APPLICATION FOR CERTIFICATIONOF NSW ACCESS REGIME

FOR NATURAL GASDISTRIBUTION NETWORKS

RECOMMENDATION TO

COMMONWEALTH TREASURER

16 MAY 1997

Application under Section 44Mof the Trade Practices Act 1974

National Competition Council

Contents

OVERVIEW 3

1 Background And Process 3

2 Recommendation to the Treasurer 4

2.1 Effectiveness of NSW Regime 4

2.2 Duration of certification 4

2.3 Issues in draft recommendation 4

2.4 Other amendments to the NSW Regime 7

ATTACHMENT: NSW ACCESS REGIME FOR NATURAL GAS DISTRIBUTIONNETWORKS — STATEMENT OF REASONS FOR THE COUNCIL’SRECOMMENDATION UNDER SECTION 44M OF THE TRADE PRACTICES ACT197411

1 Background 11

2 Compliance With Clauses 6(2) – 6(4) Of The CPA 12

3 Recommended Duration Of Certification 53

4 The Council’s Public Consultation Process: Submissions Received 56

REFERENCES 57

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OVERVIEW

1 BACKGROUND AND PROCESS

Section 44M of the Trade Practices Act 1974 (TPA) provides for the National CompetitionCouncil (the Council) to make a recommendation to the Commonwealth Treasurer on theeffectiveness of an access regime established by a State or Territory Government. In makingits recommendation, the Council must assess whether the access regime is effective by applyingthe relevant principles set out in the Competition Principles Agreement (CPA) and must notconsider any other matters. The Council must also recommend the period for which acertification should be in force.

On 9 October 1996, the Council received an application by the NSW Government undersection 44M of the TPA to certify the effectiveness of the NSW Regime for third party accessto the services of gas distribution networks owned by:

⟩ the AGL Gas Company (NSW) Limited1; and

⟩ the Albury Gas Company Limited.

The NSW Regime comprises the Third Party Access Code for Natural Gas DistributionNetworks in NSW (NSW Code) operating in conjunction with the Gas Supply Act (NSW) 1996(Gas Act). The Regime is intended to be an interim measure for the provision of access until auniform national access code for gas is implemented.

The Council adopted a public consultation process in assessing the application and placedadvertisements in major newspapers on 14 October 1996 seeking submissions by 6 December1996. To assist interested parties in preparing submissions, an Issues Paper was released toabout 140 interested parties in October.

Eleven submissions were received, raising a number of matters relevant to the Council’sassessment. The Council considered some of these issues to be of substance, and as such, theSecretariat liaised with the NSW Cabinet Office, the Department of Energy and theIndependent Pricing and Regulatory Tribunal (IPART).

The Council released a draft recommendation on 19 February 1997 to certify the NSW Regimeas effective, subject to implementation of a number of amendments. All required amendmentshave now been implemented. A second public consultation process followed, in which theCouncil received a further seven submissions, raising additional issues which the Council hastaken into account in its final recommendation.

In addition, NSW has introduced a number of amendments to the Regime to satisfy NSWGovernment policy concerns, including amendments to the transitional arrangements andpricing principles. The Council has taken these amendments into account in its finalrecommendation.

The Council had proposed to convey its final recommendation to the Treasurer by 15 April1997. This has been subject to a short delay due to the subsequent amendments to the Regimeinitiated by the NSW Government.

1 In a recent corporate restructure, the gas distribution functions of the AGL Gas Company (NSW) Limited wererelocated to a new company, AGL Gas Networks Limited.

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2 RECOMMENDATION TO THE TREASURER

2.1 Effectiveness of NSW Regime

The Council’s analysis of the NSW Regime is set out in the Attachment. Followingconsideration of issues raised in each round of the public consultation process and discussionswith the NSW Government, the Council concluded that the NSW Regime (incorporatingamendments since 9 October 1996) satisfies the relevant CPA principles. Consequently, theCouncil recommends that the NSW Regime be certified as an effective access regime undersection 44M of the TPA.

2.2 Duration of certification

The duration of certification should provide certainty for industry players, while taking accountof the relatively early stage of gas reform and the pending implementation of a uniformNational Access Code for gas pipelines.

Balancing these considerations, the Council’s recommendation is that the NSW Regime becertified as effective in relation to the services of:

⟩ natural gas distribution systems in NSW, including any extensions thereof, currentlyowned and/or operated by the AGL Gas Company (NSW) Limited, excluding servicesconnected via the ACT; and

⟩ natural gas distribution systems in the NSW town of Albury, including any extensionsthereof, currently owned and/or operated by the Albury Gas Company Limited;

for the shorter of:

⟩ 5 years; or

⟩ 6 months from the date provided for the lawful application in NSW of a National AccessCode approved by the Council of Australian Governments.2

2.3 Issues in draft recommendation

The NSW Government has implemented amendments to the Regime to resolve all issuesidentified in the Council’s draft recommendation. The Council is satisfied that the amendmentssatisfy the concerns identified in the draft recommendation.

(1) Definition of ‘service’

issue arising under clause 6(3) of the CPA

The Council requested refinements to the definition of ‘service’ in the NSW Regime to clarifythat the Regime only covers services which are not economically feasible to duplicate.

The NSW Government has amended the definition of ‘Services’ in the Glossary of the NSWCode by:

⟩ substitution of the word ‘storage’ with ‘in-pipeline storage’; and

2 The wording differs from that in the draft recommendation to provide a more precise and unambiguousdefinition of the recommended duration of certification. This follows concerns raised in the Council’s secondpublic consultation process that the meaning of the term ‘legislative effect’, as used in the draftrecommendation, was unclear (Sub. 12, pp. 8-9).

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⟩ deletion of the words ‘and services ancillary to the operation of a Pipeline’.

These amendments satisfy the Council’s concerns arising under clause 6(3).

(2) Transitional arrangements

issue arising under clauses 6(4)(a)-(c) of the CPA

The Council, in its draft guide to Part IIIA of the TPA, noted that in exceptionalcircumstances, it may certify a State or Territory access regime which includes transitionalarrangements, provided it is convinced of their policy merit and that the period of transition isno longer than necessary.

In this light, the Council was concerned that the NSW Regime did not specify a date for theintroduction of competition in the retail (‘tariff’) market.

The NSW Government has amended the Regime to set 1 July 1999 as the final phase to allowcontestability in the tariff market. This is incorporated in the regulation which defines SystemUsers.

This amendment satisfies the concern identified by the Council.3

(3) Independent arbitrator

issue arising under clause 6(4)(g) of the CPA

The Council’s public consultation process raised concerns that arbitration arrangements in theNSW Regime may not adequately address the requirement for an independent arbitrationprocess. These concerns principally arise due to IPART’s dual role as Regulator and arbitratorunder the Regime. The Council requested that NSW amend the Regime to ensure thatarbitration processes are transparently independent.

NSW has initiated a number of amendments to the IPART Arbitration Registry’s PracticeNotes to address these concerns:

⟩ IPART’s policies on procedural fairness (previously set out in the Introduction of thePractice Notes) have been incorporated into the body of the Practice Notes;

⟩ if a party objects to IPART as arbitrator, IPART will, following consultation with theparties, appoint an alternative arbitrator from a panel appointed by IPART;4 and

⟩ if an external arbitrator is appointed, either party has the right to reject the use of IPARTsupport staff.5

3 NSW has initiated additional amendments with regard to transitional arrangements. These relate to:

⟩ the phasing out of cost over-recovery in the contract market; and

⟩ the setting of the Initial Capital Base in an access arrangement by the Regulator.

See Section 2.4 of the Recommendation.4 The right of a party to veto the choice of arbitrator only applies where IPART has proposed itself as the

arbitrator; a party may also object to an IPART-appointed (external) arbitrator, but IPART retains discretion inits response to the objection.

5 This amendment does not preclude the IPART Secretariat from providing expert advice (in writing) to thearbitrator; this advice would be subject to normal examination and review by the parties. Similarly, it doesnot preclude the IPART Secretariat from providing expert evidence in an arbitration; normal rules of evidencewould apply.

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The Council is satisfied that these amendments resolve issues arising under clause 6(4)(g).

(4) Factors to be taken into account by arbitrator

issues arising under clause 6(4)(i) of the CPA

The Council’s public consultation process raised concerns that section 6.2 of the NSW Code,as submitted to the Council in October 1996, included a number of deviations from clause6(4)(i) of the CPA, and that these deviations could affect outcomes.

The NSW Government has amended section 6.2 by adopting the wording of clause 6(4)(i) ofthe CPA, with an additional provision that the arbitrator may take account of identifiedtransitional components of reference tariffs.6

Given that IPART operates both in a regulatory capacity and as a dispute resolution bodyunder the Regime, NSW has also amended section 2.12 of the Code (matters to be taken intoaccount by the Regulator in assessing a proposed Access Undertaking) by substituting thewording of clause 6(4)(i) of the CPA.

The Council is satisfied that these amendments resolve issues arising under clause 6(4)(i).

(5) Obligation to extend facility

issue arising under clause 6(4)(j) of the CPA

The NSW Regime, as submitted to the Council in October 1996, did not expressly allow forthe arbitrator to require extension of a facility, raising concerns that the Regime may not satisfyclause 6(4)(j) of the CPA.

The NSW Government has now amended section 6.8 of the NSW Code as follows:

⟩ the words ‘expand’ and ‘expansion’ have been replaced by the words ‘extend’ and‘extension’ respectively; and

⟩ the words ‘or to enable a Prospective User to interconnect to a Pipeline’ have beeninserted after the words ‘Prospective User’.

The Council is satisfied that these amendments resolve issues arising under clause 6(4)(j).

(6) Ring fencing arrangements

issue arising under clause 6(4)(n) of the CPA

The Council noted that the definitions of ‘marketing staff’ and ‘transportation business’ in theNSW Code might create uncertainty as to whether the marketing activities undertaken by a gasdistribution business are consistent with the ring fencing arrangements in the Code.

The NSW Government has now amended part (iv) of the definition of Transportation Businessin the Glossary of the Code to read:

⟩ ‘marketing services but does not include the marketing of the supply of gas by aparticular supplier.’

The Council is satisfied that this amendment resolves issues arising under clause 6(4)(n)7.

6 This provision has been added to allow the arbitrator to take account of transitional arrangements to rebalancenetwork charges to phase out over-recovery of costs in the contract market. IPART has argued that cost over-recovery in the contract market has partly funded cross-subsidisation of the retail (tariff) market. Rebalancingis to be concluded by June 2002. See Section 2.4 of the Recommendation.

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(7) Cross-border issues

issues arising under clauses 6(4)(p) and 6(2) of the CPA

Cross-vesting arrangements to guarantee effective access to gas distribution services in NSWconnected via a distribution network in another jurisdiction have not yet been implemented.Regulation of these services may not satisfy clauses 6(4)(p) and 6(2) of the CPA.

The affected services in the NSW application are:

⟩ current AGL services in NSW connected via the ACT; and

⟩ current Albury Gas Company services other than those connected via the city of Albury.

In accord with these concerns, the NSW Government has amended Schedule A of the NSWCode to:

⟩ exclude the AGL Gas Company (NSW) Ltd’s distribution assets servicing Queanbeyanand Yarrowlumla Shire in item (i); and

⟩ delete the words ‘in NSW’ in item (ii), and insert the words ‘in the NSW town of Albury’after the words ‘the Albury Gas Company Limited.’

The Council is satisfied that these amendments resolve issues arising under clauses 6(4)(p) and6(2).

The Council’s reasons for requesting each amendment are explained more fully in theAttachment to this paper.

2.4 Other amendments to the NSW Regime

In addition to the amendments foreshadowed in the draft recommendation, NSW hasintroduced further amendments to the Regime to satisfy NSW Government policy concerns.These are considered below.

