National Gas (South Australia) (Capacity Trading and Auctions) Amendment Bill

Introduction and First Reading

Received from the House of Assembly and read a first time.

Second Reading

The Hon. D.W. RIDGWAY (Minister for Trade, Tourism and Investment) (16:28): I move:

That this bill be now read a second time.

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

Leave granted.

Over the last five years, the east coast gas market has undergone a significant transformation, with a number of structural changes occurring on both the demand and supply sides of the market. The most significant of these changes has been the development of the Liquefied Natural Gas export industry in Queensland, which has resulted in unprecedented shifts in supply and demand and changes in the pattern of gas flows and use of transportation infrastructure across the east coast.

In response to these changes, the COAG Energy Council asked the Australian Energy Market Commission in 2015 to conduct a review of the design, function and role of the facilitated gas markets and gas transportation arrangements in the east coast. At the same time, the Australian Competition and Consumer Commission was asked to review the state of competition in the east coast market. These two reviews were completed in the first half of 2016 and recommended a range of reforms across the gas supply chain.

In August 2015, the COAG Energy Council responded to these recommendations by agreeing to implement 15 reform measures across four priority areas being gas supply, market operation, gas transportation and market transparency. The Energy Council also established the Gas Market Reform Group, led by Independent Chair, Dr. Michael Vertigan AC, and accorded it responsibility for progressing a number of the reforms, including the design and implementation of the capacity trading reform package.

This package of reforms is intended to foster the development of a more liquid secondary market for transportation capacity and, in so doing, improve the efficiency with which capacity is allocated and used on gas transportation facilities operating under the contract carriage model. The reforms are expected to achieve this objective by improving the incentive transportation users have to sell any spare capacity they may have and limiting the ability of transportation service providers to price short-term capacity products above the levels that would prevail in a workably competitive market. The reforms will also reduce search and transaction costs and the information asymmetries faced by market participants.

Greater liquidity in the secondary transportation capacity market is expected to facilitate more trade in gas and support the development of a more robust reference price for gas. This will, in turn, provide better signals for gas use and investments in exploration, production, transportation and storage facilities, which is in the long-term interests of consumers.

The Gas Market Reform Group's work on this package of reforms was carried out in 2017 and the first half of 2018. This work culminated in the development of the legislative and regulatory instruments required to give effect to the capacity trading reforms, which the COAG Energy Council agreed to implement on 29 June 2018. It is intended that the capacity trading platform and day ahead auction will commence on 1 March 2019 and the harmonised gas day times will commence on 1 October 2019.

The regulatory package included an Amendment Bill, changes to the National Gas (South Australia) Regulations, an initial set of National Gas Rules and the initial Operational Transportation Services Code.

The COAG Energy Council has agreed that the reform package will initially apply in the Australian Capital Territory, New South Wales, Queensland, South Australia, Tasmania and Victoria (outside the Declared Transmission System).

The COAG Energy Council has also agreed, at the request of the Northern Territory Government, to implement a derogation in the Regulations that will delay the application of the day-ahead auction to transportation facilities located wholly or partly in the Northern Territory. Further, all other aspects of the capacity trading reform package in the Northern Territory will apply once the Northern Gas Pipeline is commissioned.

In keeping with the COAG Energy Council's decision, the National Gas (South Australia) (Capacity Trading and Auctions) Amendment Bill 2018 will amend the National Gas Law, set out in the schedule to the National Gas (South Australia) Act 2008.

The Amendment Bill provides for the South Australian Minister to make the initial National Gas Rules that will implement these reforms and to make the initial Operational Transportation Service Code. Once the initial National Gas Rules and Operational Transportation Service Code have been made, the Minister will have no power to make any further Rules or Code.

The Bill provides for the Australian Energy Market Operator to be responsible for operating and administering the functions of the capacity auction. The Australian Energy Market Operator will make the Capacity Transfer and Auction Procedures.

The Australian Energy Market Commission's scope of its rule making functions will be expanded to include facilitating capacity trades, the capacity auction and the standard market timetable.

The Australian Energy Regulator will have its monitoring and enforcement roles under the National Gas Law, National Gas Rules and procedures and to also be responsible for making and amending the Operational Transportation Service Code. The Australian Energy Regulator will also be tasked with considering and then subsequently granting exemptions from obligations including to register transportation facilities.

The Bill provides for a reporting framework for secondary capacity trades and other transparency measures designed to facilitate capacity trades and the auction.

The Australian Energy Market Operator will be required to publish information on the secondary trades entered into through the exchange on the Natural Gas Services Bulletin Board. Transportation users that enter into trades outside the exchange will also be required to publish information on their trades on the Bulletin Board. The publication of this information will provide greater transparency in the market and aid the price discovery process.

It is intended that the initial set of National Gas Rules will provide for a capacity trading platform that will form part of the Gas Supply Hub trading exchange and provide an anonymous exchange mechanism that transportation users can use to trade commonly sought transportation products and a listing service for other more bespoke transportation products. The platform is expected to facilitate more secondary capacity trading by making capacity products more fungible, reducing search and transaction costs and making it easier for transportation users to value and compare offers.

