HANSARD
SITTING CALENDAR
SEARCH
LIVE BROADCAST
Hansard Dynamic Member Index
House of Assembly - Fifty-Fifth Parliament, First Session (55-1)
2022-10-18 Daily Xml
Contents
Xml

Bills

Statutes Amendment (National Energy Laws) (Gas Pipelines) Bill

Second Reading

Adjourned debate on second reading.

(Continued from 7 September 2022.)

Mr PATTERSON (Morphett) (11:02): I take the opportunity today to speak in parliament about the Statutes Amendment (National Energy Laws) (Gas Pipelines) Bill, and in so doing I indicate that I am the lead speaker for the opposition.

This gas pipelines bill has been worked on by both national and state energy ministers since 2018 and is really about improving competition and transparency in the use of gas infrastructure, particularly in allowing third parties to access existing gas pipelines. Additionally, these reforms are intended to provide for the implementation of a simpler regulative framework that is going to continue to support the safe, reliable and efficient use of and also investment into these gas pipelines, which are significant pieces of infrastructure that deliver gas throughout the country from the gas wells themselves.

The bill looks to provide further constraints on the exercise of market power by these pipeline service providers. As I said, they are substantial pieces of infrastructure. There are not many of them around in certain areas, giving access to these gas wells and then onto gas markets, so it is important that market power is properly regulated. They are also about facilitating better access to pipelines to those who otherwise would not provide that access, but at the same time minimising any costs and risks associated with regulation where there are no third parties wanting to get access to those pipelines.

The bill itself aims to support commercial negotiations in a better format between shippers and service providers by providing better transparency, not only for the shippers but also for the regulators, and streamlining governance arrangements as well.

In terms of South Australian pipelines, as I have spoken about before, they basically connect the gas wells to markets. There are a number of significant gas pipelines in South Australia. One of them, of course, is the South East Australia or SEA Gas pipeline running from Port Campbell in Victoria through to Adelaide, and probably the better known of all the pipelines is the Moomba to Adelaide pipeline.

Other pipelines also go out from Moomba to other states, one over to Sydney and another one to Queensland. That pipe to Queensland then allows gas to also flow not only from Moomba into the Queensland market but also from Queensland into South Australia and then on to the domestic metropolitan Adelaide market and other regional towns as well.

Talking of regional towns, to have them connected we have gas pipelines connecting the Riverland, via Angaston, and also a pipeline connecting Murray Bridge. In the South-East, there is the South-East pipeline that connects Mount Gambier to that SEA Gas line running between Victoria and Adelaide, allowing Mount Gambier to get access to that as well.

The gas goes through these big transmission pipelines and, once it gets to regional towns or metropolitan Adelaide, it gets put into a distribution network where the gas pressure is reduced and also is metered. Gas retailers who work in these markets then sell that gas to residential people, to businesses and, significantly, to industrial customers as well.

Of course, it is the retailers who pay for the charges to get access via these transmission and distribution lines to transport that gas and ultimately that gets passed on to consumers through their gas prices. There are other components that will make up charges that gas consumers ultimately pay and these are the extraction and production costs of that gas from the gas wells and also then retail costs by these gas retailers.

In terms of regional towns that are connected up to these gas networks, we have metropolitan Adelaide and its surrounds and also regional centres such as Mount Gambier, Whyalla, Port Pirie, Barossa Valley, Murray Bridge and Berri. Any other towns that have access to gas do that through cylinders and the like. It is quite a significant network, and if you lay it all out in a single length it makes up nearly 8,300 kilometres of pipes. This gas distribution network is owned by Australian Gas Networks and is one of the fully regulated gas pipelines that were mentioned previously.

That is a bit of the state of the transmission and distribution of gas pipelines in South Australia. In terms of the genesis of this bill, in some part it relates back to 2013-14 when we saw the opening up of the Queensland LNG export facilities and, all of a sudden, by doing that it linked up domestic gas prices to international gas prices.

Prior to that, we had significant amounts of gas here in Australia when it was only in a domestic market and you had a big supply and small demand. Now that it is linked with the international markets, it brings into play what international markets are prepared to pay. That has caused issues around pricing, as I said, as far back as 2013-14, and the ACCC looked into this to see what the way forward was.

In 2016, they delivered a report, the East Coast gas inquiry report, on what was going on. As part of that inquiry bill in 2017, as part of the COAG gas market reform process, legislation was passed to implement a new commercial arbitration framework in part 23 of the National Gas Rules. This applied to uncovered pipelines that were providing third-party access.