(1) Phased Re-balancing of Network Charges

The NSW Government amended the Regime in April 1997 to reflect that access pricing willnot be fully cost-reflective during a transitional period while network charges are beingrestructured.

The principal amendments:

⟩ allow the Regulator to approve a reference tariff in the transitional period which departsfrom the reference tariff principles (section 9.1 of NSW Code);

⟩ allow the Regulator to phase out cost over-recovery in the contract market during thetransitional period (sections 9.1 and 9.3);

⟩ require transitional elements in pricing to be fully transparent (section 9.2);

7 This amendment differs from that proposed in the draft recommendation, following concerns raised by AGLthat the proposed wording could restrict a service provider from the generic marketing of gas (Sub. 12, pp. 6-8).The revised wording expressly disallows only those marketing activities which could infringe upon the ringfencing arrangements.

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⟩ allow the arbitrator to take transitional elements into account in arbitrating a dispute(section 6.2); and

⟩ provide for the rebalancing of network charges to be completed by 30 June, 2002(definition of Transitional Period under Glossary of Code).

The Council’s attention to these amendments arises in relation to its consideration oftransitional arrangements as a constraint on the commercial negotiation of access. This isrelevant to the Council’s consideration of issues arising under clauses 6(4)(a)-(c) of the CPA.

IPART’s public consultation process on the AGL Undertaking indicated that network prices tothe contract market are in excess of efficient cost. IPART notes that over-recovery of costsmay be partly explained by the existence of monopoly rents. In addition, IPART argues thatcontract market revenues have traditionally cross-subsidised the retail (‘tariff’) market in NSWgas markets (IPART 1996c, p. 4).

IPART points out that there is considerable debate as to the true costs of distribution to thecontract market, with estimates ranging from $24 million to $105 million per year. TheGreenwood Challenor report commissioned by IPART estimated costs in the order of $82 to$84 million per year (based on DORC asset valuations), but was hampered by data difficulties(IPART 1997b).

IPART believes that an orderly transitional path is appropriate for restructuring networkcharges to levels in accord with reasonable cost. First, this may be necessary to allow for AGLto establish a new accounting system to provide data necessary to support a more thoroughidentification of costs.

Second, the extent of cost rebalancing is substantial, regardless of the estimate of costs used.Adopting a midpoint between the lowest (BHP) estimate and the highest (Rudden/AGLcommissioned) estimate would require network charges in the contract market to be cut byabout $75 million (over 50% in nominal terms). IPART notes that the impact on AGL’sfinancial position would be substantial unless the lost revenue could be recouped from the tariffmarket. However, regulatory and market constraints would restrict the pace at which thiscould occur:

⟩ tariff market charges are subject to regulatory constraints, such as a price controlformula which restricts average charges from increasing by more than CPI-1.5%; and

⟩ the retail market is price sensitive due to robust competition from electricity.

Given the extent of cost over-recovery to be unwound and the time required to develop morerobust data, IPART has consistently argued for a transitional period of three to five years torebalance gas network charges.8 This would take account of the legitimate business interestsof the service provider and allow the utility an opportunity to maintain a reasonable rate ofreturn through cost reductions and market development (IPART 1997b).

8 See, for example: IPART 1996c, p. 4.

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An issue for the Council to consider is whether a slower end-point for rebalancing networkcharges (30 June 2002), compared to the date set for full contestability of third party access (1July 1999) infringes upon the introduction of competition in gas markets.

IPART argues that the two need not have identical transitional paths to facilitate thedevelopment of effective competition:

Essential requirements for effective contestability are access arrangements... which do notdiscriminate between potential suppliers of gas to the end user... Importantly, it is not essentialfor retail competition that network prices be at their ‘final’ level. This is highlighted by theexperience in the electricity market. Strong retail competition is already occurring for the largercustomers (down to 4GWh) although there will be a transition of several years as network pricesare restructured so as to achieve a more equal recovery of costs across customer classes. Thistransition will not prevent retail competition because the different retailers face the same networkcharges (IPART 1997b).9

The Council accepts that there are justifiable policy grounds for the amendments on phasedrebalancing of network charges. In particular, the Council notes that:

⟩ clear policy justifications have been identified and strongly advocated by the independentRegulator; and

⟩ the Code requires transparency of the amount, basis of calculation, and reasons for theinclusion of transitional elements in a reference tariff.

As such, the Council accepts that the above amendments are in accord with clauses 6(4)(a)-(c)of the CPA.

(2) Resetting of Initial Capital Base

The NSW Code, as submitted to the Council in October 1996, allowed the Regulator to set anInitial Capital Base (ICB) in an access arrangement only once. The ICB is a significantcomponent in the calculations of reference tariffs.

NSW amended the Code in April 1997 to allow the Regulator a limited opportunity to resetthe ICB in the initial stages of the Regime’s operation. The purpose is to allow the Regulatoran opportunity to correct errors in the initial setting. The NSW Government argues that this:

is necessary given the short time involved in assessing initial Undertakings, the lack of requiredaccounting information and the monopoly characteristics of the service providers (NSWGovernment, 1997c).

The Regulator would have the opportunity to reset the ICB only once: at the time of the firstAccess Review of the initial Access Undertaking. Where an Access Order is imposed (ratherthan an initial Access Undertaking accepted), the Regulator would have the opportunity toreset the ICB at the time of approving the first Access Undertaking. The opportunity is onlyprovided in circumstances where the Regulator has insufficient information (or otherdifficulties such as those relating to inadequate accounting records) to set the ICB from theoutset in accord with the pricing principles in section 8 of the Code.

9 IPART notes, however, that under a ‘negotiate and arbitrate’ model, similar customers receiving similarservices would not necessarily pay the same price due to discounting.

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The amendments principally arise in sections 9.4 - 9.6 of the Code.

The Council’s attention to these amendments arises in relation to its consideration ofconstraints on the commercial negotiation of access. This is relevant to the Council’sconsideration of issues arising under clauses 6(4)(a)-(c) of the CPA.

The Council is satisfied that the amendments are an appropriate constraint on the commercialnegotiation of access, given the potential for a lack of reliable data at the time of the initial ICBsetting and that only a limited opportunity for resetting is provided. In particular, IPART’spublic process on the AGL Undertaking has highlighted the complexity of asset valuation, withwidely divergent estimates arising in different submissions. IPART points out that there is stillconsiderable uncertainty surrounding the value of AGL assets servicing the tariff market(IPART, 1997c).

The Council accepts that the above amendments are in accord with clauses 6(4)(a)-(c) of theCPA.

The Council’s reasons for approving these amendments are examined more fully in theAttachment to this paper.10

10 See Attachment; clauses 6(4)(a)-(c) of the CPA.

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ATTACHMENT:NSW ACCESS REGIME FOR NATURALGAS DISTRIBUTION NETWORKS —STATEMENT OF REASONS FOR THECOUNCIL’S RECOMMENDATION UNDERSECTION 44M OF THE TRADE PRACTICESACT 1974

1 BACKGROUND

Section 44M of the Trade Practices Act 1974 (TPA) provides for the National CompetitionCouncil (the Council) to make a recommendation to the Commonwealth Treasurer on theeffectiveness of an access regime established by a State or Territory Government. The Councilmust recommend to the Treasurer that the regime is either effective or not effective.

In making its recommendation, the Council must assess whether the access regime is effectiveby applying the relevant principles set out in the Competition Principles Agreement (CPA) andmust not consider any other matters. The principles are set out in clauses 6(2) to 6(4) of theCPA. The Council must also recommend the period for which a certification should be inforce.

On 9 October 1996, the Council received an application under section 44M of the TPA fromthe Premier of NSW to consider the effectiveness of the NSW Regime for Third Party Accessto the Services of Natural Gas Distribution Networks (NSW Regime). The Third PartyAccess Code for Natural Gas Distribution Networks in NSW (NSW Code) establishes anaccess regime under which persons may in certain circumstances, for payment of appropriatetariffs, use the services of NSW natural gas distribution networks. The Code is givenlegislative effect under the Gas Supply Act (NSW) 1996 (Gas Act). The Regime is intended tobe an interim measure for the provision of access until a national access code for gas pipelinesystems is implemented.

The Council has been asked to consider the effectiveness of the NSW Regime in relation to theservices of gas distribution networks owned by:

⟩ the AGL Gas Company (NSW) Limited11; and

⟩ the Albury Gas Company Limited (AGCL).

The application was made in writing and complies with the requirements of Regulation 6B ofthe TPA. The service is described in the application as a ‘haulage service provided by meansof a pipeline.’ A detailed definition of the service and grounds in support of the application areprovided in the application.

The Council adopted a public consultation process in assessing the application and placedadvertisements in major newspapers on 14 October 1996 seeking submissions by 6 December1996. To assist interested parties in preparing submissions, an Issues Paper was released inOctober. Eleven submissions were received, raising a number of issues relevant to theCouncil’s assessment.

11 In a recent corporate restructure, the gas distribution functions of the AGL Gas Company (NSW) Limited wererelocated to a new company, AGL Gas Networks Limited.

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A second public consultation process was initiated on 19 February 1997 following release ofthe Council’s draft recommendation to certify the NSW Regime as effective, subject toimplementation of a number of amendments. The Council received a further sevensubmissions, raising a number of additional issues which the Council has taken into account inits final recommendation.

In addition, NSW has introduced a number of amendments to the Regime to satisfy NSWGovernment policy concerns, including amendments to the transitional arrangements andpricing principles. The Council has considered these amendments in its final recommendation.

The issues raised in the Council’s public consultation process, and other issues judged to be ofrelevance, are examined in the discussion which follows.

2 COMPLIANCE WITH CLAUSES 6(2) – 6(4) OF THE CPA

This section assesses the NSW Regime against each of the relevant CPA principles. Itconsiders issues identified by the Council and/or raised in submissions to the Council’s publicconsultation process, and the Council’s views on these matters. Issues considered to be ofsubstance were discussed with the NSW Government, and in some cases, formed the basis foramendments to the Regime.

Following consideration of issues raised in each round of the public consultation process anddiscussions with the NSW Government, the Council has come to the view that the NSWRegime (incorporating amendments since 9 October 1996) satisfies the relevant CPAprinciples. As such, the Council recommends that the NSW Regime be certified as an effectiveaccess regime under section 44M of the TPA.

Clause 6(3) For a State or Territory access regime to conform to the principles setout in this clause, it should:

(a) apply to services provided by means of significant infrastructurefacilities where:

(i) it would not be economically feasible to duplicate the facility;

(ii) access to the service is necessary in order to permiteffective competition in a downstream or upstream market;and

(iii) the safe use of the facility by the person seeking accesscan be ensured at an economically feasible cost and, ifthere is a safety requirement, appropriate regulatoryarrangements exist.

(b) incorporate the principles referred to in subclause (4).

Background

Clause 6(3) sets out the types of infrastructure services which, if covered by an effective Stateor Territory access regime, cannot be declared under the National regime. The tests under6(3)(a) are intended to refer primarily to the services provided by infrastructure facilities whichare not economically feasible to duplicate; that is, duplication is not commercially viable.

The NSW Regime

The NSW application states that the services to which the Regime applies are provided by‘significant distribution and some transmission pipeline systems’ where:

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⟩ it would not be economically feasible to duplicate their construction because of thetechnical costs involved with the laying of new pipes in residential and non-residentialareas; and

⟩ access is necessary to permit effective competition in the markets for production,transmission and reticulation of natural gas, as their ownership is monopolised by oneoperator; and

⟩ the safe use of the pipeline systems by access seekers can be ensured at an economicallyfeasible cost.

The NSW Code, as submitted to the Council in October 1996, defined services as ‘haulageprovided by means of a ‘Pipeline’, and may include firm haulage, interruptible haulage, spothaulage, storage, balancing, backhaul and interconnection services and services ancillary to theoperation of a Pipeline, but does not include the production, sale or purchasing of naturalgas.’12

Under the Gas Act, a ‘Pipeline’ means a pipe or system of pipes and any tanks, reservoirs,machinery or equipment directly attached thereto used to convey and control the conveyanceof gas to the premises of customers.