The auction product will be a less firm product than the capacity sold on the capacity trading platform as it will need to allow for nominations and adjustments by firm capacity holders that occur after the auction is conducted. The platform and auction will allow transportation users to coordinate trades across one or more pipelines or compressors and procure gas and other gas services.

The auction is intended to provide transportation users with an incentive to sell any spare capacity they may have prior to nomination cut-off time, by allowing transportation service providers to retain the auction proceeds and negating any competitive advantage that may otherwise arise if users hoard capacity. The auction is also intended to limit the ability of transportation service providers to price short-term capacity products above the levels that would prevail in a workably competitive market, by setting the reserve price at zero. The auction is therefore a key element of the reform package.

The Operational Transportation Service Code will govern the development of standard operational transportation service agreements. These agreements will establish the standard contract between transportation service providers and transportation users for capacity procured through the platform and auction.

Under the initial set of National Gas Rules, it is intended that the Operational Transportation Service Code will be subject to a hybrid governance model. Under this governance model, an Industry Panel, which will be chaired by the Australian Energy Market Operator will consider amendments to the Code and provide recommendations to the Australian Energy Regulator. Amendments recommended by the Industry Panel will only take effect if approved by the Australian Energy Regulator

It is intended that the initial set of National Gas Rules will provide that the Australian Energy Market Operator will be required by the National Gas Rules to publish a range of information on the auction on the Natural Gas Services Bulletin Board as well as secondary trades entered into through the exchange on the Natural Gas Services Bulletin Board. The publication of this information will provide greater transparency in the market and aid the price discovery process.

It is intended that the initial set of National Gas Rules will provide for the day ahead auction of contracted but un-nominated transportation capacity to occur on a daily basis on non-exempt transportation facilities shortly after nomination cut off time. The auction will have a reserve price of zero and the proceeds of the auction will be retained by the transportation service provider.

It is intended that the initial set of National Gas Rules will specify the standard market timetable will provide for a common gas day start time, nomination cut off time and auction service nomination cut off time across the east coast.

I commend this 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 Law

4—Amendment of section 2—Definitions

Definitions are inserted for the purposes of the measure.

5—Insertion of section 8AA

Section 8AA is inserted:

8AA—Meaning of transportation service provider

Section 8AA provides that if AEMO controls or operates (without at the same time owning) a compression service facility or another facility of a type prescribed by the Regulations for the purposes of paragraph (b) of the definition of transportation facility in section 2 of the National Gas Law, AEMO is not for that reason to be taken to be a transportation service provider for the purposes of the Law

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

Section 10 sets out where things done by 1 service provider are to be treated as being done by all of a service provider group. The section is amended for the purposes of the measure.

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

The functions and powers of AER are amended to reflect the AER's functions and powers under the measure.

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

The list of matters that may be the subject of Rules is expanded for the purposes of the measure.

9—Insertion of sections 83B to 83D

New sections 83B to 83D are inserted:

83B—Standard market timetable

The Rules may provide for a standard market timetable.

83C—Use of the standard market timetable

A person required by the Rules to use the standard market timetable must do so in accordance with the Rules.

83D—False or misleading statements

Certain persons must not make a false or misleading representation concerning the effect of a requirement for the person to use the standard market timetable on the price for the supply of goods or services.

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

The statutory functions of AEMO are amended to reflect the AEMO's functions under the measure.

11—Insertion of Chapter 2 Part 6 Divisions 2C to 2E

Chapter 2 Part 6 Divisions 2C to 2E are inserted:

Division 2C—Capacity auctions for transportation services

91BRM—AEMO's capacity auction functions

AEMO's capacity auction functions are provided for, namely, functions of establishing, operating and administering 1 or more capacity auctions, making and administering capacity auction agreements and Procedures governing the operation and administration of a capacity auction.

91BRN—Capacity auctions not to constitute a regulated gas market

A capacity auction is not a regulated gas market.

Division 2D—Capacity Transfer and Auction Procedures

91BRO—Making of Capacity Transfer and Auction Procedures

AEMO may make Capacity Transfer and Auction Procedures (in accordance with the Rules).

91BRP—Nature of Capacity Transfer and Auction Procedures

This section provides that Capacity Transfer and Auction Procedures are a form of statutory instrument and sets out the nature and scope of Capacity Transfer and Auction Procedures.

91BRQ—Compliance with Capacity Transfer and Auction Procedures

AEMO and certain (specified) persons are required to comply with Capacity Transfer and Auction Procedures.

Division 2E—Registration in relation to transportation facility

91BRR—Registration obligation

A transportation service provider for a transportation facility must register the transportation facility as a transportation service provider for that transportation facility.

91BRS—Exemptions from obligation to register

AER is authorised to exempt a transportation service provider from the obligation to register.

91BRT—Certificates of registration and exemption from registration

The CEO of AEMO (in relation to registration) and the AER (in relation to exemption) are authorised to issue certificates of registration and exemption from registration for evidentiary purposes.