At the same time, since 2017 all gas pipelines then became subject to some form of regulatory oversights, ultimately creating two pipeline frameworks: either scheme pipelines, which are regulated by the Australian Energy Regulator, or non-scheme pipelines, which are covered in part 23, which allows for more commercial arbitration as well. The only pipelines that do not provide third-party access can be exempt from all regulatory requirements.

So that is, I suppose, a bit of the framework of where it had got to when the COAG Energy Council wanted to continue looking at the gas markets to see what options there could be to improve gas pipeline regulations. In August 2018, the COAG Energy Council instructed senior officials to prepare a regulatory impact statement relating to this and as a result started consultation on this suite of reforms that we see before us, which began back in 2019.

While this consultation process was occurring, to give a bit of an idea of what the network was like in terms of transmission and distribution pipelines in eastern Australia and Northern Territory, this was made up of 103 gas pipelines. Of these, 10 were subject to full regulation, 4½ were subject to lighter regulation, another 51½ were subject to part 23, and they provided third-party access, and finally there were 37 pipelines not providing third-party access. You can see there the percentages of scheme pipelines versus non-scheme pipelines versus those that are not requiring third-party access, to give a bit of an understanding of the scale of the distribution system.

As the consultation continued, it came back to the energy ministers in May 2021, and they published a Decision Regulation Impact Statement that gave a number of options to improve gas pipeline regulation along with a recommendation of which option they wanted to go forward with, which really identified this package of reforms to improve the gas pipeline regulation, and the energy ministers agreed to move forward and implement this.

Out of this, a proposed legal framework was put out to implement these regulatory changes. It was put out to consultation and, in response to stakeholder feedback, some elements were changed further to improve the framework to eventually bring the bill that we see before us today. It is worth noting that the vast majority of this consultation period—from August 2018 all the way through to 2021—was done during the term of the previous former Liberal government and also the former Minister for Energy and Mining, the Hon. Dan van Holst Pellekaan, who was sitting in with those state energy ministers.

Ultimately, in March 2022, the energy ministers agreed to the final package of gas pipeline regulatory amendments that we see before us today. The reason we see that is South Australia is the lead legislator when it comes to energy laws, be it gas, be it electricity. As a result, the convention, as we have said previously, is to offer bipartisan support for these laws when they are brought down to go through this process, and so I indicate that the opposition is going to be supporting this bill. Of course, the fact is this bill was worked on predominantly during the term of the former Liberal government, which really again emphasises why we will be supporting this bill going forward.

I cast my mind back to what was going on during this period of consultation and look at the state of the gas markets there. It was somewhat benign. You had wholesale gas prices at or below $10 a gigajoule, and then fast-forward to what we are seeing now, with massive increases in the spot market in wholesale gas, even to the point where in the middle of the year we had gas prices capped at $40 a gigajoule just because of the big increases and the pressures they were putting predominately on industry, with some of them exposed to the spot market.

In consulting with pipeline operators and industry stakeholders over this bill, they made the point that, when you are looking at $10 a gigajoule for your gas, you look at the overall bill that either the industry or residents receive. In percentage terms the transmission line costs are around 10 to 15 per cent at $10 a gigajoule; however, when you start having prices go up to that $40-plus per gigajoule mark, you can see that will reduce the percentage of transmission line costs as well and how they contribute to the retail bill.

Yes, this bill is intended to put downward pressure on gas pipeline costs, but we should not resile from the fact that that is not the be-all and end-all of gas prices, the ultimate price that households and industry will pay. In fact, we will face more pressure in terms of the actual prices of gas. This legislation is not really so much about the production and the supply and demand metrics going on at the moment, and the pressing challenges facing the gas market at the moment, certainly in the domestic gas market, are trying to increase demand as well. That certainly should be taken into account when thinking about this legislation and where it sits in the scheme of things.

That said, the information provided as part of the stakeholder consultation process is that the energy minister has indicated that the reform package is estimated to save about $1 billion over the 20 years. That is not immaterial, and that is a good reason to try to bring down costs, albeit not the only one. As I mentioned previously, if we look at the key areas of this bill, it seeks to look at four main areas: one is looking at the market power by these pipeline service providers and other areas facilitating better access to pipelines; another is providing greater support for commercial negotiations and streamlining the government's arrangements of these rules.

