Statutes Amendment (National Energy Laws) (Other Gases) Bill

Introduction and First Reading

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Infrastructure and Transport, Minister for Energy and Mining) (16:04): Obtained leave and introduced a bill for an act to amend the National Gas (South Australia) Act 2008 and the National Energy Retail Law (South Australia) Act 2011. Read a first time.

Second Reading

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Infrastructure and Transport, Minister for Energy and Mining) (16:04): I move:

That this bill be now read a second time.

I seek leave to have the second reading explanation and explanation of clauses inserted in Hansard without my reading them.

Leave granted.

The government is amending the national energy legislation to include hydrogen, biomethane and other gases within the national gas regulatory framework.

On 22 November 2019, energy ministers endorsed the National Hydrogen Strategy, which sets out government actions to support the development of Australia's hydrogen industry, including to review the application of gas regulatory arrangements to hydrogen. Acting on that review, energy ministers agreed on 20 August 2021 that the national gas regulatory framework should be amended to apply to hydrogen and renewable gases.

Following two rounds of public consultation and advice received from the Australian Energy Market Commission (AEMC) and the Australian Energy Regulator (AER), proposed law amendments were agreed by energy ministers on 28 October 2022.

The Statutes Amendment (National Energy Laws) (Other Gases) Bill 2023 extends the application of the National Gas Law (NGL) and the National Energy Retail Law (NERL) to hydrogen, biomethane and other gases. These reforms are intended to address any regulatory barriers and ambiguities in relation to the treatment of hydrogen and other gases in the national gas regulatory framework. The reforms may support the development of a competitive and cost-efficient domestic hydrogen and renewable gas industry that promotes economic efficiency in the long-term interests of consumers by:

encouraging competition in contestable parts of the industry;

encouraging innovation and investment;

facilitating informed and efficient decision-making by industry participants, market bodies and governments;

allowing existing facilitated and regulated retail markets to function as intended; and

ensuring that consumers in those jurisdictions that have adopted the NERL continue to benefit from the consumer protection measures they enjoy as users of natural gas.

The bill does not change how natural gas is regulated under the national regulatory framework. Rather, the bill provides for the national gas regulatory regime to apply to other gas types, in addition to natural gas. The bill refers to these gases collectively as 'covered gases'. The term 'covered gas' will replace most references to 'natural gas' throughout the NGL. Key concepts in the NGL, such as natural gas industry, and natural gas service, are redefined to operate in respect of covered gas. These changes will have the effect of applying the NGL to those gases falling within the scope of the new terms.

Covered gas is defined to mean a 'primary gas' or a 'gas blend'. The bill defines 'primary gas' to mean natural gas, hydrogen, biomethane and synthetic methane. Provision is made for other gases to be brought within the definition in the future, by prescribing in the National Gas Regulations, or by local regulation of a participating jurisdiction. Primary gases that have been blended together constitute a 'gas blend'. A new term to be introduced into the NGL by the bill is 'blend processing facility'. The bill defines a blend processing facility as a type of facility for either one or both:

blending of one or more primary gases, with or without other substances, for injection into a pipeline; or

separation of a gas blend withdrawn from a pipeline into constituent gases before re-injection into a pipeline as a primary gas or a gas blend.

Blend processing facilities are recognised as a potentially contestable activity and will be subject to a new, lighter-handed third-party access regime. The bill establishes a new third-party access regime for non-pipeline facilities, including blend processing facilities. New provisions in the NGL will require service providers and prospective users to negotiate in good faith, and service providers will be prohibited from preventing or hindering access to blend processing facilities. The National Gas Rules (NGR) will require blend processing service providers to publish standing terms and information on the prices paid by users. Vertically integrated service providers will also be prohibited from discriminating in favour of their own operations. This approach broadly follows the existing lighter-handed model that applies for third party access to natural gas pipelines.

If competition does not emerge and it becomes clear that such facilities are natural monopolies, the NGL will allow the NGR to implement a formal negotiation framework, an access dispute mechanism and equivalent ring fencing and associate contract arrangements to those that apply to pipelines.

The bill will replace the term 'natural gas industry facility' with the term 'covered gas industry facility.' A covered gas industry facility is defined as including blend processing facilities, compression service facilities, gas processing plants, liquefied natural gas facilities, pipelines, storage facilities, and user facilities. A covered gas industry facility may also be another facility of a type specified by the regulations.

The existing natural gas pipeline access regime will now apply to all transmission and distribution pipelines transporting a covered gas. Participating jurisdictions will have the power to exempt a pipeline transporting covered gases, other than those relating to natural gas or a natural gas equivalent, from the access regime if it satisfies the remote pipeline criteria.

