year when debating very similar legislation to institute national electricity regulatory laws, I bemoaned the fact that the government introduced the bill and then demanded that it be debated very shortly thereafter. I think in that circumstance it was probably a week, or maybe two weeks; in this instance it is a similar time frame, just over two weeks. I stated at the time that I thought it was unhelpful to give the opposition and the parliament such a short time to contemplate legislation of this nature before debating it in full.

The minister, as is his wont, took a swipe at me at that stage and suggested that, if I was a shadow of any note, I should have been au fait with the impending legislation and ready to debate it at a moment's notice. It was interesting to note that, in the ensuing debate, particularly in the third reading, every time I asked the minister a question, he had to consult one of his advisers to answer it. So, I do not know that the minister—and I think I commented at the time—was as au fait with the legislation as he intimated that I should have been.

I repeat: I think it is unhelpful for legislation of this nature to be brought to the house with an expectation that it be debated completely, through all stages, within a couple of weeks. I would suggest that, in fact, other than possibly the minister and myself, probably nobody else in the parliament has read the bill. I would also suggest that, other than the minister and myself, nobody has read the minister's second reading contribution.

As a consequence, I make the point that we are passing legislation notwithstanding its long gestation and notwithstanding an immense amount of work that has been put into the legislation. As a parliament, I think we fail ourselves and our duty to the people of South Australia in passing legislation in this manner without giving it what I would consider due consideration. Having said that, I am sure that the minister will take the opportunity to once again give me a belting for making those comments when he sums up. I am big enough to take that. I am just making the point that this is pretty important legislation.

In fact, I was speaking to a former senior gas person recently who lamented that, in his opinion, the regulatory system which we now have and which is now being instituted nationwide does not necessarily help the consumers, particularly consumers in small markets I, and some of my colleagues, may talk about that as we debate the bill.

I remember a couple of years ago I was in the Riverland, and some people there lamented the fact that a gas pipe goes past that area. I think there are gas services in the town of Berri, which is very close to the very significant towns of both Renmark and Loxton, but neither of those towns has access to a gas supply.

I think that one should question why that is the case and why, when the major gas trunk goes from the Moomba gas line across to Mildura to supply gas to that city, our regulatory scheme has not encouraged investment to supply gas to the nearby towns of Renmark and Loxton, particularly when we are all encouraged to be concerned about greenhouse gas and we understand the benefits of using gas hot water versus electric storage hot water, for example.

The government has brought down a policy (and I think a press release was circulated just this week with some comments from the minister) about the move from electric storage hot water to gas hot water. I question why we do not see the expansion of our gas network to some of those smaller communities when, on the other hand, we are discussing the impact of or the benefits that would accrue from the use of gas more widely.

This may point to the failure of the current regulatory system, and I am not sure whether that is exactly the case, but I am certainly told that the incentives to supply gas to those sorts of communities are not apparent at the moment.

Another community that comes to mind is that of Mount Barker, which is the fastest growing community in South Australia but which does not look like getting access to gas. I think that should be addressed and that we should have a regulatory scheme that would encourage it to happen.

It is interesting to note what has happened in South Australia in regard to the expansion of the gas network and to compare it with what happened in Victoria a few years ago, when the gas transmission and distribution network across Victoria was expanded dramatically to make gas available to a much greater number of Victorians, particularly those in smaller country communities. Having made those comments, I turn my attention to what I have written in my notes.

Since the late 1990s, the Ministerial Council on Energy has been refining the regulation of energy markets across Australia, and of course this occurred as a result of having a national market, which again is the result of trying to build efficiencies into the system and recognising the reality that we have a national electricity grid and a national gas reticulation system that covers everything in South Australia and the eastern states in particular.

We have seen a constant flow of legislation since that period of the late 1990s, and we are now at the point where we are introducing this legislation that will give a national regulatory oversight. South Australia has always been in the position of lead legislator in these matters and, following the passing of the appropriate legislation—that is, this measure and the national electricity legislation, which was passed last November and which I will refer to from time to time—the other jurisdictions will apply the same law through an application act.