When we talk about the first aspect as being constraining the exercise of market power by pipeline service providers, that comes about because there is potentially a natural monopoly for pipelines. Interestingly enough, if you look from South Australia's perspective you have the Adelaide-Moomba pipeline and the SEA Gas pipeline. They are not actually classified as scheme pipelines because ultimately they are providing a competition source, whereas in the distribution network in metropolitan Adelaide it is because there is a natural monopoly there and there is no other provider as well. That is certainly one area this bill looks to—to try to make sure that is looked after.

It is also about trying to support shippers. These are companies that buy or sell gas or arrange for it to be transported through the networks that are owned by gas transporters and to help them in their negotiations with these pipeline service providers as well. In terms of market power, where the potential lies for it to be exercised, when there are existing pipelines, providers may be able to exert power over their existing capacity potentially by engaging monopoly pricing or, if they are vertically integrated, by providing favourable prices or denying access for others. That needs to be looked after.

In terms of exercising market power where there is potential for new capacity, again that could be done by blocking competition and not allowing interconnection into pipelines as well. Again, that needs to be looked after to encourage competition. If we look at facilitating better access to pipelines, that is one of the main thrusts of this legislation. Where this bill lands, it will require all pipelines to provide third-party access if that access is sought.

At the same time, it also repurposes definitions of both scheme pipelines and non-scheme pipelines, which were introduced in 2017. This has now been repurposed, so a scheme pipeline is classified and is subject to stronger form of regulation based on the existing full regulation category undertaken by the Australian Energy Regulator.

The other classification is for a non-scheme pipeline. This will be subject to a lighter, commercially oriented form of regulation, again based on a strengthened part 23, where regulation is undertaken by commercial arbitration as well.

In terms of the Australian Energy Regulator determining what the test is if a pipeline is to become scheme or non-scheme, they will have responsibility for that. Also the point should be made that if a pipeline does not provide the requisite information it will automatically be classified as a scheme pipeline, which then has the strongest set of regulations, so there are certainly incentives for pipelines to be open and forthcoming with the AER.

Importantly, there is also a provision for a greenfields incentive determination, which is available prior to the commissioning of a new pipeline. This is done if the AER is satisfied that the pipeline itself is unlikely to have a substantial market power over the exemption period, which is 15 years. The reason is that new pipeline developers are taking on substantial risk and there may be adverse effects that arise if there is a strong form of regulation on that pipeline while it is getting up and running, and ultimately, if that is the case it might mean that the project would not proceed, so this greenfields incentive allows for that relaxation for that initial 15-year period.

Certainly you can see why in the current environment. There is considerable risk. These pipelines come with significant cost, so the risk there is borne by that investor. They have to build the pipeline. These have multidecade time lines, and certainly what they are doing is they are banking on the fact that the gas market is going to stay strong over these coming decades. So they are the ones taking on the risk. The point was made, again, as I said, when consulting with stakeholders here that by them taking on the risk they are having to bank on gas remaining strong, so to not have these things overly regulated at the start is certainly advantageous for them in terms of getting the project up and running.

The existing framework prior to this bill either had a competitive tender or a 15-year no coverage determination framework. That is now going to be replaced, as I said, by a single greenfields incentive that will be available to new pipelines where they, again, as I said before, demonstrate the pipeline is unlikely to have a substantial market power over that 15-year period. It is going to provide an exemption from being a scheme pipeline and therefore regulation; however, it is important to note that these pipelines will be considered non-scheme pipelines and therefore they will still be subject to regulatory obligations that apply to non-scheme pipelines. There still is regulation there as well.

In terms of another aspect of this bill around providing greater support for commercial negotiations, this is done predominantly through giving greater price transparency across all pipelines. They will be required to publish prescribed transparency information unless they obtain an exemption. The sort of information that is entailed in this is service and access information, standing terms for each service offered by the pipeline, information on individual prices actually paid by shippers for pipeline services, and historical financial and demand information.

Additional to this transparency in terms of pricing, the bill also implements a single access negotiation framework for all pipelines. At the moment there are differences slightly between the scheme pipelines and the non-scheme pipelines. The negotiation frameworks they use for the scheme ones are the AER ultimately, whereas the non-scheme ones have commercial arbitration. So bringing those frameworks together is certainly going to simplify things.

Additionally, the bill also makes improvements to scheme pipeline dispute resolution mechanisms, which help strengthen the credibility of the threat of small shippers to trigger a dispute. Small shippers do not have large quantities of gas in comparison to some of the bigger ones, so they are at somewhat of a disadvantage when trying to negotiate with these well-resourced pipeline service providers. So credibility of the threat from them—being able to strengthen that allows them to trigger a dispute and for that to be taken quite seriously.