The NGL's ring-fencing provisions will apply to covered gases. Minimum ring-fencing requirements will prohibit pipeline service providers from providing blend processing services; producing primary gases, processable gases or biogas; and purchasing or selling covered gas, processable gas or biogas, unless necessary for the safe and reliable operation of a pipeline, or to provide balancing services. Associates of the pipeline service provider will not have this prohibition.

In line with current restrictions, pipeline service providers that want to test or trial these activities or want to carry out these activities on a permanent basis, will need to set up or utilise a separate entity to do so. If they do this, then any contract the associate entity enters into with the service provider to use the pipeline will need to comply with the associate contract provisions in the NGL. These provisions are designed to prevent the pipeline service provider from foreclosing or otherwise impeding competition by favouring their associate. The regulator will be able to consider applications for exemptions to ring-fencing requirements, subject to certain conditions being met.

The regulatory sandbox provisions of the NGL will apply where a proposed trial project involves any covered gas. Market bodies will be empowered to exercise their functions and powers in relation to the covered gas industry and covered gas services and related facilities. The bill will also make consequential changes to Australian Energy Market Operator's (AEMO) recently gained east coast gas system reliability and supply adequacy functions, ensuring both reforms function as intended.

Transitional arrangements will allow certain covered gas pipelines (other than natural gas pipelines) to apply under the new greenfields incentives regime established by the recent gas pipelines access reforms. These transitional arrangements are available only to pipelines commissioned in the specified transition period of 1 November 2022 to the day on which these amendments commence, and the application must be made within 90 days of commencement. This arrangement recognises that the Statutes Amendment (National Energy Laws) (Gas Pipelines) Act 2022had not yet commenced when energy ministers approved the amendments contained in this bill. This meant there was a regulatory gap preventing new or recent pipelines for gases other than natural gas from being able to lodge applications under the greenfield incentive framework until it had commenced.

The approach to extending the NERL differs from the approach for the NGL because the customer protection framework in the NERL assumes a relatively mature retail market, which may not be the case for all types of covered gas. The bill amends the NERL to recognise covered gas, as defined in the NGL, and to provide for the application of the NERL and rules to natural gas, natural gas equivalents (NGEs) and prescribed covered gases (PCGs). The consumer protection, retailer authorisations and exemptions and retailer of last resort (RoLR) elements of the NERL will apply to natural gas and NGEs (as one group) and, separately, to any PCGs.

An NGE is a covered gas that is suitable for use as natural gas and is supplied through an existing natural gas distribution pipeline (or an extension of an existing pipeline) or is prescribed by a local instrument. For instance, a gas blend that consists predominantly of natural gas, but contains a small volume of hydrogen, is suitable for use as natural gas and would be an NGE automatically where the existing distribution system is authorised to haul a covered gas after the commencement of these amendments. Alternatively, where the same blend is to be supplied through a new distribution system, that blend would need to be prescribed by a local instrument to be brought within scope of the NERL.

A PCG is a covered gas, other than natural gas, that is brought within scope of the NERL, where it is appropriate to do so, by the National Energy Retail Regulations. This arrangement allows for the NERL, the National Energy Retail Rules (NERR) and Procedures to be tailored to apply to the retail supply of the PCG in a fit for purpose manner. Participating jurisdictions will be able to exclude a PCG from the application of the NERL in their jurisdiction, should they wish.

The AEMC will also be accorded a new power to make rules relating to the transition of supply from natural gas to an NGE or a PCG. Transitional arrangements will extend existing natural gas retailer authorisations, exemptions and default RoLRs to operate also in respect of NGEs. Market bodies, including the AER and the AEMO, will be able to exercise their functions and powers in relation to covered gases, NGEs and PCGs, and the NGR and NERR will also be able to regulate these gases.

The extension of the national gas regulatory framework will not change the allocation of responsibilities between the national laws and those of participating jurisdictions. Jurisdictions will retain responsibility for licensing, safety and technical regulation and product certification. In those jurisdictions that have not adopted the NERL for natural gas, those jurisdictions will also remain responsible for consumer protections. Under the amended framework, participating jurisdictions will be responsible for deciding whether to:

prescribe any additional gases to be primary gases for the purposes of the NGL in that jurisdiction;

exempt a 'remote pipeline' transporting a covered gas (other than natural gas or an NGE) from the NGL, if the remote pipeline criteria are met; and

exclude a prescribed covered gas from the application of the NERL in that jurisdiction.