Currently, the lead legislation is the Gas Pipelines Access (South Australia) Act 1997. That act has two schedules: the third party access to natural gas pipelines and the national third party access code for natural gas pipeline systems (the gas code) are known as the gas pipelines access law. This legislation will repeal that law and institute a new national gas law which, as I have said, will be picked up by the other jurisdictions.

The Australian Energy Market Commission, established by the South Australian Energy Market Commission Establishment Act 2004, and the Australian Energy Regulator, established under the commonwealth Trade Practices Act 1974, were last year given powers to regulate and make rules under the national electricity law. Similarly, this bill will confer the same powers on those bodies with regard to gas transmission and distribution.

The genesis of these changes goes back to at least the 2002 Parer Review and the 2004 Productivity Commission Review of the Gas Access Regime. The bill establishes what will be known as the National Gas Law, as set out in schedules to the act. The law, similarly to the national electricity law, will provide a national gas objective. The objective, I am pretty certain, is identical to the objective of the national electricity law. It states:

The objective of this law is to promote efficient investment in and efficient operation and use of natural gas services for the long-term interest of consumers of natural gas with respect to price, quality, safety, reliability and security of supply of natural gas.

The law also provides revenue and pricing principles and, again, if these are not identical I think they are certainly very similar to those in the national electricity law. They are: a regulated network provider should have a reasonable opportunity to recover at least the efficient costs incurred in providing the service; to provide effective incentive to promote economically efficient investment; the regulator has regard to the regulatory asset base adopted in any previous determination; that prices and charges allow for a return commensurate with the regulatory and commercial risks involved; the regulator has regard for the economic costs and risks of the potential for both under and over-investment by a service provider; and the regulator has regard to the economic costs and risks of the potential for both under and over-utilisation of the network.

The Ministerial Council on Energy may issue a statement of policy principles consistent with the objective of the law to guide the Australian Energy Market Commission (AEMC), which is charged with the rule-making function and market development function, both consistent with the objective of the law and the policy principles established by the Ministerial Council on Energy. The rules so made are to regulate access to pipeline services, the provision of pipeline services and the collection and use of information in relation to natural gas services.

The rules and documents, etc., applied, adopted and incorporated by the AEMC must, of course, be made publicly available. The AEMC can be directed to review matters within its purview by the Ministerial Council on Energy or, of its own volition, review the operation and effectiveness of the rules or any matter relating to the rules. The Australian Energy Regulator will monitor compliance with the law, regulations and the rules and will have the power to investigate, institute and conduct proceedings in relation to breaches of any of those. The regulator also has economic regulatory functions under which it can prepare and publish reports on operational and financial performance of service providers for covered pipelines.

The Australian Energy Regulator must exercise its economic regulatory function in a manner consistent with the objective of the law and must take into account the revenue and pricing principles when exercising a discretion in approving or making those parts of an access arrangement relating to a reference tariff, or making an access determination relating to a rate or charge for a pipeline service.

In the performance of its other regulatory functions, it may take into account those principles. Powers are also available to authorised officers to carry out certain functions to obtain information and documents, and the regulator can issue a general regulatory order requiring the provision of information specified in the order by all scheme pipeline service providers of a specified class or, alternatively, a regulatory information notice of similar effect can be applied to a pipeline scheme service provider or a related provider. Such orders must not be served solely for the purpose of investigation of breaches of the law, regulations or rules or for instituting or conducting proceedings in relation to any such breaches.

Notwithstanding that the Trade Practices Act generally requires the regulator to keep information confidential, circumstances are contemplated where the information can be disclosed where any detriment caused is considered to be outweighed by the public benefit. It surprises me that this parliament is not a little more interested in this particular point, because I would have thought that some fairly subjective judgments will be made concerning what information is to be released and what is considered to be a public benefit versus a detriment caused to an operator. That is why I made my opening comments about the speed with which this bill will pass through the parliament relative to its gestation period of some five years.

There are some checks and balances within the bill or the regulations, which give affected parties five business days notice prior to any disclosure and, if the affected party submits that disclosure should not occur, a further disclosure notice must be issued with a further five-day waiting period ensuing. Such decisions are subject to a merits review by the Australian Competition Tribunal.

The natural gas law will only apply economic regulation to covered pipelines (as is the case under the current gas code) where the level of market power is such that the cost of regulation is warranted. The relevant minister, on the recommendation of the National Competition Council, will make that determination.