There are also ways to support this by changing the dispute-related cost provisions, allowing user bodies to be joined to proceedings that involve the small shippers and also allowing small shippers to elect to have a dispute mediated by a regulator-appointed mediator. Again, that gives the advantage that the well-resourced pipeline service providers have against them at present.

The fourth aspect of the bill is around streamlining the governance arrangements. This suite of reform confers more responsibility onto the AER. It includes the regulation decisions they make, determining if it is a scheme pipeline or not, and also the greenfields incentive determinations. To go with that there is also greenfields price protection determinations, so that over that 15-year period the pricing schemes that the pipelines have come up with are protected as well. There are also pipeline classification decisions, exemption decisions from prescribed transparency information, and the ring-fencing and associated contract arrangements as well.

The bill also requires the AER to publish the regulatory determination and a guide for pipeline service providers, should they elect to become a scheme pipeline. At the same time, the AER is also required to actively monitor the behaviour of these service providers, making sure that they are complying with their obligations under both the national gas laws and the National Gas Rules and, at the same time, will be able to initiate its own assessment of the form of regulation that should apply to a pipeline.

Ultimately, the aim of these changes—and what they are expected to result in—is to lower the transportation costs for gas throughout the country, improve access to pipelines, lower search and transaction costs and also a range of other significant cost savings, investments and efficiency benefits.

As I said earlier, the reform package has been estimated to save about $1 billion over 20 years. Certainly the vast majority of the work done on the suite of reforms to this was undertaken through the previous term of the former Liberal government, which had a major focus when in government on lowering energy costs for all South Australians. This bill is certainly another example of that that we see before us.

Ms CLANCY (Elder) (11:27): I rise in support of this bill to provide for the implementation of a simpler regulatory framework that will continue to support the safe and efficient use of gas pipelines in South Australia. Australian Gas Networks' project Hydrogen Park SA, located at Tonsley in my electorate, produces renewable hydrogen using renewable electricity and water, which can be blended with natural gas and supplied to existing gas networks. While now the largest of its kind in Australia, the 1.25 megawatt electrolyser in Tonsley that provides this hydrogen will soon be joined by the massive electrolysers being built by the Malinauskas Labor government in Whyalla as part of our Hydrogen Jobs Plan.

But for now, more than 700 homes in the Mitchell Park area of my electorate are being supplied by gas blended with the green hydrogen produced at Tonsley. I am proud that this project was supported by the Weatherill Labor government through a $4.9 million grant through the Renewable Technology Fund. Residents in Mitchell Park are proud that their gas is greener, and they are looking forward to the percentage of green hydrogen in the blend increasing when that becomes possible.

This project at Tonsley is a pioneer in the industry, using existing gas pipelines in Mitchell Park to deliver blended gas to people's homes. It is an example of one of the many changes that are on the way as the old structures of the energy sector are replaced by new structures in pursuit of reliable, affordable and cleaner energy. As the energy sector evolves, it is important these changes occur in the most efficient ways and with the best outcomes for consumers and our environment.

That is what this bill is about: it seeks to improve competition so that new players can get access to markets without the old guard putting up barriers that make it impossible. It gives the independent regulator the ability to make sure this is done fairly. Importantly, it will create much more transparency in how the market operates. That transparency will ultimately be good for consumers because it will rein in prices as third parties go to the negotiating table with all the information to get a reasonable deal.

Confidence is king in investment. When deciding upon the multimillion-dollar investments in projects that will create jobs and provide new and better services, investors need as much certainty as possible. In addition to the Malinauskas Labor government's $593 million investment in our Hydrogen Jobs Plan, several major companies are investigating the development of hydrogen facilities. Making the hydrogen is the first step. Getting it to the customer is the next, and that will require looking at pipeline arrangements.

The customers will include industrial users who want to replace or supplement their existing use of fossil fuels to create products that are cleaner and greener; electricity generators such as the power plant to be built by the government in Whyalla; storage sites for hydrogen; transport refuelling points for passenger vehicles, public transport and particularly heavy vehicles such as those used for long-distance trucking; and the suburban gas network such as is now used for the Tonsley project.

This bill ensures that hydrogen developers will have more options to look at when calculating how to make their ideas stack up logistically and financially. They will have more visibility of costs and be better able to forecast supply and demand cycles. Similarly, pipelines will be needed to accommodate the carbon capture, use and storage industry, ensuring carbon capture can be completed efficiently and cost effectively.