The Code provides for a case-by-case ‘coverage process’ (Section 1), as well as a schedule ofpipelines to be covered at the discretion of the Minister administering the Gas Act (ScheduleA). The NSW Government has declared the gas distribution network services provided byAGL and AGCL under Schedule A.13 Under section 1.19 of the Code, decisions on coverageof Schedule A pipelines may be made by the Minister, whether or not the coverage criteria setout in section 1.9 of the Code are satisfied.

Issues and Analysis

1 Infrastructure facilities providing the service

The Council is considering the NSW application for certification in regard to:

⟩ gas distribution systems in NSW, including any extensions thereof, owned and/oroperated by the AGL Gas Company (NSW) Limited; and

⟩ gas distribution systems in NSW, including any extensions thereof, owned and/oroperated by the Albury Gas Company Limited (AGCL).

The Council must consider whether these networks satisfy the coverage criteria in clause6(3)(a) of the CPA.

1.1 Are the infrastructure facilities significant?

There is no guidance in the CPA on interpreting the term ‘significant’. However, it may becompared with ‘national significance’ which is a coverage criterion in regard to declaration of afacility under section 44H(4) of the TPA. Section 44H(4) relates ‘national significance’ to

12 In April 1997, this definition was amended as follows:

⟩ substitution of the word ‘storage’ with ‘in-pipeline storage’; and

⟩ deletion of the words ‘and services ancillary to the operation of a Pipeline’.13 At this stage, the gas distribution services provided by Wagga Wagga City Council have not been declared.

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size, importance to constitutional trade or commerce and importance to the national economy.It may be reasonable to relate the term ‘significance’ to similar contexts, but from a national,statewide or regional perspective.

The Council notes that the gas distribution market in NSW has about 750,000 customers. Gasdistribution services play a significant role in the chemical feedstock industry and in deliveringenergy services to industry, commercial users and households (Sub. 9, p. 36). With about 75per cent of the NSW gas market being supplied to industrial customers, many key industriesare reliant on gas distribution services (AGA 1995).

The AGL Gas Company (NSW) Limited is the largest privately-owned natural gas distributorin Australia, and supplies about 96 per cent of the NSW market (Gas Council of NSW 1996,p.11). The company distributes gas to customers in 39 cities (including Sydney, Wollongongand Newcastle) and regional centres in NSW. In 1996, it contributed over 50% of theAustralian Gas Light Company group’s consolidated profits, the largest contribution of anysubsidiary (AGL 1996, p. 63). As the major gas distribution network in NSW, the facilityowned by AGL is clearly significant.

The Albury Gas Company, with an operating revenue of about $14 million in 1996, suppliesnatural gas to towns along the Murray River. The AGCL network is currently expanding tosupply 10 additional towns in NSW, from Howlong to Deniliquin in a three year projectcosting more than $90 million. Over the next 25 years, some 22 400 new customers, includinga number in the food and dairy industries, will be connected to the network (Gas and Fuel1996, pp. 14, 21).

In January 1997, the NSW Government proposed to amend its application regarding AGCLservices to cover only services in the NSW town of Albury, including extensions thereof.14 Assuch, the Council must consider the significance of the ‘facility’ in this context. The Councilnotes that the city of Albury, with a population of about 44,000 (rising to about 75,000 whenaggregated with the Victorian twin town of Wodonga), is a key economic centre in the CentralMurray Valley region. The NSW Government has advised the Council that the city of Alburyis the dominant customer in the AGCL network and is aware of at least one industrialcustomer in Albury that may wish to seek access. In the light of this information, the Councilaccepts that the AGCL network in Albury (including extensions from Albury) is a significantinfrastructure facility in the context of the Central Murray Valley region.

The Council notes that its view of the significance of this facility relates only to thiscertification application, and is not intended as a precedent for the Council’s interpretation of‘significance’ in other contexts.

1.2 Is it economically feasible to duplicate the facility?

In general, gas distribution networks are not economically feasible to duplicate. High capitaloutlays and relatively low variable operating costs tend to result in significant economies ofscale which act as a natural barrier to competition (IC 1995, pp. 14-15; IEA 1994, pp. 2-3,17, 55). The Council found no evidence in submissions to suggest that the AGL or AGCLnetworks are exceptional in this regard.

The Industry Commission argues that the AGL network appears to exhibit economies of scaleand scope, and as such, is probably a natural monopoly:

14 This amendment has been proposed to resolve difficulties arising under clauses 6(2) and 6(4)(p) of the CPA inregard to some AGCL services.

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it is likely that, for the current level of demand and capacity ranges, substantial economies ofscale and/or scope will prevail in distribution in the market serviced by the AGL Gas Companyfor the foreseeable future.

The Commission does not have access to the data necessary to comprehensively assess thenatural monopoly characteristics of the NSW natural gas distribution system. However, itbelieves that, prima facie, there are strong grounds to suggest that this distribution network hasnatural monopoly characteristics (Sub. 9, p. 28).

The Council is satisfied that it is not economically feasible to duplicate the AGL or AGCL gasdistribution networks in NSW.

1.3 Is access to the service necessary to permit competition in a downstream or upstreammarket?

In the context of NSW gas distribution networks:

⟩ upstream markets include natural gas production and gas transmission services.

⟩ downstream markets consist of the chemical feedstock market and markets for energysupplied to industrial, commercial and residential users.

AGL observes that:

access to NSW pipelines and networks should promote two basic kinds of competition:

• upstream competition in gas production which is virtually monopolised at present by onegroup – Cooper Basin producers

• downstream competition among a potentially diverse range of gas ‘suppliers’ including theretail arms of existing gas distributors (Sub. 2, p. 25).

The former Gas Council of NSW argued in a January 1996 report that access to gasdistribution networks is essential to promote competition:

access to networks is essential if consumers are to have access to alternative gas suppliers and ifgas suppliers are to be able to market directly to existing and potential gas users within thenetworks’ coverage (Gas Council of NSW 1996, p. 107).

The Commonwealth, Victorian and ACT Governments concur, arguing that:

the interim NSW Regime would be likely to deliver strong competitive outcomes in the NSW gasmarket, thereby encouraging infrastructure links between the NSW, Victorian and ACT markets,and further competition in the delivery of gas to end users in those markets (Sub. 6, p. 2).

The Council accepts that access to gas distribution networks opens the prospect of directnegotiation between gas consumers and producers, which may stimulate competition betweengas producers and gas retailers.

Taking the example of upstream competition, virtually all gas distributed in NSW is suppliedunder a 30 year contract between AGL and the consortium of South Australian Cooper Basinproducers. The gas is piped to NSW through a single transmission pipeline owned andoperated by East Australian Pipeline Limited (EAPL). As such, there is virtually nocompetition at present in markets upstream from NSW gas distribution markets.

The introduction of third party access to gas distribution networks in NSW would improve theviability of future investments in gas transmission pipelines linking Victoria and NSW. Forexample, BHP and Westcoast Energy Limited have proposed the construction of atransmission pipeline from Longford in Victoria to Wilton in NSW, which creates the potential

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for direct competition to evolve between two major transmission pipelines. This, in turn,would facilitate competition between the Cooper Basin and Bass Strait gas producers.

However, the emergence of competition in gas transmission and production requires access todistribution systems in NSW. The Industry Commission quotes DeVany and Walls:

If... buyers cannot gain access to move their gas through the local distribution grid, then theirability to make gas deals in the fields and use open access to transport gas over the long-haulpipeline will be insufficient to get the gas to their point of use. Open access on the long haulinterstate pipeline may offer no benefits to customers behind the local distributor’s city gate if thegate is closed and locked (DeVany and Walls, quoted in Sub. 9, p.35).

The Council observes that while the potential for intermodal competition from other fuels (egelectricity) exists in some parts of the retail energy market, competition in some contestablegas markets requires access to the natural monopoly elements of the gas chain. As such, theCouncil is satisfied that the NSW Regime satisfies this aspect of clause 6(3) in relation to theAGL and AGCL networks.

1.4 Can the safe use of the facility by the person seeking access be ensured at aneconomically feasible cost and, if there is a safety requirement, do appropriateregulatory arrangements exist?

Safety considerations are built into a number of areas of the Code; eg sections 1.9(ii)(c), 6.7,6.8(iii) and 8.1(ii). These considerations do not appear to create unreasonable barriers tocompetition.

The Gas Council of NSW noted in a January 1996 report:

safety issues do arise in the gas industry and the Gas Council’s view is that safety must remainthe primary responsibility of the network operators. The Gas Council does not, however, judgethat safety issues are significant enough to prevent access (Gas Council of NSW 1996, p. 107).

The Council is satisfied that the NSW Regime satisfies this aspect of clause 6(3) in relation tothe AGL and AGCL networks.

2 Definition of service

Two submissions argued that the definition of ‘service’ in the NSW Regime (as submitted tothe Council in October 1996) may require refinement. In particular, Gascor argued that theinclusion of ‘storage’ is open to question:

the provision of access to storage is not necessary to permit effective competition upstream ordownstream of the transportation function. It may also be argued that it is possible to duplicatethe provision of storage without the uneconomic duplication of the distribution system (Sub 8, p.3).

The argument turns on the nature of ‘storage’ services covered by the Code. For example,storage services within a gas pipeline are an integral part of the infrastructure facility and assuch, would satisfy clause 6(3) of the CPA provided the facility itself satisfies the clause 6(3)criteria. On the other hand, storage provided outside the pipeline could be viewed as aseparate facility which might be economically feasible to duplicate.

The Council requested refinements to the definition of ‘service’ in the NSW Regime to clarifythat the Regime only covers services which are not economically feasible to duplicate.

The NSW Government subsequently amended the definition of ‘Services’ in the Glossary ofthe NSW Code by:

⟩ substitution of the word ‘storage’ with ‘in-pipeline storage’; and

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⟩ deletion of the words ‘and services ancillary to the operation of a Pipeline’.

These amendments satisfy the Council’s concerns arising under clause 6(3).

Recommendation

The Council recommends that the NSW Regime satisfies clause 6(3) in relation to AGL andAGCL network services.

Clause 6(4)(a)-(c) A State or Territory access regime should incorporate the followingprinciples:

(a) Wherever possible third party access to a service provided bymeans of a facility should be on the basis of terms andconditions agreed between the owner of the facility and theperson seeking access.

(b) Where such agreement cannot be reached, Governmentsshould establish a right for persons to negotiate access to aservice provided by means of a facility.

(c) Any right to negotiate access should provide for anenforcement process.

Background

In the Council’s draft guide to Part IIIA of the TPA, the Council was of the view that thesethree clauses should be considered together since they establish a framework for accessnegotiations to proceed under effective State or Territory access regimes.

Clause 6(4)(a) of the CPA indicates a preference for commercial negotiation to provide thebasis for parties to arrive at access arrangements. This is supported by clauses 6(4)(b) and6(4)(c) which indicate that access regimes must also establish a ‘right to negotiate’ accessaccompanied by an ‘enforcement process’. The Council considers that these clauses requirethat the parties have recourse to an enforceable dispute resolution process where negotiationsfail to result in agreement.

While clause 6(4)(a) indicates a preference for the commercial negotiation approach (that is,without regulatory intervention), the Council recognises that limiting commercial negotiation,in the sense of clauses 6(4)(b) and (c), could sometimes promote better policy outcomes byconstraining market power, reducing uncertainty and producing more ‘workable’ outcomes.

Accordingly, the Council considered that whilst a mechanism which incorporated ‘referencetariffs’ would reduce flexibility of negotiations, it could also provide greater certainty to allparties, thereby limiting the scope for access disputes and promoting a more stableenvironment for investment.