The bill amalgamates the pipeline classification and coverage process whereby the National Competition Council will make the appropriate recommendations on coverage and classification simultaneously. Any person can make an application to have a pipeline covered or for a covered pipeline to become uncovered, but a new pipeline may also have a greenfields status applied which will give it 15 years exemption from coverage.

As recommended by the Productivity Commission, upfront price regulation via access arrangement does not necessarily apply to all covered pipelines. Service providers operating covered pipelines can apply to be under what will be known as 'light regulation' or 'light regulation services' with the National Competition Council making the determination.

Such a service provider under the light regulation services scenario may submit a limited access arrangement to the Australian energy regulator for approval. This would provide some certainty by applying terms and conditions applicable to the relevant pipeline services but would not apply a price to revenue regulation. The regulator would thereby apply the terms and conditions of the limited access arrangement when resolving an access dispute and rely upon the revenue and pricing principles when arbitrating a price between parties.

Service providers under these conditions will be required to make public the terms and conditions of access and service prices. Incidentally, the ministerial council has determined that the covered pipelines in South Australia, Victoria and Western Australia currently have a market status making them not eligible for light regulation, and they will therefore be listed as designated pipelines in the initial regulations. Those pipelines in South Australia are the Envestra distribution network. The SEA Gas and Moomba pipelines remain transition pipelines and I understand they will be uncovered, acknowledging the natural or the competitive nature of those two systems as opposed to the natural monopoly held by the distribution network.

When assessing the appropriateness of light regulation, as opposed to access arrangements regulation, the National Competition Council must consider the relevant market power of the service provider and users. Light regulation is less costly and should be used where appropriate. Consideration is given to the presence of barriers to mark an entry interdependency between network services and externalities as potential sources of market power. Countervailing market power of users and any potential for substitution by other products is also to be considered. Whilst covered pipeline service providers will have obligations aimed at ensuring open access and a competitive market, including ring fencing of business units and so on, an amount of self-regulation is introduced.

Much of the debate within the industry during the development of this new regime has been over what regulation is prescribed or will be prescribed in the act and what is prescribed by the rules. Industry has argued that more should be in the rules and less in the act, because this allows for modification where necessary by applying to the AENC for a rule change. A process is set out in the act for that to occur, and the industry argues that that builds flexibility.

The process for service providers to submit access arrangements and revisions to the Australian Energy Regulator is set by the rules. As in the national electricity law, a fit-for-purpose decision making framework is used by the regulator in regulatory decision making. This allows for the regulator to exercise discretion and to subject different elements of a proposal to varying tests. Similarly, the regulator is given powers to arbitrate access disputes and make its determinations binding, consistent with the 1995 competition principles agreement and the commonwealth Trade Practices Act.

The bill also establishes a gas market bulletin board on which covered and uncovered service operators must post real-time capacity. For example, operators must provide a nameplate rating of their plant, three-day capacity outlooks and actual flow data. An emergency page will enable market participants to respond to gas emergencies. It is envisaged that the bulletin board, by providing such information, will enhance gas trade and markets for gas services.

The regulator is able to proceed in a state or territory Supreme Court or Federal Court against breaches of the national gas law, the regulations or the rules. Civil penalties will be applied with graduated penalties (as in the current legislation) being replaced by minimum civil penalties of $100,000 in the case of a corporation and $20,000 in the case of a natural person, with a further penalty of $10,000 in the case of a corporation or $2,000 in the case of a natural person applying for each day during which the breach continues. The energy regulator can apply for injunctions, and the regulator has the discretion to issue infringement notices for breaches which may be expiated or, alternatively, contested.

Conduct provisions can be prescribed by the law or regulations, giving a person the right to apply to a court for remedy against breaches of such conditions. Judicial review is provided for against decisions of the Australian Energy Market Commission and the bulletin board operator. A limited merits review (the same as in the national electricity law) is available. Such review will be limited in scope and entertained only in the case of a price determination where the amount in question exceeds $5 million or 2 per cent of the average annual regulated revenue. Once commenced, such cases are subject to intervention by third parties. Again, this is an issue I questioned when we were debating the national electricity law. It may open up such cases to long drawn-out processes.