Changes in the energy market are deep and diverse. As guardian of consumer interests and facilitator of business prosperity, we in government need to get the balance right. For consumers, we want systems to operate so that they are affordable and reliable, and systems which match the clearly expressed demand from the public that we do as much as we can to address climate change.

Simultaneously, we want to encourage innovation and allow businesses to move rapidly to seize opportunities as they arrive. This bill seeks to achieve those aims by simplifying existing systems and creating a framework that is understandable and functional for all involved. I commend this bill to the house.

Mr BROWN (Florey) (11:31): It is with great pleasure that I rise to speak on the Statutes Amendment (National Energy Laws) (Gas Pipelines) Bill. The global crisis in gas and its effect on the Australian market, energy more broadly and inflation is a sobering illustration of the fuel's importance. As Australian Competition and Consumer Commission Chair, Gina Cass‑Gottlieb, described it to the federal economics committee, the Russian war on Ukraine has caused—her words—the 'weaponisation of energy'.

The problems with supply have caused prices to soar across the world, and South Australia has not been immune—for both the price of gas and the price of electricity because of the role of gas-fired generation in setting market prices. Russia's unconscionable acts should give cause to Australians to work harder to build sovereign resilience to such external shocks.

That resilience will clearly include maximising the potential of our domestic energy system. To do that, we must have efficient gas supply. To that end, the reforms in this bill will help create a structure that is simpler, fairer and more transparent that will ultimately be to the benefit of industry and consumers. The net value of the reforms is estimated at more than $1 billion over a 20-year period.

Given the technical nature of this bill, I believe it is worth considering the aspects of the proposed scheme in detail. I am indebted here to detailed information provided by the minister's office. I would first like to talk about access arrangements. All transmission and distribution pipeline service providers will be required to provide third-party access. Exemptions will be available from the ring-fencing and associate contract arrangements and the prescribed transparency requirements for those pipelines with no third-party users.

In regard to the proposed forms of pipeline regulation, under the new regulatory framework pipelines will be classified as either a scheme pipeline, which will be subject to the stronger form of regulation based upon the existing full regulation (in other words, negotiate-arbitrate with reference tariffs approved by the regulator and the regulatory oriented dispute resolution mechanism), or non-scheme pipelines, which will be subject to the lighter commercially oriented form of regulation (in other words, a negotiate-arbitrate model with information disclosure and a commercially oriented dispute resolution mechanism). Both types of pipelines will be subject to the following:

a common requirement to publish prescribed transparency information and to comply with a single negotiation framework;

the vertical integration safeguards provided by the prohibition on service providers preventing or hindering access and the ring fencing and associate contract arrangements;

the prohibition on bundling services, which will extend to both gratuitous and non-gratuitous services; and

will comply with a prohibition on pipeline service providers increasing the charges payable by existing shippers to subsidise the development of new capacity and disclose additional information on extension or expansion costs.

I would like to talk about the application of the scheme on various pipelines. Regarding scheme pipelines, a pipeline will be treated as a scheme pipeline if it is a covered pipeline (other than a light regulation pipeline) immediately before the reforms are implemented. A non-scheme pipeline may also become a scheme pipeline if the regulator makes a scheme pipeline determination or the service provider submits a scheme pipeline election to the regulator.

Regarding non-scheme pipelines, all new pipelines will be non-scheme pipelines when they are commissioned. A scheme pipeline can also become a non-scheme pipeline if the regulator makes a scheme pipeline revocation determination. The test used for determining the form of regulation is that, under the revised framework, the relevant regulator will be responsible for determining whether a pipeline should be a scheme or non-scheme pipeline. The framework used to make this determination will be simplified by removing the coverage test and using a modified version of the existing form of regulation test.

To overcome the information asymmetries that the regulator is likely to face in applying the form of regulation test, he will be able to draw an adverse inference where the service provider does not provide the information requested within the period specified by the regulator. The regulator will be required to report on it when it has used this power. If the regulator makes a scheme pipeline determination, it must specify when it will take effect, which must be between six to 12 months of making the determination. The same time window applies to voluntary scheme pipeline elections.

One of the most important aspects of this scheme is to encourage new investment, and so it is worth talking about greenfields pipeline incentives. Regarding a greenfields incentive determination, prior to the commissioning of new pipelines service providers will be able to apply for a greenfields incentive determination. This determination will be available where the relevant regulator is satisfied that the form of regulation factors, or competition to develop the pipeline, whether formal or informal, will, or is likely to, pose an effective constraint on the exercise of market power over the incentive period. The regulator will be required to make this decision within six months.