Upon commencement, the South Australian minister will be empowered to make initial Rules necessary to support these amendments. The initial Rules were developed and recommended to energy ministers by the AEMC after several rounds of public consultation. Once initial rules have been made by the minister, no further rules will be capable of being made pursuant to relevant authority afforded by the Bill. In addition to these amendments to the NGL and the NERL, the bill contains a small number of amendments to the acts establishing those national energy laws. I commend the bill to members.

Explanation of Clauses

Part 1—Preliminary

1—Short title

2—Commencement

3—Amendment provisions

These clauses are formal.

Part 2—Amendment of National Gas (South Australia) Act 2008

4—Amendment of section 9—Interpretation of some expressions in National Gas (South Australia) Law and National Gas (South Australia) Regulations

This clause updates an obsolete reference.

5—Amendment of section 17—Exemption from taxes

This amendment is consequential.

Part 3—Amendment of National Gas Law

6—Amendment of section 2—Definitions

Various amendments are made to the definitions section for the purposes of the measure.

7—Insertion of section 2A

New section 2A is proposed to be inserted:

2A—Additives and impurities

The nature of a substance as a primary gas or a gas blend is not changed by the presence of an additive required for safety or an impurity.

8—Amendment of section 8A—Nominated distributors

9—Amendment of section 10—Things done by 1 service provider to be treated as being done by all of service provider group

10—Amendment of section 12—Commissioning of a pipeline

These amendments are consequential.

11—Insertion of section 14

New section 14 is proposed to be inserted:

14—Local regulations may exempt pipeline

A pipeline or a proposed pipeline can be declared to be a remote pipeline by local regulation in specified circumstances. Other provisions relate to the effect of declaring a pipeline or a proposed pipeline to be a remote pipeline.

12—Amendment of section 16—Form of regulation factors

13—Amendment of section 23—National gas objective

These amendments are consequential.

14—Amendment of section 24A—Innovative trial principles

This clause inserts an additional principle into the innovative trial principles set out in section 24A.

15—Amendment of section 27—Functions and powers of the AER

16—Amendment of section 28—Manner in which AER must perform or exercise AER economic regulatory functions or powers

17—Amendment of section 30I—Consumer reference group

These amendments are consequential.

18—Amendment of section 30U—Definitions

This amendment is technical.

19—Amendment of section 30W—Trial waiver

This amendment clarifies that section 30W does not prevent the granting of an exemption in accordance with a rule made under section 148A.

20—Amendment of section 54—Further provision about the information that may be described in a regulatory information instrument

This amendment is consequential.

21—Amendment of section 74—Subject matter for National Gas Rules

These amendments are consequential or technical.

22—Repeal of sections 83A and 83AA

Sections 83A and 83AA are deleted.

23—Amendment of section 83B—Standard market timetable

24—Amendment of section 83D—False or misleading statements

25—Amendment of section 91A—AEMO's statutory functions

26—Amendment of section 91AD—AEMO′s east coast gas system reliability and supply adequacy functions

27—Amendment of section 91AF—AEMO′s power of direction—east coast gas system reliability and supply adequacy

28—Amendment of section 91BA—AEMO's declared system functions

29—Amendment of section 91BC—AEMO's power of direction

30—Amendment of section 91BF—Interconnection with facilities

These amendments are consequential.

31—Amendment of section 91BI—Market participation

This clause amends section 91BI to include producers or blend processing service providers who inject covered gas into a declared transmission system or a declared distribution system as a class of person who participates in a declared wholesale gas market in a registrable capacity.

32—Amendment of section 91BP—Title to gas

This amendment extends the operation of section 91BP to cover declared distribution systems in addition to declared transmission systems.

33—Amendment of section 91BQ—Immunity

This clause amends section 91BQ to extend the grant of immunity from civil monetary liability to AEMO for a failure to accept gas for injection into, or to make gas available for withdrawal from, a declared distribution system.

34—Amendment of section 91BRB—AEMO's STTM functions

35—Amendment of section 91BRC—Market participation

36—Amendment of section 91BRF—Title to gas

37—Amendment of section 91BRG—Gas supplied to STTM hub must meet quality specifications specified in the Rules

38—Amendment of section 91BRK—AEMO's gas trading exchange functions

These amendments are consequential.

39—Amendment of section 91D—Object and content of gas statement of opportunities

This clause makes a consequential amendment and substitutes the outline of the information that the gas statement of opportunities must contain.

40—Amendment of section 91DA—AEMO's obligation in regard to gas statement of opportunities

41—Amendment of section 91DB—Information for the gas statement of opportunities

42—Amendment of section 91FEA—Obligation to give information to AEMO

These amendments are consequential.