People with agendas different to the objectives of the act may become embroiled in such cases. The rule change process established under the natural gas law is identical to that under the national electricity law, and the initial rules will be established by a ministerial notice and will largely reflect the current natural gas code provisions. Whilst the bill allows for regulations to be made, unanimous agreement of all Ministerial Council on Energy ministers is required, and part 10 of the Subordinate Legislation Act 1978 does not apply to any regulations made under the bill. To explain: that is that regulations made under the bill will not be disallowable instruments of this parliament.

The opposition will support the bill in its entirety. We appreciate that it has been in its gestation for many years; it is at least five years. It is very similar to the electricity law that we passed I think in November last year. We believe there are no surprises in here. Notwithstanding that, industry had a few concerns. It did not get everything that it wanted. Some at the regulatory end of the system did not get everything they wanted, so I am sure the minister would argue that that suggests we have got it about right. Time will be tell the tale on that.

Certainly, as to the regulatory role, I think there are benefits to be had by having a national regulator. The current regulatory process in South Australia means that the regulator has an opportunity to go through a price review from time to time, and it is every five years. In reality and in practice, the regulator would have to do only one price reset every five years, whether it be for electricity or gas—it could get fairly rusty on the processes and it is questionable what efficiencies would ensue from that—as opposed to having a national regulator, which will be basically in the continual process of doing a price reset because of the number of pipelines in this instance and electricity systems in the case of electricity across the nation, or within the national scheme.

The regulator will be in constant motion, so to speak, with regard to doing reviews (price resets) and, as a consequence, I think will be much more attuned to both the job in hand but more particularly to changes in movement within the gas market, on both the supply and demand sides of the market, and hopefully will build in not just efficiencies but maybe overcome some of the issues which, as I highlighted earlier, apparently have prevented the distribution network, certainly in South Australia, from being extended to smaller communities.

I will leave my comments there and indicate that the opposition will be quite happy to move directly to the third reading at the conclusion of the second reading.

Mr PEDERICK (Hammond) (12:28): I rise to make a few comments regarding this bill on the national gas law. I understand that six principles will be included as part of the development framework for the regulation of pipeline services and that they will be part of the arrangement in making the rules governing the regulation of pipeline services and the Australian energy regulator when approving access arrangements.

We must be absolutely sure in these arrangements that we get the balance right with the regulatory regime while still managing to provide efficient investment opportunities for companies to invest in pipelines throughout the nation to connect people to gas.

The member for MacKillop alluded to six principles, and this is similar to the national electricity law. The first principle is that a regulator network provider should have a reasonable opportunity to recover the efficient cost incurred in providing the service, which is fair enough. Also there needs to be provision for an effective incentive to promote economically efficient investment, and the regulator must have regard to the regulatory asset base adapted in any previous determination.

The fourth principle is that prices and charges should allow for a return commensurate with both the regulatory and commercial risks involved. The fifth principle is that the regulator should have regard to the economic costs and risks of the potential of both under or over-investment by a service provider. The sixth principle is that the regulator must have regard to the economic costs and risks of the potential for both under or over-utilisation of the network.

I will speak briefly about gas production, mainly onshore but also offshore, and the massive investment that has been made in this country over the past 50 years. Onshore production from the Moomba gas fields has been a commercial operation since 1963 and most people are aware that the Cooper Basin, situated about 770 kilometres north of Adelaide, has been a major economic powerhouse and employer in this state. I spent two years of my employment in those gas fields, between 1982 and 1984.

Mr Venning interjecting:

Mr PEDERICK: For the benefit of the member for Schubert, I point out that I operated earthmoving equipment for 12 months, building leases for oil rigs in areas where they could drill for oil and gas, helped build an airstrip and made several roads, operating a twin-power 639 CAT scraper. Then I proceeded—

Mr Venning interjecting:

Mr PEDERICK: I did not do too bad. I worked with a company, Gearhart Australia, which is involved in well testing and fracturing oil wells to release more gas and oil for production. Even back then, I worked on jobs involving a combination of Gearhart and Halliburton which amounted to $1 million per oil well, so one can imagine how much investment is being made today, 25 years on. I acknowledge the work that goes on in harsh conditions in our Far North. The seismic teams go through and have seismic tracks about a kilometre apart, networking and crisscrossing the country up there, doing the testing to see if a structure is available for oil and gas. Then the rigs go out wildcat drilling and the fields are opened up over time and interconnected with pipeline framework to get all the gas and oil brought into the main centre at Moomba.