The Council indicated that the more prescriptive a regime’s limits on commercial negotiationand dispute resolution, the more closely the Council will review the processes by which thoselimits are imposed. In particular, where any process constrains a dispute resolution body, theCouncil will require that it satisfy clause 6(4)(g) dealing with independent dispute resolution. Inaddition, any constraints on commercial negotiation and dispute resolution should be imposedthrough transparent or competitive processes. The Council will also examine the independence ofbodies given responsibility for determining the constraints on the matters that dispute resolutionbodies can resolve.

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The NSW Regime

Negotiations between the owner of a facility and access seekers takes place within theparameters of the regulatory framework established by the NSW Regime. The process forthird parties to gain access to natural gas distribution facilities is as follows:

1. A distribution pipeline becomes subject to the NSW Regime if the Minister decides thatit be covered following a recommendation from the Regulator (the Independent Pricingand Regulatory Tribunal – IPART). The Regulator must follow a public consultationprocess and, in general, consider coverage tests set out in the Code before making arecommendation. In addition, the Minister may make a unilateral decision to coverpipelines listed in Schedule A of the Code. At this stage, Schedule A lists distributionnetworks in NSW owned and operated by AGL and those owned and operated byAlbury Gas Company.

2. Section 20 of the Gas Act requires the owner of a facility covered by the NSW Regimeto submit to the Regulator an Access Undertaking within three months from the date thefacility is declared as a ‘covered pipeline’ under the Regime. Under section 21, theRegulator may make an Access Order providing third parties with the right to negotiateaccess if an Undertaking is not established within a specified time. In addition, if apipeline is not covered by the Code, the service provider may submit a (voluntary)proposed Access Undertaking.

An Undertaking must include at least the following:

⟩ a policy on services offered;

⟩ one or more ‘reference tariffs’ to apply to specific services that are likely to be in demandby a significant part of the market

⟩ a policy in relation to the trading of capacity in the pipeline (a ‘trading policy’);

⟩ a policy in relation to the allocation of the spare and developable capacity of the pipeline(a ‘queuing policy’); and

⟩ specification of a period after which the Access Undertaking will lapse unless reviewedby the Regulator.

In the Code, a ‘reference tariff’ is a tariff that corresponds to a well defined ‘referenceservice’. Reference tariffs may be used directly or may serve as a basis for negotiation.

3. IPART conducts a public process on the proposed Access Undertaking and considerspublic submissions in making a decision to approve, not approve or require variations inthe Undertaking. In assessing a proposed Undertaking, the Regulator takes into accountthe principles set out in section 2.12 of the Code. Under section 3.3, reference tariffs inan Undertaking must comply with the reference tariff principles in the Code. In applyingthese principles, IPART will use a range of financial indicators to assess proposedreference tariffs, seeking to balance the interests of infrastructure operators and systemusers.

4. Third parties may negotiate access on the basis of information, including reference tariffs,contained in the Access Undertaking and Access Undertaking Information.

A service provider and a prospective user are free to negotiate a tariff for a referenceservice that is below the reference tariff. Moreover, the parties are free to negotiate atariff for a non-reference service.

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5. Under section 23 of the Gas Act, where a reticulator and system user cannot agree onterms and conditions, either party can refer the dispute to binding arbitration inaccordance with the terms of the Commercial Arbitration Act 1984 and IPART Act1992, with IPART or its nominee acting as arbitrator. Under section 6.5 of the Code,the arbitrator must take account of the provisions of the Access Undertaking, includingreference tariffs, but is not bound by reference tariffs in making a determination. Inaddition, the arbitrator must take account of a range of factors set out in section 6.2 ofthe Code.

6. Section 7.8 of the Code provides for Ministerial review of the arbitrator’s decision onspecified grounds; clerical errors; errors arising from an accidental slip or omission; ormaterial miscalculations of figures or material mistakes in the description of persons orthings. The Minister will appoint the appeal body in accord with section 29 of the GasAct. Rights of appeal under judicial review are not precluded.

Issues and Analysis

1 Approach to clauses 6(4)(a)-(c)

Concerns were raised in two submissions that the Access Undertakings approach in the NSWRegime (including the setting of reference tariffs) places limits on commercial negotiation anddispute resolution in the sense that negotiation can only take place within the regulatoryframework of the Regime.

AGL and the Australian Gas Association argue that the NSW Regime is inconsistent withclause 6(4)(a) because it does not provide scope for commercial negotiation ‘whereverpossible’. AGL, which submitted legal advice from D. F. Jackson QC in support of its view,claims that:

By giving the Regulator power to impose terms and conditions of access in an access order and inso doing bind the Service Provider, the NSW Regime fails to incorporate the requirement ofclause 6(4)(a) that wherever possible, terms and conditions will be agreed between the parties(Sub. 2, p. 10).

BHP, a major gas user and potential gas supplier into the NSW market, disagrees with thisview:

We reject the arguments put by AGL – in the form of the Jackson QC advice – that the accessregime unnecessarily limits commercial negotiation. Although the regime contemplates thesetting of reference tariffs, this is not inconsistent with the CPA and the parties are still free toagree between themselves alternate terms and conditions (Sub. 4, p. 3).

The Council has received legal advice on this matter and concludes that:

⟩ the term ‘wherever possible’ assumes at least a background of legislation promotingcompetition. Essentially, the regulatory constraints on commercial negotiation in theNSW Regime exist for this purpose.

⟩ even if the term ‘wherever possible’ is taken in an absolute sense, section 44M of theTPA does not require clause 6(4) to be applied as a set of binding rules but as‘principles’. In legal terms, principles are sometimes binding, but are more often generalprinciples. The Explanatory Memorandum on the Competition Policy Reform Bill 1995states that the Council must apply the ‘guiding principles for access regimes’ set out inthe Agreement. This implies that Parliament intended the CPA principles to be appliedas guiding provisions.

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The Council believes that clause 6(4)(a) needs to be considered in the context of accessregulation generally. If commercial negotiation alone provided a satisfactory basis for resolvingaccess to significant infrastructure services, there would be no need for regulation at all.Consequently, clause 6(4)(a) is supported by clauses 6(4)(b) and (c) which indicate that accessregimes must also establish a ‘right to negotiate’ access accompanied by an ‘enforcement process’.The Council notes that this approach to clauses 6(4)(a)-(c), as set out in its draft guide to Part IIIAof the TPA, was developed in consultation with jurisdictions to reflect the policy intent of the CPA.

In this context, the Council observes that an access regime operating outside a regulatoryframework might not be capable of promoting access and competition where a service providerenjoys significant market power.

As stated in the NSW Government’s application:

It is the opinion of the NSW Government and the National Gas Reform Task Force that AGL’smonopoly of gas distribution networks in NSW creates the potential for inequities in commercialnegotiation between AGL and those parties seeking access. In this context, the establishment ofreference tariffs and the role of IPART in making access orders when required, are importantfactors in ensuring competition, efficiency and certainty in the market place (NSW Government1996, p. 8).

The Council is satisfied that the NSW Regime, in providing for commercial negotiation tooccur within a regulatory framework which creates a ‘right to negotiate’ access accompanied byan ‘enforcement process’ is an appropriate context for access negotiations to proceed under aneffective State or Territory access regime.

2 Are the constraints on commercial negotiation appropriate?

In its draft guide to Part IIIA of the TPA, the Council noted that, in general, clause 6(4)(a)indicates a preference for commercial negotiation to provide the basis for parties to arrive ataccess arrangements.

AGL argues that the NSW Regime does not provide an environment for commercialnegotiation because:

1. The Regulator can impose terms and conditions of access in an Access Order which arebinding on the Service Provider – there is no room for negotiation by the Service Providerif a user seeks a contract on the terms and prices in the Access Order.

2. The Arbitrator is bound by the terms and conditions of the access undertaking or access order in resolving a dispute – s. 23(4) of the Gas Supply Act (Sub. 2, p. 26).

IPART’s draft determination on the September 1996 AGL Undertaking disputes this view:

The determination of ‘fair’ Reference Tariffs by the Regulator in no way precludes a customerand the service provider from entering into negotiations to determine an alternative price whichreflects cost and market conditions (IPART 1996a, p. 9).

Further, as the Victorian Government points out (Sub. 15, p. 1), negotiation is possible ineither direction around the reference tariffs – the reference tariffs in the NSW Regime do notconstitute a price cap.

In addition to allowing negotiation on reference tariff services, the Regime does not constrainthe parties from negotiating tariffs for non-reference services. In each case, customers withbypass or alternative energy options, those facing profit constraints, and those with

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considerable market power may be able to negotiate discounts.15 However, Boral argues thatcustomers without at least one of these characteristics cannot effectively negotiate accessterms in the context of a monopoly service (Sub. 5, p. ii).

In this regard, the Council noted in its draft guide to Part IIIA of the TPA that limitingcommercial negotiation, in the sense of clauses 6(4)(b) and (c), could sometimes promotebetter policy outcomes by constraining market power, reducing uncertainty and producingmore ‘workable’ outcomes.

Restricting the scope for commercial negotiation has the potential to promote better policyoutcomes in natural gas markets in NSW:

⟩ these markets are characterised by a relatively homogeneous product and a highproportion of joint costs. In such circumstances, unrestricted commercial negotiationand dispute resolution may only produce appropriate pricing structures after a number of(possibly lengthy and costly) disputes have been resolved;

⟩ the existence of large vertically integrated gas utilities and natural monopoly elements inthe gas transportation chain contributes to size and information asymmetry between gasdistributors and gas users. These factors may limit the capacity for commercialnegotiation to deliver fair and reasonable outcomes; and

⟩ in the absence of some form of regulation or reference prices, reliance on commercialnegotiation in the natural gas distribution market may provide scope for shiftingmonopoly rents rather than eliminating them.

While the Council is satisfied that constraints on commercial negotiation can potentiallypromote better policy outcomes in the NSW gas distribution market, such constraints shouldnot serve as a regulatory basis for entrenching monopoly profits of network operators. Indeed,constraints on commercial negotiation can only be justified if they promote access andcompetition; that is, they facilitate access at a reasonable price.

The Council observes that constraints on commercial negotiation exist in the NSW Regime inthe form of:

⟩ reference tariffs set by the Regulator;

⟩ a legislative right to negotiate access supported by binding dispute resolution; and

⟩ transitional arrangements.

2.1 Reference tariffs

One constraint on commercial negotiation in the NSW Regime is the setting of reference tariffsby the Regulator. Some submissions argued that the reference tariff principles in the NSWRegime do not necessarily promote good outcomes in terms of resolving access to gasdistribution services.

The NSW Minerals Council argues that the pricing principles in section 8 of the NSW Codehave:

a number of technical faults which would tend to increase access costs and charges above the‘efficient’ level (Sub. 18, pp. 3-4).

15 IPART notes that customers accounting for over 40% of the total AGL contract load have been able to negotiatediscounts in the past (IPART 1996b, p. 2).

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The submission argues that a number of specifications in the pricing principles might allow forelements of monopoly rents, double counting and/or inclusion of redundant assets. Thesubmission also argues that the meaning of certain principles is unclear.

The Business Council argues that the revenue requirement approach to reference tariffs isinappropriate:

Reference tariffs must be determined on the basis of the cost of providing the service in keepingwith the COAG decision. The Revenue Requirement approach... has produced outcomes whichfail the reality test - reference tariffs have proved to be unrealistically high and bear littleconnection to costs (Sub. 11, p. 2).

The Council notes that the robustness of pricing principles in an access regime is a complexand contentious matter.

The reference tariff principles in section 8 of the Code are to be considered by the Regulator inconjunction with the matters set out in section 2.12 of the Code. The Council notes that thereference tariff principles in section 8 are provided as broad principles for the Regulator’sguidance and to act as a general framework, rather than as a prescriptive set of rules.

The reference tariff principles in the NSW Regime allow considerable flexibility for theRegulator to consider the specific needs of each pipeline system. In interpreting theseprinciples, IPART expressly seeks to balance the interests of all parties affected by thereference tariffs.