43—Insertion of Chapter 2 Part 6 Division 6 Subdivision 5

New Subdivision 5 is proposed to be inserted into Chapter 2 Part 6 Division 6:

Subdivision 5—Declared wholesale gas market information

91FEJ—Information required to be given to AEMO

Provision is made in relation to persons giving AEMO information that relates to the operation and administration of the covered gas industry.

91FEK—Person cannot rely on duty of confidence to avoid compliance with obligation

This section provides that a person must not refuse to comply with the requirement in section 91FEJ on the ground of any duty of confidence.

91FEL—Giving AEMO false or misleading information

This section provides that a person must not give information to AEMO under this Subdivision that the person knows is false or misleading in a material particular.

91FEM—Immunity of persons giving information to AEMO

Provision is made in relation to immunity of persons giving information to AEMO under this Subdivision.

44—Amendment of section 91GG—Disclosure of protected information for safety, proper operation of the market etc

45—Amendment of section 91KA—Supply interruption or disconnection in compliance with AEMO's direction

46—Amendment of section 91KD—Disclosure of information for purpose of market trials

47—Amendment of section 91L—Retail gas markets

48—Amendment of section 91LA—Retail market participation

These amendments are consequential.

49—Amendment of section 137—Definitions

This amendment deletes and substitutes the definition of related business specific to Chapter 4 Part 2.

50—Amendment of section 147—Service provider must not enter into or give effect to associate contracts that have anti-competitive effect

This amendment is consequential.

51—Substitution of section 148A

Section 148A is substituted by sections 148AA and 148A:

148AA—Exemptions from section 147(c)

This section provides a list of circumstances in which an associate contract for an associate pipeline service is exempt from section 147(c).

148A—Exemptions from particular requirements

This section provides for the making of Rules to provide for exemptions from the requirements made by some sections of the National Gas Law. Other provisions relate to the imposition of conditions on such exemptions.

52—Insertion of Chapter 5A

New Chapter 5A is proposed to be inserted:

Chapter 5A—Third-party access obligations for non-pipeline facilities

Part 1—Information transparency

197—Definitions

Definitions are provided for the purposes of the Part.

198—Information and transparency requirements relating to facilities

This section enables the Rules to make provisions in respect of the collection, disclosure, verification, management, publication and provision of information relating to facilities.

199—Publication of information relating to facilities

A person required to publish information relating to a facility must do so in accordance with the Rules.

Part 2—Access to certain facilities

200—Definitions

This section provides a definition of relevant facility for the purposes of the Part.

201—Preventing or hindering access to relevant facilities

The owner, operator or controller of a relevant facility, or an associate of such a person, is prohibited from engaging in conduct for the purpose of preventing or hindering the access of a person to a service provided by the facility. Other provisions clarify when a person will be taken to have engaged in conduct for a particular purpose.

202—Terms and conditions must not discriminate

The owner, operator or controller of a relevant facility is prohibited from setting discriminatory terms and conditions for the use of a service provided by means of the facility.

203—Duty to negotiate in good faith

This section requires good faith negotiations by users or prospective users and persons who own, operate or control a relevant facility when access to a service provided by means of the facility is sought. Other provisions relate to the making, and effect, of Rules in respect of such access requests and negotiations.

204—Rules about ring fencing

This section empowers the Rules to make provisions for matters relating to ring fencing the activities of a blend processing service provider or a person who owns, operates or controls a facility of a class prescribed by the Regulations.

53—Amendment of heading to Chapter 7

54—Amendment of section 217—AEMO to be Bulletin Board operator

55—Amendment of section 218—AEMO's obligation to maintain Bulletin Board

56—Amendment of section 219—AEMO's other functions as operator of Natural Gas Services Bulletin Board

57—Amendment of section 222—Fees for services provided

58—Amendment of section 223—Obligation to give information to AEMO

59—Amendment of section 226A—Provision of certain information to AER

60—Amendment of section 228—Nature of BB Procedures

61—Amendment of section 228I—Service requirements may be specified in the Rules

These amendments are consequential.

62—Insertion of section 294FD

New section 294FD is proposed to be inserted:

294FD—South Australian Minister to make initial Rules relating to other gases

The South Australian Minister is empowered to make initial Rules relating to implementing the other gas amendments. Certain requirements relating to the making of such Rules are imposed, including publication requirements.

63—Amendment of section 294G—South Australian Minister may make Rules on recommendation of MCE and Energy Security Board

64—Amendment of section 314A—Extension of trial Rule

These amendments are consequential.

65—Amendment of Schedule 1—Subject matter for the National Gas Rules

This clause makes consequential amendments and expands the list of subject matters for the National Gas Rules in Schedule 1 for the purposes of the measure.