12—Insertion of Chapter 2 Part 6 Division 6 Subdivisions 3 and 4

Chapter 2 Part 6 Division 6 Subdivisions 3 and 4 are inserted:

Subdivision 3—Capacity auction information

91FEE—Obligation to give information to AEMO

This section provides that the Capacity Transfer and Auction Procedures or the Rules may require a person who has information that relates to and is necessary for the operation and administration of a capacity auction by AEMO or the performance of any other capacity auction function of AEMO to give AEMO the information for use by AEMO for the operation and administration of a capacity auction or performance of that other function.

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

A person must not refuse to comply with the requirement to give information to AEMO on the ground of any duty of confidence.

91FEG—Giving to AEMO false and misleading information

A person must not give capacity auction information to AEMO that the person knows is false or misleading in a material particular.

91FEH—Immunity of persons giving information to AEMO

Provision is made limiting the civil monetary liability of persons giving information to AEMO. Certain aspects of the liability of such persons may be prescribed by the regulations.

Subdivision 4—Information used for a capacity auction

91FEI—Giving false and misleading information used for capacity auctions

A person must not give to a transportation service provider information that relates to and is necessary for the operation and administration of a capacity auction by AEMO or the performance of any other capacity auction function of AEMO that the person knows is false or misleading in a material particular.

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

This amendment is consequential.

14—Amendment of section 91H—Obligations under Rules or Procedures to make payments

The amendment to the definition of Registered participant is consequential.

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

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

17—Amendment of section 223—Obligation to give information to AEMO about natural gas and natural gas services

These amendments are consequential.

18—Insertion of section 223A

Section 223A is inserted:

223A—Obligation to give information to AEMO about secondary capacity transactions

Certain (specified) persons who have information in relation to secondary capacity transactions must give AEMO the information if the person is required to do so under the Rules.

19—Amendment of section 224—Person cannot rely on duty of confidence to avoid compliance with obligation

This amendment is consequential.

20—Insertion of Chapter 7A

Chapter 7A is inserted:

Chapter 7A—Access to operational transportation services

Part 1—Standard terms for operational transportation services

228B—Transportation service provider to publish standard OTSA

Requirements relating to the publication of a standard OTSA by a transportation service provider for a transportation facility are provided for.

228C—Formation of contracts on standard terms

Provision is made in relation to the standard OTSA governing the formation of contracts between a transportation service provider for a transportation facility and another person on request of the person.

228D—Exemptions from obligations under section 228B or 228C

The AER may exempt a transportation service provider for a transportation facility from the obligations in the preceding provisions.

228E—Requirements relating to standard OTSA

The Rules may make provision setting out requirements relating to a standard OTSA.

228F—Service provider may enter into agreements different from a standard OTSA

The measure does not prevent a transportation service provider from entering into an operational transportation service agreement with a transportation facility user or a prospective transportation facility user that is different to a standard OTSA.

Part 2—Operational Transportation Service Code

228G—Operational Transportation Service Code

The AER is responsible for amending the Operational Transportation Service Code from time to time (the initial Operational Transportation Service Code is made by the South Australian Minister and is then amended by the AER under this section).

228H—Nature of the Operational Transportation Service Code

The provision sets out the nature and scope of the Operational Transportation Service Code. In general terms, the Code is made under the Rules and specifies the content of, or requirements for the content of, a standard OTSA, including the transportation services that may be provided under a standard OTSA and the terms and conditions applicable to the use of those transportation services.

Part 3—Other matters relating to access to operational transportation services

228I—Service requirements may be specified in the Rules

The Rules may provide for service requirements relating to access to operational transportation services.

228J—When operational transfer must be offered

A requirement is imposed for a transportation facility user to provide reasons for any difference between terms on which the user offers to grant to another person a right to use transportation capacity (without arranging for its transfer to the other person) and terms on which the user will arrange for a transfer of the transportation capacity to the person for use under an operational transportation service agreement.

228K—Preventing or hindering access to operational transportation services

Provision is made in relation to preventing or hindering access to operational transportation services.

228L—Transportation service provider providing operational transportation services must not price discriminate

A transportation service provider must not engage in price discrimination when providing operational transportation services.

21—Insertion of section 294DA

Section 294DA is inserted:

294DA—South Australian Minister to make initial Rules relating to the capacity reforms

The South Australian Minister may make initial Rules and an initial Operational Transportation Service Code for the purposes of the measure.

22—Amendment of section 322—Service provider may enter into agreement for access different from applicable access arrangement

This amendment is consequential.

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

The subject matter for the National Gas Rules is amended for the purposes of the measure.

24—Amendment of Schedule 3—Savings and transitionals

Transitional provisions are inserted for the purposes of the measure:

Part 15—Transitional provisions relating to capacity trading and auctions and harmonisation amendments

90—Immunity from liability—implementation or use of standard market timetable

91—Immunity from liability—supply of capacity through capacity auctions

92—Immunity for giving effect to the auction priority principles

93—Transitional regulations

Debate adjourned on motion of Hon. I.K. Hunter.