The Council accepts that the NSW regulatory regime provides a framework which allows foraccess pricing principles to be taken into account in a balanced and fair manner, but notes thatthe practical implementation of these principles is at an early stage, and would expect thisprocess to become more refined over time.

Other submissions focussed on the reference tariffs in the September 1996 AGL Undertaking(established under the NSW Regime)16. Concerns were expressed that the reference tariffs arenot cost-reflective and do not facilitate access and competition.

The reference tariffs in AGL’s Undertaking were developed in consultation with IPART. TheIndustry Commission believes that this, in itself, is of some concern:

While such collaboration may assist in overcoming information asymmetries, it can exposeIPART to criticism on the grounds that it has not acted independently. Ideally, the assessment ofreference or indicative tariffs should be undertaken separately from the infrastructure provider’sdevelopment of the tariffs (Sub. 9, p. 46).

In its draft determination on the initial AGL Undertaking, IPART explained that its approachto reference tariff determination was based on seeking to achieve a ‘reasonable balance ofinterests’ between the service provider’s revenue requirement and fair and reasonable terms ofaccess for network users (IPART 1996a, p. 9).

The Business Council of Australia argues that the primary focus should be to promotecompetition:

16 While the Council’s assessment is in relation to the NSW Regime (comprising the NSW Code and the GasAct), the Council notes that the AGL Undertaking provides evidence of how the Regime will operate inpractice.

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Whilst it is important for prices to provide incentives to encourage new investment, optimise theuse of existing assets, encourage innovation, and develop new business, it is equally, if not moreimportant for prices to err on the side of encouraging more competition in upstream anddownstream sectors (Sub 11, p. 2).

But according to BHP, the reference tariffs in the September 1996 AGL Undertaking fail topromote competition. Indeed, the revenue requirement in the Undertaking (from which thereference tariffs were derived) is:

well above any fair assessment of the true cost of access to the NSW transmission anddistribution system (Sub. 4, p. 2).

BHP argues that AGL’s $140 million revenue requirement for the contract market in 1997 isexcessive. BHP’s estimates of the underlying cost of access range from $27 million pa to $50million pa.

Boral, an energy consumer, was also concerned at the reference tariffs:

to the extent that acceptance of AGL’s proposed Undertaking may have been possible under theNew South Wales Access Regime, it is clear that the Regime has the potential to result ininappropriate reference tariffs. The reliance on ‘negotiated decrements’ would have left AGL intotal control of the market and would not have seen the introduction of competition (Sub. 5, p. ii).

The Australian Petroleum Production and Exploration Association Limited also expressedconcern:

Given that the only expression to date of the proposed access regime has been through the AGLdraft Access Undertaking, and the criticism that has been levelled at this draft Undertaking(through IPART hearings), it is difficult to conclude that there is clear evidence of theeffectiveness of the proposed regime (Sub. 3, p. 2).

The Industry Commission points out that:

access tariffs which enshrine monopoly rents are likely to be complex and non-linear. AGL’sUndertaking proposes a complex multi-part reference tariff... The Commission does not have thenecessary information to make a detailed assessment of these reference tariffs. Nevertheless, it isclear that the structure is relatively complex. In these circumstances, it is important that theregulator ensures that they do not enshrine monopoly rents (Sub. 9, pp. 48-9).

IPART argues that the reference tariffs in the AGL Undertaking partly reflect the need for agradual phasing out of cross-subsidies from the contract market to the small-user (‘tariff’)market, which is price sensitive due to robust competition from electricity. Over time, thesecross-subsidies will be phased out as the tariff market expands (IPART 1996b, pp. 10-11).However, BHP has questioned the veracity of cross-subsidies in the AGL tariff market(Sub. 4, p. 2). Boral concedes that cross subsidies are a problem requiring transitionalarrangements, but argues that if cross-subsidies are to be embedded in reference tariffs for thecontract market, their impact should be identified transparently (Sub. 5, p. ii).17

Under section 2 of the NSW Code, IPART conducted an extensive public consultation processon the September 1996 AGL Undertaking, revealing widespread dissatisfaction with a numberof matters, including the reference tariffs (IPART 1996c). Following this process, IPARTfound that the Undertaking:

17 A subsequent amendment to the Code provides for transparency in the impact of ‘cross-subsidies’ on referencetariffs. See: Section 2.4 of the Recommendation.

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does not provide an acceptable basis for access which would reasonably balance the concerns andinterests of the customers, potential gas suppliers and the existing network operator. The onusrests with AGL to submit a revised Undertaking. The Tribunal anticipates that significantchanges will be necessary to gain the approval of the Tribunal (IPART 1996c, p. 1).

United Energy argues that such results are not unexpected in the early stage of an accessregime’s operation:

The NSW Code provides for significant discretion for the regulator rather than a set of highlyprescriptive rules. Unless and until those discretionary powers are exercised by the relevantregulator such a regime will, in United Energy’s opinion, produce initially at least someunsatisfactory results. We are confident that with our and other submissions to IPART the AGLundertaking will be modified so as to comply with the spirit of the NSW Code and its generalprinciples (Sub. 10, p. 1).

The Council observes that IPART’s requirement for ‘significant changes’ to the AGLUndertaking following a public process is evidence of the independence of the regulatoryregime and its capacity to administer constraints on commercial negotiation in a transparentmanner. The Council believes that in accord with its approach to clauses 6(4)(a)-(c),transparent processes should be maintained until an Access Undertaking is formally approved(or rejected) by the Regulator. The Council accepts that the current obligations on IPARTmeet this requirement.

2.2 The ‘right to negotiate’ access and its enforcement

The capacity of an access regime to deliver fair and reasonable outcomes also depends on theeffectiveness of the ‘right to negotiate’ and the enforcement process. The Council is satisfiedthat the NSW Regime creates a ‘right to negotiate’ access supported by binding disputeresolution where the parties are unable to reach an agreement via commercial negotiation.

However, Boral argues that the dispute resolution process may have limited value:

arbitration will not represent a realistic option for the majority of customers as the costs ofsupporting such an action are likely to greatly exceed the benefit associated with the best possibleoutcome (Sub. 5, p. ii).

Gascor makes a similar point:

there is nothing in the Act or the NSW Code to prevent the Service Provider from dictating thatthe Reference Tariff will always apply (ie refuse to negotiate). In order to restrict such amonopolistic outcome the Users can resort to an enforceable dispute resolution process but thecost and time consuming nature of this may be prohibitive to some Users (Sub. 8, p. 4).

The Business Council raises similar concerns, adding that:

in arbitration, pipeline companies - having much more to lose - can always apply much greaterresources (Sub. 11, p. 2).

The Council is mindful of these concerns, and notes that the setting of fair and reasonablereference tariffs is essential to facilitate access and competition under the NSW Regime.

The Council also notes that section 6.5 of the NSW Code provides that the arbitrator is notbound by reference tariffs in making a determination. As such, the arbitrator may consider theparticular circumstances of a dispute in determining the relevance of the reference tariff, andmay determine an access price below the reference tariff. By contrast, the arbitrator is boundby the reference tariffs under the provisions of the draft National Access Code for gaspipelines.

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The Commonwealth, Victorian and ACT Governments are concerned that the provisions ofsection 6.5 of the NSW Code may be detrimental to outcomes:

the provision that the arbitrator shall not be bound by the reference tariff....will undermine thefundamental objective of the reference tariff as a mechanism to minimise disputes and toencourage access seekers and service providers to agree ‘fair and reasonable’ outcomes (Sub. 6,p. 2).

In a separate submission, the Victorian Government states:

Our view is that the setting of binding reference tariffs... is an essential element in providing forefficient pricing outcomes given the relative bargaining powers of pipelines and potentialaccessors. In addition, if reference tariffs are not binding on arbitrators, there is likely to beincreasing uncertainty about transportation tariffs and delays and possible gaming due to frequentarbitration over challengeable prices (Sub. 15, p. 2)

However the Industry Commission takes the view that the reference tariffs in the NSW Regimeshould be treated as upper bounds, rather than operative tariffs, due to the potential for themto include elements of monopoly rents. As such, the Commission argues that:

In circumstances where negotiations fail, the arbitrator should, at least in the early stages of theregime, consider access tariffs that are below the prescribed tariff. This is consistent with clause6.5 of the NSW Regime which requires that the arbitrator should have regard to the referencetariffs but need not be bound by them. (Sub. 9, p. 52).18

The primary issue for the Council in this context is whether an appropriate balance existsbetween commercial negotiation and regulation of access given asymmetry of information andmarket power, and the risk of lengthy and costly arbitration by the parties for the purpose ofgaming and regulatory arbitrage.

The Council is satisfied that the ‘negotiate/arbitrate’ model in the NSW Regime provides abalance between a ‘posted tariff’ approach (which removes negotiation altogether) and anunregulated negotiation process (under which access seekers may be obliged to negotiate witha monopoly or near-monopoly). The Council is satisfied that while the NSW Regime createsan umbrella framework that constrains commercial negotiation, it does so in a transparentmanner in the interests of promoting good outcomes, and provides parties with some degree ofscope to negotiate terms and conditions, while allowing the arbitrator the flexibility to considerthe particular circumstances of a dispute.

As such, the Council finds that the NSW Regime is consistent with the framework set out inclauses 6(4)(a)-(c) of the CPA. The Council notes, however, that this does not precludealternative approaches from satisfying the CPA principles.

2.3 Transitional arrangements

A significant constraint on commercial negotiation in the NSW Regime exists in the form of aseries of transitional arrangements. Transitional arrangements can provide a ‘breathing space’for parties to adjust to the realities of a fully competitive market.

The Council noted in its draft guide to Part IIIA of the TPA that, in exceptional circumstances,it may certify State or Territory access regimes which include transitional arrangements,

18 The Commission believes the arbitrator should always arrive at an arbitrated tariff below the reference tariff.While this is a possible outcome under the NSW Regime, and indications from the regulator and the NSWgovernment are that arbitrated outcomes above reference tarrifs are not envisaged, it is not necessarily the case.

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provided it is convinced of their policy merit and that the period of transition is no longer thannecessary.

The Council notes that the NSW Regime includes at least three types of transitionalarrangements:

2.3.1 Phased contestability of access

IPART argues that the introduction of competition should be phased to address such issues asthe removal of cross-subsidies and the potential impact of take-or-pay penalties (IPART1996a, p. 5). In particular, IPART supports a gradual phasing out of cross-subsidies from thecontract market to the small-user (‘tariff’) market, which is price sensitive due to robustcompetition from electricity.

The transitional timetable for phasing in access contestability in the NSW Regime is as follows:

YEAR LOAD CATEGORY

30 August 1996 New and existing loads > 500 TJ per year & new load in defined greenfieldareas

1 July 1997 New and existing loads > 100 TJ per year with some aggregationallowed

1 July 1998 New and existing loads > 10 TJ per year

1 July 1999 Full contestability in all markets19

The Council expressed concern in its draft recommendation that a date for contestability in thetariff market had not yet been set (National Competition Council 1997, p. 20). Followingdiscussions with the NSW Government, the Regime was subsequently amended to set 1 July1999 as the date for opening the tariff market to full competition. This amendment has beenincorporated in the regulation which defines System User. However, NSW notes that it willreview the situation nearer to July 1999 and, if necessary, change the target date and seekrecertification of any extended timeframe.

IPART argues that the transitional timetable is ‘short’ and has been framed in a manner not tounduly delay the development of third party access arrangements. The Council notes that thetimetable is within that proposed for the National Access Code for Gas Pipelines.

The Council is satisfied that the phasing arrangements for contestability of access in the NSWRegime can be justified on policy grounds and that the timetable is not unreasonable.

2.3.2 Phased re-balancing of network charges

The NSW Government amended the Regime in April 1997 to reflect that access pricing willnot be fully cost-reflective during a transitional period while network charges are beingrestructured.