This incentive will provide the pipeline with an exemption from being subject to the stronger form of regulation, with a default incentive period of 15 years. The period granted may be less than 15 years if considered appropriate by the regulator.

I would now like to talk about the greenfields price protection determination. Pipelines with a greenfields incentive determination will also be able to apply for a price protection determination, which an arbitrator would be required to give effect to if an access dispute arises during the operative period of the determination. The operative period cannot be longer than the greenfields incentive period. This determination will be available where the relevant regulator is satisfied that:

firstly, the pipeline has been developed as a result of a competitive process, and the prices and non-price terms and conditions set as a result of that process will be made available to prospective users during the operative period of the price protection determination; or

one or more of the form of regulation factors effectively constrain the exercise of market power by the service provider when the price and non-price terms and conditions that will be made available to prospective users are determined and the making of the determination will, or is likely to, contribute to the achievement of the National Gas Objective.

An application for a greenfields price protection determination can be combined with an application for a greenfields incentive determination, or can be made after the receipt of the greenfields incentive determination.

Other greenfields measures that are being considered are the following. The non-scheme pipeline arbitration principles will be amended to allow the arbitrator to consider the following if a pipeline has a greenfields incentive determination:

firstly, the risks the service provider faced when it decided to make the investment, including as a result of building any excess capacity where it was efficient to do so; and

the way in which the service provider is expected to recover the capital over the economic life of the asset.

When we are talking about schemes to provide third-party access and other things to create efficiencies and competition in the gas supply sector, some of the most important things are transparency and information disclosure. To that end, the proposed scheme does the following. Unless exempted, scheme and non-scheme pipeline service providers will be required to publish the following:

firstly, a set of basic information on the pipeline, pipeline services, the standing terms for each service offered by the pipeline, service availability and service usage information;

secondly, historical financial and demand information and the cost allocation methodology employed by the service provider, which must comply with principles in the NGR; and

thirdly, a user access guide.

These reporting requirements are largely the same as the consultation rules, but in response to feedback the following has been done to reduce the reporting burden:

firstly, scheme pipelines will no longer be required to report each contract that involves the supply of the reference service at the reference tariff; rather, they will be able just to report the number of shippers using each reference service;

secondly, separate non-price reporting requirements will be introduced for distribution pipelines to remove some of the information that is not relevant for these pipelines; for example, the direction of the service, receipt and delivery point information, imbalance and overrun allowances;

thirdly, service providers will only have to report prices where a user's total capacity right is greater than or equal to 10 terajoules per annum; and

fourthly, the cost allocation principles will only apply at a pipeline level rather than at a service level.

Transparency requirements will also be amended to address the identified information deficiencies and improve the quality and reliability, accessibility and usability of the information. The regulator will be required to publish and maintain information disclosure guidelines and a pricing template that shippers can use to transform historical financial and demand information into one or more cost-based pricing benchmarks.

I would now like to talk about the standalone compression and storage facility reporting, which is relevant to this discussion. The service providers of these facilities will be required to publish standing terms for each of the services offered as well as information on the individual contract conditions, including price imposed on shippers. The same steps applied to reduce the reporting burden for pipelines will also apply for these facilities.

Having discussed the scheme, it is now important to discuss the exemptions that will be available. Exemptions from information disclosure obligations will be available to, firstly, pipelines, standalone compression and storage facilities with no third-party users. These facilities will be able to obtain an exemption from all these reporting obligations. Secondly, exemptions will be available to pipelines with third-party users that have a single user or a nameplate capacity less than 10 terajoules per day. These pipelines will be able to obtain an exemption from the obligation to publish historical financial and service usage information. It should be stressed, however, that if a facility no longer satisfies the exemption criteria, the exemption must be revoked.

One of the reasons there is a discussion of reform of transparency and contract information regarding pipelines is the disparate bargaining power between small shippers and pipeline operators. It is important to define terms. The term 'small shipper' will be defined as a user or prospective user for whom the total daily pipeline capacity right provided, or sought to be provided, under one or more contracts with the same service provider is not more than the lower of five terajoules per day or 20 per cent of the pipeline's nameplate rating but does not include a corporation with a market capitalisation greater than $500 million or a related body corporate of that corporation.

The ability of small shippers to avail themselves of dispute resolution schemes by triggering a dispute will be strengthened under the scheme by, firstly, changing the dispute-related cost provisions; secondly, allowing user bodies to be joined to proceedings involving small shippers; and, thirdly, allowing small shippers to elect to have a dispute mediated by a regulator-appointed mediator.