66—Amendment of Schedule 3—Savings and transitionals

Savings and transitional provisions are inserted into Schedule 3 for the purposes of the measure.

Part 4—Amendment of National Energy Retail Law (South Australia) Act 2011

67—Amendment of section 2—Commencement

This clause updates an obsolete reference to the repealed Acts Interpretation Act 1915, replacing it with the equivalent reference under the Legislation Interpretation Act 2021.

68—Amendment of section 7—Exclusion of legislation of this jurisdiction

69—Amendment of section 14—Exclusion of legislation of this jurisdiction

These clauses update obsolete references.

70—Amendment of section 41—Transitional regulation-making power

This clause amends section 41 to provide power to make regulations relating to the operation or effect of the National Energy Retail Law (South Australia) on account of, or in connection with, the commencement of the measure.

Part 5—Amendment of National Energy Retail Law

71—Amendment of section 2—Interpretation

Certain definitions are inserted or amended for the purposes of the measure.

72—Insertion of section 2A

New section 2A is proposed to be inserted:

2A—Natural gas equivalent

This section provides a definition of natural gas equivalent.

73—Insertion of section 3A

New section 3A is proposed to be inserted:

3A—Application to prescribed covered gas

This section provides that the National Regulations may modify the way that the National Energy Retail Law, the National Regulations and the Rules apply to a prescribed covered gas.

74—Amendment of section 10—Ministers of participating jurisdictions

This amendment is consequential.

75—Amendment of section 11—Local area retailers

This amendment sets out that a nomination of a retailer as a local area retailer may relate to electricity, natural gas and natural gas equivalents, or 1 or more types of prescribed covered gas.

76—Amendment of section 13A—Innovative trial principles

This clause inserts an additional principle into the innovative trial principles set out in section 13A.

77—Amendment of section 16—Application of Law and Rules to energy

This amendment applies the National Energy Retail Law and the Rules to the sale and supply of electricity, natural gas, natural gas equivalents and prescribed covered gas, to retailers (to the extent that they sell electricity, natural gas, natural gas equivalents or prescribed covered gas) and to distributors (to the extent that they supply electricity, natural gas, natural gas equivalents or prescribed covered gas).

78—Amendment of section 88—Requirement for authorisation or exemption

This amendment is consequential.

79—Amendment of section 94—Notice of decision to grant application

This amendment requires the AER to give a successful applicant for a retailer authorisation a notice stating that they are authorised to sell electricity or gas and, if the applicant is authorised to sell gas, stating the types of gas they are authorised to sell.

80—Amendment of section 99—Variation of retailer authorisation

This amendment clarifies that the AER may not amend a retailer authorisation to change the type or types of gas a retailer is authorised to sell except on application by the retailer.

81—Amendment of section 137—RoLR notice—direction for gas

This clause amends section 137 to enable the AER to, in specified circumstances, include in a RoLR notice a direction requiring a blend processing service provider to make available to a designated RoLR the capacity in its blend processing facility that, immediately before the transfer date, was available to the failed retailer. Other amendments relate to the terms and conditions for access to the blend processing facility by the designated RoLR.

82—Amendment of section 144—RoLR Procedures

This amendment provides that procedures made by AEMO under section 144 may apply separately to electricity, natural gas and natural gas equivalents, or 1 or more types of prescribed covered gas.

83—Amendment of section 237—Subject matters of Rules

This amendment allows the Rules to make provision for or in relation to the transition from the sale or supply of natural gas to the sale or supply of a natural gas equivalent or a prescribed covered gas.

84—Amendment of section 238—South Australian Minister to make initial National Energy Retail Rules

85—Amendment of section 238AA—South Australian Minister to make initial Rules relating to regulatory sandboxing

86—Amendment of section 238A—South Australian Minister may make initial Rules related to consumer protections and smart meters

87—Amendment of section 238AB—South Australian Minister may make initial Rules relating to stand-alone power systems

These amendments are consequential.

88—Insertion of section 238AD

New section 238AD is proposed to be inserted:

238AD—South Australian Minister to make initial Rules relating to other gases

The South Australian Minister is empowered to make initial Rules relating to implementing the other gas amendments. Certain requirements relating to the making of such Rules are imposed, including publication requirements.

89—Amendment of section 238B—South Australian Minister may make Rules on recommendation of MCE and Energy Security Board

This amendment is consequential.

90—Amendment of Schedule 1—Savings and transitionals

Savings and transitional provisions are inserted into Schedule 1 for the purposes of the measure.

Debate adjourned on motion of Mr Patterson.