The principal amendments:

⟩ allow the Regulator to approve a reference tariff in the transitional period which departsfrom the reference tariff principles (section 9.1 of NSW Code);

19 A date for contestability in the tariff market was included as an amendment to the Regime in April 1997.

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⟩ allow the Regulator to phase out cost over-recovery in the contract market during thetransitional period (sections 9.1 and 9.3);

⟩ require transitional elements in pricing to be fully transparent (section 9.2);

⟩ allow the arbitrator to take transitional elements into account in arbitrating a dispute(section 6.2); and

⟩ provide for the rebalancing of network charges to be completed by 30 June, 2002(definition of Transitional Period under Glossary of Code).

IPART’s public consultation process on the AGL Undertaking indicated that network prices tothe contract market are in excess of efficient cost. IPART notes that over-recovery of costsmay be partly explained by the existence of monopoly rents. In addition, IPART argues thatcontract market revenues have traditionally cross-subsidised the retail (‘tariff’) market in NSWgas markets (IPART 1996c, p. 4).

IPART points out that there is considerable debate as to the true costs of distribution to thecontract market, with estimates ranging from $24 million to $105 million per year. TheGreenwood Challenor report commissioned by IPART estimated costs in the order of $82 to$84 million per year (based on DORC asset valuations), but was hampered by data difficulties(IPART 1997b).

IPART believes that an orderly transitional path is appropriate for restructuring networkcharges to levels in accord with reasonable cost. Firstly, this may be necessary to allow forAGL to establish a new accounting system to provide data necessary to support a morethorough identification of costs.

Second, the extent of cost rebalancing is substantial, regardless of the estimate of costs used.Adopting a midpoint between the lowest (BHP) estimate and the highest (Rudden/AGLcommissioned) estimate would require network charges to be cut by about $75 million (over50% in nominal terms). IPART notes that the impact on AGL’s financial position would besubstantial unless the lost revenue could be recouped from the tariff market. However,regulatory and market constraints would restrict the pace at which this could occur:

⟩ tariff market charge are subject to regulatory constraints, such as a price control formulawhich restricts average charges from increasing by more than CPI-1.5%; and

⟩ the retail market is price sensitive due to robust competition from electricity.

BHP argues that all transitional arrangements, including those relating to access pricing, shouldbe phased out by 1 July 1999 (Sub. 13). Boral, however, argues that a longer time frame iswarranted:

In the transition from a monopoly to a competitive market, cross subsidies need to be removed. Itis Boral’s firm belief, in the absence of the ability to increase charges to tariff customers to alevel which reflects the cost of serving that class of customer, it will take a minimum of 5 years toeffectively eliminate cross-subsidies. The NCC has recommended a fixed date of 1 July 1999 beset for the opening up of all parts of the gas market to competition. The adoption of such a fixeddate will not allow cross-subsidies to be unwound in any way except by allowing the Distributorthe latitude to rapidly increase charges to the tariff market... (Sub. 14, p. 2).

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Given the extent of cost over-recovery to be unwound and the time required to develop morerobust data, IPART has consistently argued for a transitional period of three to five years torebalance gas network charges.20 This would take account of the legitimate business interestsof the service provider and allow the utility an opportunity to maintain a reasonable rate ofreturn through cost reductions and market development (IPART 1997b).

An issue for the Council to consider is whether a slower end-point for rebalancing networkcharges (30 June 2002), compared to the date set for full contestability of third party access (1July 1999) infringes upon the introduction of competition in gas markets.

IPART argues that the two need not have identical transitional paths to facilitate thedevelopment of effective competition:

Essential requirements for effective contestability are access arrangements... which do notdiscriminate between potential suppliers of gas to the end user... Importantly, it is not essentialfor retail competition that network prices be at their ‘final’ level. This is highlighted by theexperience in the electricity market. Strong retail competition is already occurring for the largercustomers (down to 4GWh) although there will be a transition of several years as network pricesare restructured so as to achieve a more equal recovery of costs across customer classes. Thistransition will not prevent retail competition because the different retailers face the same networkcharges (IPART 1997b).21

The Council accepts that there are justifiable policy grounds for the amendments on phasedrebalancing of network charges. In particular, the Council notes that:

⟩ clear policy justifications have been identified and strongly advocated by the independentRegulator; and

⟩ the Code requires transparency in the amount, basis of calculation, and reasons for theinclusion of transitional elements in a reference tariff. The Council notes that the needfor transparency in transitional arrangements was raised in submissions received from theBusiness Council (Sub. 11, p. 2) and NSW Minerals Council (Sub. 18, p. 2).

As such, the Council is satisfied that the amendments are compatible with clauses 6(4)(a)-(c) ofthe CPA.

2.3.3 Resetting of Initial Capital Base

The NSW Code, as submitted to the Council in October 1996, allowed the Regulator to set anInitial Capital Base (ICB) in an access arrangement only once. The ICB is a significantcomponent in the calculations of reference tariffs.

NSW amended the Code in April 1997 to allow the Regulator a limited opportunity to resetthe ICB in the initial stages of the Regime’s operation. The purpose is to allow the Regulatoran opportunity to correct errors in the initial setting. The NSW Government argues that this:

20 See, for example: IPART 1996c, p. 4.21 IPART notes, however, that under a ‘negotiate and arbitrate’ model, similar customers receiving similar

services would not necessarily pay the same price due to discounting.

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is necessary given the short time involved in assessing initial Undertakings, the lack of requiredaccounting information and the monopoly characteristics of the service providers (NSWGovernment, 1997c).

The Regulator would have the opportunity to reset the ICB only once: at the time of the firstAccess Review of the initial Access Undertaking. Where an Access Order is imposed (ratherthan an initial Access Undertaking accepted), the Regulator would have the opportunity toreset the ICB at the time of approving the first Access Undertaking. The opportunity is onlyprovided in circumstances where the Regulator has insufficient information (or otherdifficulties such as those relating to inadequate accounting records) to set the ICB from theoutset in accord with the pricing principles in section 8 of the Code.

The amendments principally arise in sections 9.4 - 9.6 of the Code.

The Council notes that IPART’s public process on the AGL Undertaking revealed widelydivergent estimates of asset valuation, highlighting the complexity of this issue and the possibleneed to revisit the ICB to ensure that access pricing is fair and reasonable (IPART, 1997c).

A possible concern, however, is the element of uncertainty the amendments may introduce toaccess pricing. In the USA, provisions such as these have sometimes been the basis forupward revaluations of assets. However, IPART states that the amendment:

is not intended to permit a process of systematic upward revision of asset values to reflectinflation or changes in replacement costs of assets. It is intended to recognise the uncertaintiessurrounding an assessment of the asset values at this point in time (IPART 1997c).

The Council accepts that these amendments are an appropriate constraint on the commercialnegotiation of access, given the potential for a lack of reliable data at the time of the initial ICBsetting and that only a limited opportunity for resetting is provided. As such, the Council issatisfied that the transitional arrangements in the NSW Regime are compatible with clauses6(4)(a)-(c) of the CPA.

3 Independence of regulator

Where restrictions on commercial negotiation exist, the Council will be concerned at theindependence of the regulatory regime and the transparency of its decision making processes.

While the Regulator under the NSW Regime (IPART) is an independent body at arms lengthfrom government policy making units, concerns have been raised that the designation ofIPART as Regulator and arbitrator might create conflict or tension. This matter is addressedelsewhere in this paper (see analysis of clause 6(4)(g)).

The Council is satisfied that the public consultation process followed by IPART prior tomaking a determination on an Access Undertaking satisfies the requirement of transparency indecision making processes.

4 Potential void in enforcement mechanism

The AGL submission argues that a potential void may occur in the NSW Regime once aninitial Access Undertaking has expired. AGL argues that under section 2 of the NSW Code, ifthe Regulator rejects a revised Access Undertaking, or the service provider does not agree tochanges, there is no requirement that the service provider establish a further Undertaking or forthe Regulator to impose an Access Order (Sub. 2, p. 28-29).

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The NSW Government argues that the matter is likely to be hypothetical:

The current AGL Undertaking is proposed to apply for the period ending December 1999. Giventhis and as other future Access Undertakings are likely to be in place for at least several years,the issue of enforcement of an obligation to review an Access Undertaking is not likely to ariseunder the interim NSW Access Regime. It is intended that the NSW Access Regime be replacedby the National Gas Access Regime in the near future (NSW Government 1997a).

The Council notes that the situation raised by AGL could only arise if a service providerdeclines to submit a revised Access Undertaking which satisfies the provisions of the NSWRegime. The NSW Government notes that were this to occur:

the Minister can revoke coverage and re-declare the service to which the Access Undertakingrelates. It is considered that this would trigger the operation of the Access Order provisionsunder Section 21 of the Gas Supply Act (NSW Government 1997a).

Given the ‘interim’ status of the NSW Regime and that provisions exist to re-declare a facility,the Council is satisfied that the concerns expressed by AGL do not generate a material issue.

Recommendation

The Council recommends that the NSW Regime satisfies clauses 6(4)(a)-(c) in relation toAGL and AGCL network services.

Clause 6(4)(d) Any right to negotiate access should include a date after which theright would lapse unless reviewed and subsequently extended;however, existing contractual rights and obligations should not beautomatically revoked.

Background

In the Council’s draft guide to Part IIIA of the TPA, the Council stated that State or Territoryaccess regimes should contain mechanisms to review, over time, the right to negotiate access.The Council noted that this could be done by way, for example, of a sunset provision ondeclarations.

Furthermore, the Council noted that clause 6(4)(d) does not mean that contractual rights andobligations could not be revoked, but rather that they should not be automatically revoked(that is, without a review process).

The NSW Regime

The right to negotiate access under the NSW Regime initially stems from the Gas Act, whichgives effect to the NSW Code. Section 87 of the Gas Act provides for a review of policyobjectives and the terms of the Act within six years of the date of assent of the Act.

An individual’s right to negotiate access to a particular service flows from the Minister’sdecision to cover or declare the services of a facility under section 19 of the Act. Adeclaration decision is not subject to a sunset/review provision. However, under section 1.22of the NSW Code, any person may apply to the Regulator to recommend to the Minister thatcoverage of a particular service be revoked.

The right to negotiate access is subsequently enshrined under section 22 of the Gas Act bypublication of an access date in the Government Gazette on which system users becomeentitled to be granted access to a declared distribution system. There is no sunset/reviewprovision attached to this event. However, publication of an access date gives legislative effect

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to an Access Undertaking approved by IPART. Under section 2.18 of the Code, anUndertaking must include a date for review. The period between reviews must not be morethan five years, but may be shorter to account for transitional issues. An Undertaking may alsoinclude specific major events that may trigger a review prior to the planned date.

The Regime does not include provisions which automatically revoke existing contractual rightsand obligations at the time of a review. Negotiated discounts which have been built intocontracts would be respected, regardless of whether the Regulator considers them to be‘prudent.’

Issues and Analysis

At issue here is the point in time at which the ‘right to negotiate’ access to a pipeline arises.

AGL argues that the right to negotiate access is contained in section 22 of the Gas Act, whichdoes not include a sunset/review date. As such, AGL argues that the NSW Regime does notsatisfy clause 6(4)(d).

The NSW Government agrees that the right to negotiate access stems from section 22 of theGas Act, but argues that sunset provisions in the related Access Undertaking satisfy theprovisions of clause 6(4)(d):

A precondition of this right is that an Access Undertaking must be in place... All AccessUndertakings have a review date as required by Section 2.18 of the Code (NSW Government1997a).22

The Council considers that the policy intent of clause 6(4)(d) is to provide for a periodicreview of the need for access regulation to apply to a particular service. For example, while afacility might not be economically feasible to duplicate at present, market evolution mightchange this situation in the future.