Back in the days when I was up there I met many men working for the pipeline organisations who were doing four weeks on and only one week off, and their commitment to their job was noteworthy: they are good men—some hard men, but all hard-working men. With the gas operation we have the trunk connections to Sydney and Adelaide. During my employment in the Cooper Basin (and I was not there at the time but home on leave) the Adelaide pipeline came adrift one night, and apparently men were jumping out of ATCO huts and into Toyotas and heading south in their boxer shorts; they were getting out of there because they were in real strife.

Be that as it may, there are not too many issues like that in the gas industry, which has supplied a lot of economic wealth to this state. The Cooper Basin has 115 gas fields hooked up through 536 wells. As I said, gas was first discovered commercially in 1963. There has been commercial gas supplied to Adelaide since 1969, and commercial gas has been piped into Sydney since 1976. It gives a total pipeline and flow line measurement of 5,600 kilometres, which includes the 790 kilometre trunk line to Adelaide and the 1,160 trunk line to Sydney.

This gas supply to Adelaide has been reasonably complemented by the SEA Gas pipeline, which just happens to bypass close to my home town of Coomandook. The 750 kilometre pipeline from Port Campbell in Victoria supplies gas to Pelican Point power station at Port Adelaide. This line was first commissioned in 2004 and brings gas from offshore gas fields on the Victorian coast. SEA Gas supplies 50 per cent of Adelaide's annual supply and, if there is a problem with the supply from Moomba, there is more than enough in that line to take up the slack, so that is certainly good insurance as far as Adelaide and South Australia are concerned, because it gives South Australia the security of an alternative gas supply.

We need to realise that natural gas is a massive resource that can be utilised by many industries and domestic markets. I think we need to enhance accessibility to regional communities. The low emission benefits of using gas compared to other fossil fuels means it should be used more widely, and I think we should make arrangements to improve this access via regulation. With those words, I conclude my remarks.

Mr VENNING (Schubert) (12:37): In the past I have worked fairly closely with this industry, particularly when we came to government in 1993 because I was the parliamentary secretary of mines and energy. It was great to follow the then minister, Stephen Baker, and it was mind-blowing to find out about the industry that we have in the north of our state and how lucky we are to be blessed with such good reserves.

This has meant much to the people of South Australia, as the members for MacKillop and Hammond have just said, because the opportunities for workers in South Australia have been huge because of the industry, and certainly it has delivered on every front. It has also been very good for investors. I declare an interest because I believe my family would have some interest, although I am not aware of it. However, I cover myself by saying that, as I always do.

There has always been some political activity in relation to the gas reserves in South Australia, and the issue has been before this house many times—and I understand this legislation has been on the slow burner for probably eight years. It has come across two governments, so I cannot stand here and slag the minister for this motion. In fact, we support this legislation, and I can say that, try as I might, Madam Deputy Speaker, I cannot get cross with the minister over anything in this bill, and I cannot even get cross with his advisers, because it has been a long-term legislative activity.

Over the years we have had discussions on topics such as monopoly rights in relation to the supply of gas, particularly in relation to Santos, and they have been long, hard yards because the people who created the industry and built the pipelines thought they had some guaranteed right to a monopoly in the market. So it has always been touchy and hard work, particularly when we had the problem with the pipeline. The plant broke down and there was a fire, and all the rest of it. So, it has had a controversial passage.

Third party access to pipelines was always an issue. Again, I understand that it pretty well has been addressed now. I believe that this legislation tidies it up. Selling gas interstate was always a problem. I was present at the opening of the new pipeline to Sydney (or it could have been Melbourne; I am not sure). It was a methane line, and there was a lot of controversy. We were going to sell all our gas assets interstate and were going to run out ourselves. There was always some controversy about that. No doubt, that is now being sorted out.