Scheme pipelines will continue to be subject to a regulatory-oriented dispute resolution mechanism, which will be strengthened by, amongst other things, setting out the matters the dispute resolution body is to have regard to; introducing a fast-track option, specifying the maximum period of time for the dispute resolution body to make its decision; and specifying the material to be published on the decision. How is this to be policed? Let's talk about the enhanced regulator powers and functions. The relevant regulator will be responsible for making:

form of regulation decisions, which will be referred to as scheme pipeline determinations and scheme pipeline revocation determinations;

greenfields incentive determinations and greenfields price protection determinations;

pipeline classification and reclassification decisions; and

exemption decisions in relation to the prescribed transparency information and the ring-fencing and associate contract arrangements.

To provide market participants with more guidance on how the regulator intends to exercise these new powers, the regulator will be required to publish a regulatory determinations and elections guide.

The regulator will also be required to actively monitor the behaviour of service providers and compliance with their obligations under the NGL and NGR and will be able to initiate its own assessment of the form of regulation that should apply to a pipeline if, for example, it suspects market power is being exercised. To assist with this monitoring function, the regulator will be given the power to carry out compliance audits or require the service provider to do so. The regulator will be required to provide energy ministers an update on its monitoring and compliance activities every two years.

Energy ministers may also ask the regulator to conduct a review into whether chapter 4 of the NGL should apply to any person or class of persons. If requested to do so, the relevant regulator must consult with the public and must also have regard to the NGO and the effect that the application of chapter 4 would have, firstly, on the promotion of access to pipeline services and any other benefits that may be associated with the application and, secondly, the costs that are likely to be incurred by the person or class of persons if they were operating efficiently.

One effect of the proposed framework that must, I believe, be stressed is that of transparency. The ACCC says the reforms, and I quote, 'are expected to help constrain the market power of pipeline operators and provide greater price transparency'. During consultation on the reforms, several of the bigger companies expressed opposition to having to provide information about the prices and conditions. In the usual private sector markets that commercial-in-confidence position would be standard. But pipelines are not a usual type of operation. They often operate in monopoly or near monopoly situations. That is why there is a need for transparency to limit the potential for price gouging.

The bill before the house was initiated at a national level between states and the commonwealth during the period that the Liberal Party was in government in South Australia. It was disappointing to see that the then government wanted to derogate this state from the full transparency regimen. The Liberals wanted to side with some big businesses at the expense of consumers and small businesses getting the most cost-effective deals. Not that this bill is anti business; in fact, quite the opposite: it creates the framework that will give certainty to investors, particularly in greenfields projects. A lack of certainty can be a dead hand on investment.

At a time when Australia needs more pipelines and better access to pipelines, gas will play a bigger role in electricity generation, working in partnership with the growing fleet of renewables as coal-fired power stations inevitably close down in the years ahead. We will need a big network of pipelines for hydrogen, particularly as we build a new export sector. Analysis for the nation's energy ministers says the reforms will:

pose a more effective constraint on exercises of market power by pipeline service providers;

facilitate better access to pipelines that would not otherwise provide such access, while also minimising the cost and risks associated with regulation where there are no third-party users;

provide greater support for commercial negotiations between shippers and service provides: i.e. through more transparency, including greater price transparency and improvements to the negotiation framework and dispute resolution mechanisms; and

streamline the governance arrangements.

The consultation with industry over the reforms has led to changes from the original draft legislation that was circulated. These changes include improvements to the greenfields incentives that I outlined before and the powers the regulator will have when determining what form of regulation a pipeline should be subject to, which I believe are now not only more comprehensive but more directed to actually getting the information required by the regulator to make decisions rather than simply going on fishing expeditions. The changes also include information disclosure requirements and several other clarifications and refinements, which have sought to make this a much better bill from that which was initially sent out for consultation.

It is to South Australia's credit that we are the lead legislator in this particular area and it is also a testament not only to South Australia's long historical interest in the issue of gas in particular but also to the commitment of our government regulators, who do an excellent job and some of whom are in the gallery today, and to the commitment, I believe, to the respect that our Minister for Energy has across the country on this particular issue. I know his passion for gas pipelines, I know his passion for supporting the South Australian gas industry and I know his commitment to making sure that gas, as a transition fuel, is respected by South Australians and also that our hardworking men and women of the sector are recognised. With those comments, I commend the bill to the house.

