National Gas (South Australia) (Pipelines Access-Arbitration) Amendment Bill

Second Reading

The Hon. K.J. MAHER (Minister for Employment, Minister for Aboriginal Affairs and Reconciliation, Minister for Manufacturing and Innovation, Minister for Automotive Transformation, Minister for Science and Information Economy) (17:26): 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 promote an efficient gas transportation sector and address natural monopoly characteristics of gas pipelines and market power held by pipeline owners during negotiations for pipeline services.

The National Gas (South Australia) (Pipelines Access-Arbitration) Amendment Bill 2017 will amend the National Gas Law, set out in the schedule to the National Gas (South Australia) Act 2008 to address information asymmetry between parties in negotiations for access to non-scheme pipelines and the superior negotiating position of the pipeline operator.

A comprehensive regime for access regulation to covered pipelines already exists in the National Gas Law, which provides for light regulation or full regulation. This Bill does not seek to amend the regime applicable to covered pipelines. The purpose of this Bill is to address access to transmission and distribution pipelines which are not covered pipelines under the National Gas Law.

Access to pipeline services on non-scheme pipelines, which are pipelines not covered under the National Gas Law, is currently a matter of commercial negotiation. The purpose of this Bill is not to replace this process for seeking access to non-scheme pipelines but rather to provide increased transparency to parties seeking pipeline services and a commercial arbitration framework which can be used where commercial negotiations between the parties break down.

Energy Ministers consider that increased transparency provides parties seeking pipeline services with an improved ability to undertake timely and effective negotiations. The Bill therefore provides for the National Gas Rules to include a framework for enhanced disclosure and transparency of non-scheme pipeline information on matters including in relation to pricing and contract terms and conditions.

The Bill reinforces the position that parties seeking access to pipeline services on non-scheme pipelines must negotiate commercially before resorting to commercial arbitration through a duty of negotiate in good faith. Importantly, this duty is not intended to limit normal commercial behaviour whereby parties undertake a discovery process in relation to pipeline services.

Also provided in the Bill is the ability for the National Gas Rules to include provisions with respect to seeking access to a non-scheme pipeline to provide greater transparency on this matter.

The commercial arbitration framework introduced by the Bill applies to all transmission and distribution pipelines that are not a scheme pipelines. It is recognised, however, that there may be circumstances where it is not necessary for the framework to apply to a non-scheme pipeline. The Bill deals with this matter by providing that the National Gas Rules may provide an exemption from the commercial arbitration framework.

A party to a commercial negotiation for access to a non-scheme pipeline can commence the commercial arbitration framework by serving notice that the parties are unable to agree to matters relating to access to a non-scheme pipeline and a dispute exists. As the purpose of the Bill is to provide for commercial arbitration, the Bill provides for the parties to appoint an agree arbitrator for the purpose of the process.

To provide some oversight of this process, the Bill appoints the Australian Energy Regulator as the scheme administrator. The role of the Australian Energy Regulator as scheme administrator includes to receive the notification of an access dispute, to refer the matter to commercial arbitration, to join another person to the commercial arbitration process if appropriate and appoint an arbitrator if the parties are unable to agree upon one. This role is in additional to the Australian Energy Regulator's established functions and powers in section 27 of the National Gas Law related to compliance and enforcement.

The arbitrator also has a role to ensure that the commercial arbitration framework is used appropriately. To enforce this role the Bill provides the arbitrator with powers to terminate the arbitration in certain circumstances.

It is also worth noting that the parties may continue to commercially negotiate after commercial arbitration has commenced or the access seeker may decide they do not wish to proceed with access. The Bill accounts for these matters by providing the ability for the access seeker to terminate the arbitration.

The Bill includes hearing procedure provisions to support the arbitrations consideration of a matter before them including providing for hearings in private; right to representation; processes and powers in relation to information disclosure; confidentiality; procedures and powers for the arbitrator; and penalties where a party does not engage appropriate in certain circumstances.

If the arbitration is not terminated, the Bill provides that the arbitrator must make a determination in relation to the commercial arbitration matter. The National Gas Rules can provide prescription related to the matters that an arbitrator's determination may deal with, as well as determination process and timelines. In making its decision the arbitrator will be required to take into account any principles established in the National Gas Rules.

Importantly, the arbitrator must also not make a determination that would impact existing contractual rights in relation to a non-scheme pipeline.

A decision of the arbitrator is enforceable as if it were a contract between the parties where the access seeker proceeds with access to the pipeline service. The access seeker is not required, however, to proceed with access to the pipeline service.