The bottom line is that I think we should guarantee that, where possible, both South Australian domestic and bottled gas users should always have access to gas. That is a favourite subject of mine, because most of my constituents who have gas have to use bottled gas, because they do not have access to the pipeline. Most regional and rural dwellers have access only to bottled gas and, as we know, it is very expensive; it is probably three or four times the price that it would be if a person had a pipeline connected to their house. So, the question could be: should those on household supply in metropolitan areas subsidise the bottled gas users? That is always an interesting question, and I will see what the minister has to say. We support this legislation, and I commend the minister and the members for MacKillop and Hammond on their speeches here today.

The Hon. P.F. CONLON (Elder—Minister for Transport, Minister for Infrastructure, Minister for Energy) (12:41): I will be brief, because I do not think that a large number of issues have been raised. Just so people understand where this all comes from, way back in 2002, the state energy minister set out to try to fix some problems with respect to electricity and gas regulation. I will not go through all of those matters; I think I have probably spoken about them before when speaking on electricity bills. That reform was necessary, but the price of that reform was that the commonwealth had its own agenda—and can I say that this move to national regulation was very much a former agenda of the previous government. Of course, we have been in it now, as was pointed out by the member for Schubert, not for eight years, but for about 6½ years, and we are far too far down the track in the creation of all these things to go anywhere else.

Just so that people understand, I have defended the interests of South Australia on all occasions in this process. I believe it is a process that will not prejudice any interests in South Australia and will, to some small degree, advance them. However, I am not going to come into this house and pretend that I have been a strong advocate for the national regulatory approach throughout. I have been very careful to make sure that the national regulatory approach is at least as good as the approach we have had in South Australia to these matters.

In terms of the question about access to gas, which was raised by a couple of members, what they refer to is the creation of a distribution system for those who would seek to take gas from the pipelines. While there is a regulatory matter about this, we should make no mistake: those decisions are business decisions for the operators of distribution pipelines. Where those pipelines do not deliver reticulated gas to people is where the businesses have made a commercial decision that there will not be enough revenue out of building a pipeline.

I understand the suggestion that there should be more access for people and that people should get that if they want it, but make no mistake: what you are talking about is a socialisation of the industry. We on this side believe in equity, and there may be some merit in what members opposite argue for, but I do not think that you are going to create, this late in the day, a regime of cross-subsidy in the gas industry to get access to people who are not commercial customers.

There have been jurisdictions that have made lump sum contributions to bring that about, and there may be some merit in that, but you will not create a regulatory regime that requires people to act uncommercially, and I do not think you will be able to create a regulation regime that requires the implementation of cross-subsidy without fundamentally changing the nature of it.

I understand what you are saying, but I am just telling you what the real world is. It has not been the approach of your former federal government to do such things. As I say, there may be some argument that there should be a contribution to help people get on, especially in a world which is facing carbon costs and in which we want to reduce emissions, but I think it would have to be an argument made on a case-by-case basis and not under the regulatory regime. I do not think that the regulatory regime could be at large to decide which cross-subsidy should apply where.

The only other point raised was access, that is, the requirement of information to be provided and the fact that industry has a different view from many. I simply point out that this is the result of very extensive consultation with industry. I sat in my office with people from the pipeline gas industry who talked to me about the fear they had of being required to provide information. I must say that, when I asked them whether this regime was any different from the state regulators, they did not think that it really was. It was more an issue of being nervous about dealing with the new regulator than it was about being required to provide information.

This has been the result of very lengthy consultation and, as a result, this is the arrangement. It probably does not make everyone happy, but that is pretty much what you get when you do these things. The other thing I would say, of course, is that it is also the result of the agreement between all the states and the commonwealth. I believe that it is a regime that will serve the industry well. I think there are matters which are not dealt with in the regulatory approach and which will be the subject of further discussion. In particular, I have put on the record with the Ministerial Council of Energy that I think the new government should look at getting some gas ashore, whether it is by regulatory approach or incentive through the construction of new pipelines.

I have put on the record that I am very concerned about a possible move to liquefaction of coal seam methane and its effect on natural gas prices. People should understand that we do not compete against liquefied gas at present—and you would not want to—and we certainly do not want to be in a position where we are competing with the price of liquefied gas because it would be at least 50 per cent higher than current gas prices. Those matters are for the future. This is the result of a lengthy period of consultation and agreement, and I commend the bill to the house.

Bill read a second time and taken through its remaining stages.