Ms HOOD (Adelaide) (11:49): The bill seeks to simplify the regulatory system for gas pipelines. The efficient supply of gas is essential for households and industry in South Australia now and into the future. Nationally, more than five million households are connected to the gas network, and in South Australia that amounts to about 450,000 or 56 per cent of homes being connected. For industry, gas is needed for electricity generation, for heating during manufacturing processes, and for feedstock for certain chemical industries. For all these end users, the utility must be as cost-effective as possible. The simplification and, particularly, the greater transparency on contracts that will be created through this bill will drive prices lower, benefiting households and businesses.

The bill follows several inquiries, which led to agreement by energy ministers around the nation on this set of reforms. Fortunately, it now comes to this house when the Labor Party is in government, rather than during the previous government of the Liberal Party. I say this because when these reforms were being formulated the Liberal Party wanted to derogate some aspects of the transparency requirements.

Despite the energy ministers in the national energy market wanting to create one simple system, the Liberal Party wanted to opt out of full disclosure. In a discussion paper published last September, the Liberal administration made note of the national investigations, which found the reforms were needed because the lack of information in current arrangements can, and I quote:

…hinder the ability of shippers to negotiate access to services, impose additional search and transaction costs on shippers and result in inefficient decision-making. In addition, they could also make shippers more susceptible to exercises of market power.

Unsurprisingly, some players in the market were not happy about having to be more transparent, and they got in the ear of the previous in administration. The response by the Liberals was to propose a system of stopping short of detailed transparency and only requiring anonymised minimum and maximum prices and weighted averages. Peculiarly, they also suggested that the derogation from the national market position would only apply to pipelines wholly or partially in South Australia, so that individual price reporting in other jurisdictions would not be impacted.

However, the Liberal administration had obviously not properly thought through whether or not that was a workable arrangement. The view of the Australian Competition and Consumer Commission was that the geographic derogation would be a mess. This is what the ACCC said of the Liberals' plan, and I quote:

The South West Queensland Pipeline (SWQP) and the Moomba to Sydney pipeline (MSP) connect to the Moomba gas supply hub and are both partially contained in South Australia. These pipelines are used to move significant volumes of gas between Queensland and southern states other than South Australia. It's unclear how a pipeline operator is going to determine the end-use location for gas being shipped to Moomba. The ACCC is concerned that the derogation could affect individual price reporting in other jurisdictions and suggest that the South Australian government limit the geographic scope of the proposed derogation by excluding contracts for delivery of gas using the SWQP and the MSP. If the SA Government is not minded to limit the derogation in this way, the derogation should be limited to contracts with commercial and industrial users located in South Australia.

To summarise, the Liberals wanted to amend a set of rules intended to make the system simpler and more transparent so that the system in South Australia would have added complexity and less transparency. But, fortunately, the work on these reforms did not progress to the point of a bill being introduced by the Liberals to the house and, thankfully, we are here to sort out the mess early in the piece.

The Malinauskas government wants to drive down prices of essential services, such as gas for homes and businesses. This will require a raft of reforms and initiatives, like our $593 million Hydrogen Jobs Plan, and changes like these, which will inject much more competition into the market. I commend the bill to the house.

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Infrastructure and Transport, Minister for Energy and Mining) (11:53): I believe I am now closing the debate. I thank all members for their contributions, especially the members of the Labor government who have, I think, articulately and accurately reported the intent of this bill. I also thank the opposition for indicating their support.

As the member for Adelaide said, the derogations that were being planned by the previous government were an unfortunate legacy, I think, of the hectic and uncalculated way of thinking of the previous Marshall government. To argue that there is a need for more transparency and simplicity within gas pipeline regulations and then to actually withhold that simplicity and transparency in your own state is a little bit strange. But the minister and the cabinet that supported that policy are no longer in charge and the South Australian government believe in transparency and simplicity, and we are proceeding with these reforms on a national basis as a lead legislator.

I thank the house for its patience. I thank the opposition for its support. I thank members for their considered contributions to the parliament and I endorse the bill to the house.

Bill read a second time.

Third Reading

The Hon. A. KOUTSANTONIS (West Torrens—Minister for Infrastructure and Transport, Minister for Energy and Mining) (11:55): I move:

That this bill be now read a third time.

Bill read a third time and passed.

PARLIAMENTARY BUSINESS
MEMBERS
GET INVOLVED
ABOUT PARLIAMENT
VISIT
LEGISLATIVE COUNCIL
HOUSE OF ASSEMBLY
CONTACT