An important consideration in forming the commercial arbitration framework was ensuring that cost is not a barrier to use of the framework. The Bill therefore provides for parties to bear their own costs and to share the costs of the arbitration process, such as the cost of the arbitrator. The National Gas Rules may provide for a different approach to cost in certain circumstances.

The Bill provides for prescription related to the both the enhanced transparency and disclosure and the commercial arbitration framework to be contained in the National Gas Rules. It is preferential that the provisions of the Bill are commenced at the same time as new National Gas Rules related to these matters. The Bill therefore provides that the South Australian Minister may make initial Rules in relation to the information and transparency requirements as well as the commercial arbitration framework.

The Bill will provide that once initial Rules have been made by the South Australian Minister on the subjects provided for in the Bill, the Minister will have no power to make any further Rules under this power.

I commend this Bill to Members.

Explanation of Clauses

Part 1—Preliminary

1—Short title

This clause provides for the short title of the Act.

2—Commencement

The measure will be brought into operation by proclamation.

3—Amendment provisions

This clause is formal. The provisions in Part 2 of the measure will amend the National Gas Law set out in the schedule to the National Gas (South Australia) Act 2008.

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

4—Insertion of section 83A

This clause will insert a new section 83A into the Act:

83A—Special information and transparency requirements relating to non-scheme pipelines

An additional rule-making provision is to be inserted in the National Gas Law so as to allow the rules to make provision in relation to pipelines that are not scheme pipelines. This provision will support the operation of new Chapter 6A, which is to be inserted into the National Gas Law by this measure and which will provide for processes associated with gaining access to 'non-scheme' pipelines and the arbitration of access disputes.

5—Substitution of heading to Chapter 6

This is a consequential amendment.

Chapter 6—Access disputes—Scheme pipelines

6—Insertion of Chapter 6A

This clause will insert a new Chapter into the Act relating to access disputes arising in relation to a transmission pipeline or a distribution pipeline that is not a scheme pipeline under the National Gas Law. An explanation of the new Chapter is as follows.

Chapter 6A—Access disputes—Non-scheme pipelines

Part 1—Interpretation and application

216A—Definitions

This section sets out the terms that are defined for the purposes of the Chapter. A non-scheme pipeline is the term used to describe the pipelines in relation to which the Chapter will apply. An access dispute is a dispute between a user or prospective user and a service provider about one or more aspects of access to a pipeline service provided by means of a non-scheme pipeline (subject to the operation of section 216C(2)). The scheme administrator under this Chapter will be the AER.

216B—Meaning of prospective user

A prospective user is a person who seeks or wishes to be provided with a pipeline service by means of a non-scheme pipeline. A user is also a prospective user if the user seeks or wishes to be provided with a pipeline service by means of a non-scheme pipeline other than a pipeline service already provided to them under a contract or an access determination.

216C—Application of Chapter

The Chapter will apply to and in relation to a transmission pipeline that is not a scheme pipeline or a distribution pipeline that is not a scheme pipeline. However, the Chapter will not apply to or in relation to a pipeline or a part of a pipeline excluded from the operation of the Chapter by the rules, in relation to a pipeline within a class or group of pipelines excluded from the operation of the Chapter by the rules, or to or in relation to a pipeline service excluded from the operation of the Chapter by the rules.

216D—Application of this Chapter to disputes arising under Rules

It will also be possible to apply the provisions of this Chapter to any dispute arising under the rules if the rules so provide (subject to any modification as may be prescribed by the rules). (This section is comparable to existing section 178A of the National Gas Law).

216E—Chapter does not limit how disputes about access may be raised or dealt with

The Chapter is not to be taken as limiting any other way that an access dispute may be raised or dealt with. (This section is comparable to existing section 179 of the National Gas Law).

Part 2—Negotiation of access

216F—Access proposals

The rules will be able to set out provisions for or with respect to seeking access to a pipeline service provided or to be provided by means of a non-scheme pipeline or by an extension of a non-scheme pipeline. (This is a general rule making power in connection with the operation of this Chapter and may be read in conjunction with section 74 of the National Gas Law and proposed new section 83A, together with Schedule 1 of the National Gas Law and other relevant provisions).

216G—Duty to negotiate in good faith

The parties under this Chapter must negotiate in good faith with each other about whether access can be granted to a non-scheme pipeline (or an extension of a non-scheme pipeline) and, if so, the terms and conditions for the provision of access.