As such, the Council believes that the review provisions in clause 6(4)(d) relate to the point intime at which a decision is made to apply an access regime to a particular service; that is, tothe decision to cover or declare the service.

While the NSW Regime does not provide for a sunset/review provision on coverage of aservice, the Council believes that the provisions of the NSW Regime, taken as a whole, aresufficient to satisfy the policy intent of clause 6(4)(d). In reaching this view, the Council notesthat the Regime provides for any person to apply at any time for revocation of coverage of aparticular service. In addition, the legislation giving effect to a coverage decision (the GasAct) is subject to a review provision. Finally, the Council has taken into account the ‘interim’nature of the NSW Regime as a transition towards implementation of the National Regime.

The Council also observes that the rationale for regulating a gas distribution network isunlikely to change significantly over time, given the cost structures and market constraintsoperating in the industry. This might be compared, for example, with a gas transmissionpipeline, which may become more (or less) economically feasible to duplicate in certainmarkets over time.

22 Gascor argues that the NSW Code should include a minimum period that an Access Undertaking will apply,whereas the Regime currently specifies only a maximum period. Gascor also seeks clearer specification of thecircumstances which might trigger a review of an Access Undertaking prior to the planned date (Sub. 8, pp. 4-5).

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As such, the Council’s view that the NSW Regime satisfies clause 6(4)(d) does not necessarilyset a precedent for the Council’s approach to future applications which may be received undersection 44M of the TPA.

Recommendation

The Council recommends that the NSW Regime satisfies clause 6(4)(d) in relation to AGL andAGCL network services.

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Clause 6(4)(e) The owner of a facility that is used to provide a service should use allreasonable endeavours to accommodate the requirements of personsseeking access.

Background

In the Council’s draft guide to Part IIIA of the TPA, the Council indicated that an accessregime may either incorporate this clause explicitly, or contain general provisions which havethe same effect.

The NSW Regime

Under section 5.1 of the Code, the service provider must establish an Information Package inrelation to each covered pipeline, containing:

⟩ the Access Undertaking and Access Undertaking Information for the relevant pipeline;

⟩ information relating to spare and developable capacity;

⟩ information relating to all relevant trunks and mains systems; and

⟩ a description of procedures relating to specific access requests.

The service provider must provide the package within 14 days of receiving a request. TheRegulator may direct information to be included in the Access Undertaking Information toenable users and prospective users to understand derivation of the elements in an Undertaking.

Section 5.2 of the Code provides that a facility owner must respond to a specific request foraccess within 30 days of its receipt. Section 5.3 provides that where the request for access canonly be properly considered by the facility owner after further investigations, the owner mustprovide details of such investigations. Under section 5.4, if spare capacity does not exist, theowner must provide an explanation, including likely prospects for future access.

In addition, the service provider must establish a public register which includes information onspare and developable capacity in relation to each pipeline.

Issues and Analysis

Most parties to the Council’s public consultation process were satisfied that the NSW Regimesatisfies clause 6(4)(e).

The Business Council urged strict adherence to the disclosure provisions in the Code:

Adequate information disclosure is essential to enable users to satisfy themselves that their tariffsare ‘fair and reasonable.’ The provisions for an information package to be made available mustbe strictly adhered to, together with the availability of independently audited, transparent andverifiable valuation studies (Sub. 11, p. 1).

Gascor, however, argues that the capacity register required under the Regime is anunreasonable imposition on service providers:

In the case of a distribution network, capacity is not an absolute concept and can onlymeaningfully be considered in the context of transporting gas from one specified point to another.Since distribution networks have thousands of delivery points the requirement to maintain acapacity register... goes beyond ‘reasonable endeavours’ to accommodate access seekers (Sub. 8,p. 5).

The Gascor submission also suggests that provision of a capacity register may expose serviceproviders to the risk of legal liability in the sense that system users may make investmentdecisions on the basis of this information.

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The Council observes that its assessment must address whether the Regime satisfiesbenchmarks set by the CPA principles. It would not be appropriate to ‘mark down’ an accessregime if it satisfies a CPA principle more rigorously than the minimum threshold consideredacceptable by the Council.

Recommendation

The Council recommends that the NSW Regime satisfies clause 6(4)(e) in relation to AGL andAGCL network services.

Clause 6(4)(f) Access to a service for persons seeking access need not be onexactly the same terms and conditions.

Background

In the Council’s draft guide to Part IIIA of the TPA, the Council stated its view that this clauseis intended to remove any doubt that access may be provided on different terms and conditionsto different users. That is, regimes which allow for such an outcome can be deemed effective.

In this regard, the Council notes that, wherever access agreements are negotiated commercially,access will most likely be provided on different terms and conditions. One reason is that there aredifferent costs and risks associated with providing access to different users.

The NSW Regime

Subsection 22(4) of the Gas Act provides that the terms of access should be the subject of anagreement between the facility owner and the third party seeking access. While referenceservices may often be provided at the reference tariff, parties are free to negotiate a tariffbelow the reference tariff for the provision of a reference service. Also, the parties are free tonegotiate a tariff for the provision of a non-reference service.

Further, section 6.5 of the Code provides that in the event of a dispute, the arbitrator is notbound by reference tariffs in making a determination, thereby allowing scope for varying termsand conditions of access.

Issues and Analysis

IPART has noted that reference tariffs may not be appropriate in all circumstances. Forexample, companies operating in highly competitive markets for their end products may not beable to afford the reference tariff. Other users may have sufficient market power to seek adiscount, or may have bypass options that would not make access at the reference tariffcommercially viable (IPART 1996b, p. 3).

As such, IPART argues that it is better to have these customers on the system at a discountedprice than to lose them altogether. The revenues from these customers contribute to the fixedcost of the system and reduce prices for other customers.

United Energy notes that the NSW Code does not contain an explicit provision that accessneed not be on identical terms for all users. However, as the submission goes on to note:

arguably, it is implicit from the overall scheme including the Gas Supply 1996 Act (Sub. 10,p. 2).

The Council, in its draft guide to Part IIIA of the TPA stated that a State or Territory accessregime may incorporate the provisions of clause 6(4)(f) explicitly or implicitly. The Council is

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satisfied that access may be provided under the NSW Regime on different terms and conditionsto different users.

Recommendation

The Council recommends that the NSW Regime satisfies clause 6(4)(f) in relation to AGL andAGCL network services.

Clause 6(4)(g) Where the owner and a person seeking access cannot agree onterms and conditions for access to the service, they should berequired to appoint and fund an independent body to resolve thedispute, if they have not already done so.

Background

In the Council’s draft guide to Part IIIA of the TPA, the Council noted that an effective accessregime must contain some means to ensure that an independent body is appointed to resolve adispute. The Council indicated that one way of doing this would be to specify a body whichcould resolve disputes, provided the body is independent from the parties.

The NSW Regime

The NSW Regime does not preclude parties from pursuing any dispute resolution process thatthey can agree on outside the Code if they believe this to be the best way of resolving adispute.

Subsection 23(1) of the Gas Act provides that where a dispute exists between a reticulator anda system user over terms of access or any matter arising under an access determination, eitherparty can refer the dispute to arbitration. Under subsection 23(3), IPART is designated as thearbitrator; alternatively IPART may appoint one or more persons from a panel (whether or notthe persons are members of IPART) as arbitrators.

Under section 44 of the Commercial Arbitration Act 1984, a party may apply to the SupremeCourt for the removal of an arbitrator on the grounds that the arbitrator has misconducted theproceedings, has been the subject of undue influence or is incompetent or unsuitable to dealwith the particular dispute. Where the Court is satisfied of at least one of these conditions, theCourt may remove the arbitrator. Under section 11 of the Act, the Court may then appoint analternative arbitrator.

The arbitrator may hear and determine disputes as to the terms of access, or matters arisingfrom determinations of the Regulator. For example, the arbitrator may require a facility ownerto:

⟩ enter into a contract with an access seeker on certain terms and conditions; or

⟩ require the owner to expand the capacity of the facility to accommodate the accessseeker; or

⟩ make a determination on tariffs.

The arbitrator has the discretion to order a party or parties to pay some or all of its costs, aswell as some or all of another party’s costs.

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Issues and Analysis

1 Appointment of arbitrator

Concerns may be raised that the designation of IPART as arbitrator does not allow for theparties to appoint a dispute resolution body.

The Council does not see this as a substantive issue as the parties are free to agree on a bodyto resolve their dispute prior to resorting to the provisions of the Regime.

2 Costs

Concerns may be raised that the NSW Regime only provides the arbitrator with the discretionto order a party or parties to pay some or all of its costs. This is less rigorous than clause6(4)(g) which implies that parties should be required to fund all costs. The Council does notbelieve, however, that this difference represents a material departure from the fundamentalobjective of clause 6(4)(g) of the CPA.

The fundamental objective of this clause appears to be to ensure that the parties to a disputehave recourse to an independent dispute resolution body.

3 Independence of arbitrator

Three submissions expressed concern that IPART’s role as Regulator under the NSW Regimemight compromise its independence as arbitrator.

Gascor states:

In approving an Access Undertaking, IPART will have accepted the terms and conditions ofaccess including the Reference Tariff. In the event that a prospective User disputes the setting ofthe Reference Tariff, IPART’s independence could be questioned since it may be reluctant topublicly depart from its previous position (Sub. 8, p. 5).

AGL makes a similar point:

In order to comply with the requirements of clause 6(4)(i) of the CPA, the arbitrator may berequired to reach a different conclusion from that reached by the Regulator in approving anaccess undertaking or imposing an access order in relation to precisely the same service coveredby that undertaking or access order. In other words, IPART in its role as arbitrator under theNSW Regime may be required to make a decision which contradicts its decision as Regulator.An arbitrator placed in this position cannot be seen to be independent (Sub. 2, p. 5).

The Industry Commission agrees that a conflict of interest could arise:

There is, however, some potential for conflict of interest in the NSW Regime’s approach toarbitration. This is because IPART, as the regulator, approves the reference tariffs in theUndertaking but then as arbitrator must consider the appropriateness of these tariffs for access.Ideally, the arbitrator should be independent from the regulator (Sub. 9, p. 52).

The NSW Government claims that IPART is an independent arbitrator because:

• it is not directly or indirectly involved with the parties to an arbitration;

• it is independent of Government; and

• the parties have available to them the remedies under the Commercial Arbitration Act1984 (NSW Government 1997b).

In addition, the NSW Government argues that the dual role of IPART as Regulator/arbitratoris appropriate because:

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• a regulator has established expertise in utility operation and pricing that will result in fairerand more expeditious decisions;

• the first access arbitration is likely to set a precedent, and a regulator is in the best positionto ensure an appropriate decision in the spirit of the CPA;

• a regulator’s experience in considering matters of broader public interest is appropriatewhen looking at the requirements of the CPA; and

• a regulator is more likely to resolve disputes in a less litigious manner (NSW Government1997a).

The Council is mindful of these arguments and does not object in principle to the regulator ofan access regime also conducting an arbitration role where safeguards are built into the regimeto provide for independent arbitration.

The Council notes that the NSW Regime includes a number of safeguards of this kind. Forexample, the Commercial Arbitration Act 1984 enables a party to seek a determination fromthe Supreme Court that an arbitrator is unsuitable and to appoint an alternative arbitrator.

The Council observes, however, that the cost of an appeal to the Supreme Court may beconsiderable, placing an extra burden on the parties. In addition, a party asserting that thearbitrator lacks independence may be concerned that if it fails to convince the Courtaccordingly, the very fact of pursuing such an appeal may compound the problems it expects inthe arbitration which follows. As such, the Council believes that an appeal to the Court islikely to be seen as a final (and relatively unattractive) option. It would therefore be preferablefor the NSW Regime to provide for independent dispute resolution without the need for partiesto seek action to remove an arbitrator through the Court.