216H—Notification of access dispute

If agreement cannot be reached about access, the prospective user or user, or the service provider, may notify the scheme administrator that an access dispute exists. (However, a notification cannot be made if the access dispute relates to a matter excluded from arbitration under this Chapter by the rules). (This section is comparable to existing section 181 of the National Gas Law).

216I—Parties to an access dispute

The parties to an access dispute will be the parties to the negotiations that gave rise to the dispute and, if the scheme administrator is of the opinion that the resolution of the dispute may require another person to do something and it is appropriate that the other person be joined as a party, that other person.

Part 3—Reference of dispute to arbitration

216J—Reference of dispute

If a notification is received by the scheme administrator, the scheme administrator must refer the relevant dispute to arbitration.

216K—Selection of arbitrator

The parties to an access dispute may agree to appoint an arbitrator for the purposes of an access dispute that has been referred under this scheme. If an agreement cannot be obtained within a period specified by the rules, the scheme administrator may select an arbitrator after consultation with the parties to the access dispute. An arbitrator must be independent of the parties to the dispute, be properly qualified, and not have a direct or indirect interest in the outcome of the dispute.

216L—Determination of access dispute

An arbitrator will make a determination about access. A determination must not be inconsistent with the rules (or go beyond the matters specified by the rules). The rules may contain provisions for or with respect to such things as the form of any determination, the content of any determination (including as to the giving of reasons), the time within which a determination must be made, the process for making a determination, the timing for the commencement of a determination, and the giving of notice of the making of a determination.

216M—Principles to be taken into account

An arbitrator will be required to take into account any pricing or other principle specified by the rules.

216N—Restrictions on access determinations

An arbitrator must not make an access determination that would prevent another party obtaining a sufficient amount of a pipeline service in specified circumstances or to a specified extent. (This section is comparable to existing section 188 of the National Gas Law).

216O—Arbitrator's power to terminate arbitration

An arbitrator will be able to terminate an arbitration in specified circumstances. The rules will also be able to specify circumstances which will entitle an arbitrator to terminate an arbitration.

216P—Access seeker's right to terminate arbitration

The prospective user or user will be able to terminate an arbitration before an access determination is made by the arbitrator.

Part 4—Compliance with access determinations

216Q—Compliance with access determinations

Subject to the rules, an access determination will be enforceable as if it were a contract to the parties to the access determination. However, a prospective user or user of a pipeline service will not be required to seek access under an access determination (but if access is sought then the prospective user or user (as the case requires) will be bound by any provision of the access determination).

Part 5—Variation of access determinations

216R—Variation of access determinations

An access determination will be able to be varied by agreement between all parties to the access determination, or under a scheme to be prescribed by the rules.

Part 6—Hearing procedures

216S—Hearing procedures

Certain provisions of Chapter 6 Part 6 of the National Gas Law are to apply in relation to the proceedings for an arbitration.

Part 7—Miscellaneous matters

216T—Correction of access determinations for clerical mistakes etc

The rules will be able to make provision with respect to correcting some clerical or technical matters with respect to an access dispute. (This section is comparable to existing section 213 of the National Gas Law).

216U—Reservation of capacity during an access dispute

A service provider who is in an access dispute must not, without the consent of the relevant user, alter the rights that the user has to use the capacity of the non-scheme pipeline during the period of the dispute. (This section is comparable to existing section 214 of the National Gas Law).

216V—Costs of arbitration

The general rule is that the costs of an arbitration under the Chapter (including costs associated with the arbitration process and the cost of the arbitrator) will be shared equally between the parties to the arbitration. However, the rules will be able to make provision with respect to the costs of an arbitration, including so as to provide for a different approach to the general rule in specified circumstances. Costs payable to an arbitrator will be a debt due to the arbitrator. It is also made clear that the parties to an arbitration will be responsible for their own costs.

7—Amendment of section 271—Enforcement of access determinations

This amendment provides for the enforcement of an access determination under Chapter 8 Part 6 of the National Gas Law.

8—Insertion of section 294F

This clause will insert a new section 294F into the Act:

294F—South Australian Minister to make initial Rules relating to access to non-scheme pipelines

The South Australian Minister will be able to make the initial rules relating to this new scheme. The initial rules will only be able to be made on the recommendation of the MCE

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

These are consequential amendments to Schedule 1 of the National Gas Law relating to subject matter of the rules under that law.

Debate adjourned on motion of Hon. T.J. Stephens.