In this regard, the Council notes that IPART has established measures to apply proceduralfairness. The Council believes these procedures are also relevant to its assessment of theindependence of IPART as a dispute resolution body, given its regulatory role under the NSWRegime. The measures, previously set out in the Introduction to the IPART ArbitrationRegistry’s Practice Notes, include that:

• IPART’s Arbitration Registry is ‘ring fenced’ from IPART’s Secretariat. Once an accessdispute is referred to IPART the matter is dealt with by the Registry. The Registry’sprimary functions are to support the arbitrator on access arbitration, provide proceduraladvice to the parties and maintain public registers of access agreements. With only oneexception outlined below, any involvement of the Secretariat with parties in matterspertaining to the dispute will cease once a referral has been made.

• IPART members involved in a hearing will not discuss details of the arbitration withofficers of the Secretariat. However, if during the course of a hearing, the arbitratorrequests advice from the Secretariat, it will be provided in writing and supplied to theparties to the dispute. This advice will be subject to normal review and examination by theparties (NSW Government 1997b).

As an important ‘safeguard’ in the Regime, the Council considered it desirable for thesearrangements to be shifted into the body of the Practice Notes. Following consultation withthe Council, NSW has implemented an amendment to this effect.

In general, the Council is satisfied that arbitration procedures under the NSW Regime areappropriate. In particular, where the parties agree to IPART acting as arbitrator, the matter ofindependence is not at issue. The Council believes, however, that where at least one partyobjects to IPART (or an IPART appointee) acting as arbitrator, the need for a transparentlyindependent process is acute. The designation of the arbitrator by a body with a possible

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vested interest in the outcome of a dispute could compromise the perceived independence ofthe process, despite the ‘ring fencing’ arrangements.

Following consultation with the Council, NSW has amended the IPART Practice Notes toaddress these concerns:

⟩ if a party objects to IPART as arbitrator, IPART will, following consultation with theparties, appoint an alternative arbitrator from a panel appointed by IPART;23 and

⟩ if an external arbitrator is appointed, either party has the right to reject the use of IPARTsupport staff.24

A number of submissions were concerned by these amendments. AGL welcomes theamendments, but argues that they should be incorporated into the body of the Code rather thanthe Practice Notes, to strengthen their legal status (Sub. 12, p. 4).

Other submissions argue that the amendments are unnecessary and may undermine the Regime.Victoria argues that it is reasonable for IPART to act both as Regulator and arbitrator, notingthat:

⟩ this position is matched in other regulatory contexts – for example a dualregulatory/arbitration role is contemplated for the ACCC under the National AccessCode for gas pipelines.

⟩ the capacity for a party to remove IPART as arbitrator and reject IPART support staffcreates opportunities for gaming and delays (Sub. 15, p. 2).

In a submission representing their personal views, two Queensland Treasury officials, EuanMorton and Catherine Althaus, raise a series of concerns, including that amendments such asthose introduced in NSW:

⟩ may interfere with a broader regulatory strategy for reform of an industry;

⟩ may interfere with synergies between regulation and arbitration; eg an access undertakingmay provide limited guidance on access pricing with dispute resolution as an importantmedium for resolving issues;

⟩ may contribute to regulatory fragmentation, fragmentation of expertise on a particularaccess undertaking, increased costs or arbitration and increased opportunities forgaming;

⟩ may contribute to regulatory arbitrage, creating speculation and uncertainty; and

⟩ may contribute to gaming by all players including the regulator, delaying processes andinefficiencies (Sub. 17).

Morton and Althaus conclude that judicial review provisions are sufficient safeguards toprotect the independence of arbitration.

23 The right of a party to veto the choice of arbitrator only applies where IPART has proposed itself as thearbitrator; a party may also object to an IPART-appointed (external) arbitrator, but IPART retains discretion inits response to the objection.

24 This amendment does not preclude the IPART Secretariat from providing expert advice (in writing) to thearbitrator; this advice would be subject to normal review and examination by the parties. Similarly, it does notpreclude the IPART Secretariat from providing expert evidence in an arbitration; normal rules of evidencewould apply.

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The Council acknowledges the substance of some of these arguments, but notes that they donot address the potential risk of regulatory capture which some parties have alluded to inrelation to the NSW Regime.25 The issue of regulatory capture is identified in the academicliterature cited in the Morton and Althaus submission:

Information - access to it, and its interpretation - is critical. It is rarely independent of theregulatee and, in consequence, its provision provides opportunities for the utility to manipulate itto gain favourable outcomes - i.e. to capture the regulator (Helm 1994, p. 20).

The Council notes that the consequences of regulatory capture are potentially more seriouswhere regulatory and dispute resolution roles are combined. The Council further notes thatopportunities for gaming in the NSW Regime are limited; the amendments provide for a partyto enjoy a maximum of a single right of veto over an arbitrator and IPART retains the role ofselecting a replacement from a panel which it has previously approved.

In summary, the Council believes that the NSW Regime includes an appropriate balance ofsafeguards to provide for independent dispute resolution, and as such, satisfies clause 6(4)(g).

The Council notes, however, that this does not preclude alternative approaches from satisfyingclause 6(4)(g). The process of dispute resolution includes the whole set of mechanismsavailable for resolving disputes, including appeals processes. This Council regards this set ofmechanisms as a package, with different elements capable of satisfying the need forindependence. For example, an effective independent appeals process may alleviate the needfor independence between regulatory and arbitration functions.

Recommendation

The Council recommends that the NSW Regime satisfies clause 6(4)(g) in relation to AGL andAGCL network services.

Clause 6(4)(h) The decisions of the dispute resolution body should bind the parties;however, rights of appeal under existing legislative provisions shouldbe preserved.

Background

In the Council’s draft guide to Part IIIA of the TPA, the Council stated that an access regimeshould have credible enforcement arrangements to ensure an arbitrator’s decision is binding.In addition, the regime should preserve existing legislative rights of appeal. This does notrequire the insertion of lengthy appeals provisions into a State access regime. However, aregime may offend this clause if it precludes any right of appeal against the legality of thedispute resolution body’s decision under judicial review (for example, on account of breachesof the rules of procedural fairness).

The NSW Regime

Under section 6.3 of the Code, a decision made by the arbitrator is a determination and maydeal with any matter relating to the provision of a service to a system user. Determinations areto be published in the Government Gazette and take effect from the date of publication.

25 See, for example: Sub. 9, p. 46.

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Section 6.10 of the Code provides that as part of a determination, the Regulator shall requirethe parties to represent the decision in the form of a binding contract within 28 days. Thearbitrator will resolve any terms and conditions that have not been agreed within that time.

The service provider is bound by the determination. The (prospective) user is also bound bythe determination unless it notifies the Regulator within 14 days that it does not intend to bebound.

The arbitrator’s determination is subject to the appeals processes available under theCommercial Arbitration Act (NSW) 1984. Section 7.8 of the Code provides for Ministerialreview of the arbitrator’s decision on specified grounds; clerical errors; errors arising from anaccidental slip or omission; or material miscalculations of figures or material mistakes in thedescription of persons or things. The Minister must appoint the appeal body in accord withsection 29 of the Gas Act.

The Regime does not include provisions which limit judicial review.

Issues and Analysis

1 Binding arbitration

Since the Regulator’s determinations are binding and enforceable, the Regime is consistentwith the first part of clause 6(4)(h) of the CPA.

2 Diminution of appeals provisions

AGL claims that the broad rights of appeal against a decision of the regulator which existedunder the Gas Act 1986 have been diminished in the Gas Act 1996 to:

an extremely limited right of appeal. The person seeking to appeal must establish a clerical error,an error arising from an accidental slip or omission, or a material miscalculation of figures or amistake material in the description of any person, thing or matter referred to in the determination.There is no right to appeal the decision on its merits. This fails to preserve the rights of appealunder existing legislation as required by clause 6(4)(h) of the CPA (Sub. 2, p. 6).

The Gascor submission does not support this interpretation:

The regime would appear to meet the requirements of this clause in providing a binding disputeresolution process whilst preserving rights of appeal under the Commercial Arbitration Act(NSW) 1984 (Sub. 8, p. 6).

The NSW Government has informed the Council that the rights of appeal to which AGL refersdid not relate to the provision of third party access:

Prior to the enactment of the Gas Supply Act 1996, third party access was provided under theGas Act 1986 and Pipelines Act 1967. Section 13 of the Gas Act empowered the Minister toimpose access terms and conditions on the authorisation holders and section 12 of the Actprovided that the access conditions imposed by the Minister could not be amended without theconsent of the Minister. Hence, there were no appeal rights under the Gas Act. Section 23 of thePipelines Act also empowered the Minister to grant third party access without any provision forappeal.

The appeal rights referred to in the AGL submission relate to other conditions of authorisation(eg gas pricing to the tariff customers) not involving third party access. Accordingly, there is noloss of appeal rights as suggested by AGL (NSW Government 1997a).

Accordingly, the Council is satisfied that existing appeal rights have not been diminished.

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AGL further argues that the absence of provisions to appeal the merits of a decision to anindependent third party:

distorts the balance of rights which the CPA established, which was to ensure that the owner ofthe facility, deprived of its proprietary right to determine access to its asset, was entitled to anindependent decision on the terms on which access would be granted (Sub. 2, p. 6).

In its draft guide to Part IIIA of the TPA, the Council expressed the view that clause 6(4)(h)does not require the insertion of lengthy appeals provisions into a State or Territory accessregime, including a merits review of the dispute resolution body’s decision.

The Council notes that while the NSW Regime provides for only limited appeal rights, theRegime does not preclude appeals mechanisms external to the Regime, including judicialreviews on account of breaches of natural justice or bias.

Recommendation

The Council recommends that the NSW Regime satisfies clause 6(4)(h) in relation to AGL andAGCL network services.

Clause 6(4)(i) In deciding on the terms and conditions for access, the disputeresolution body should take into account:

(i) the owner’s legitimate business interests and investment in thefacility;

(ii) the costs to the owner of providing access, including any costsof extending the facility but not costs associated with lossesarising from increased competition in upstream or downstreammarkets;

(iii) the economic value to the owner of any additional investmentthat the person seeking access or the owner has agreed toundertake;

(iv) the interests of all persons holding contracts for use of thefacility;

(v) firm and binding contractual obligations of the owner or otherpersons (or both) already using the facility;

(vi) the operational and technical requirements necessary for thesafe and reliable operation of the facility;

(vii) the economically efficient operation of the facility; and

(viii) the benefit to the public from having competitive markets.

Background

In the Council’s draft guide to Part IIIA of the TPA, the Council stated that the disputeresolution body should be required to take all of these matters into account. Access regimesmay also require a dispute resolution body to take account of other matters which are notinconsistent with those provided in this clause.

The NSW Regime

Subsection 23(4) of the Gas Act provides that the arbitrator must determine a dispute inaccordance with the provisions of the Code. Under section 6.2 of the Code (as submitted tothe Council in October 1996), the arbitrator was required to take into account:

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(i) whether access would promote competitive market conduct, prevent the misuse ofmarket power, and facilitate entry into the gas industry by users which are not affiliatesof the service provider;

(ii) the differences between pipelines which are complex integrated networks and pipelineswhich have simpler configurations;

(iii) the service provider’s legitimate business interests;

(iv) the costs to the service provider of providing access, including any costs of expandingthe pipeline, but not costs associated with losses arising from increased competition inupstream or downstream markets;

(v) the economic value to the service provider of any additional investment that theprospective user or the service provider may be required to incur;

(vi) the legitimate business interests of all users and prospective users;

(vii) contractual or other binding obligations of the service provider and/or other personsalready using services provided by means of the pipeline;

(viii) the operational and technical requirements necessary for the safe and reliable operationof the pipeline;

(ix) the allocation of resources within the natural gas industry, the effect on investment, theimpact on innovation and the operational efficiency of the pipeline;

(x) existing or proposed ring fencing arrangements; and

(xi) the benefit to the public from having competitive markets.

In its capacity as regulator, IPART was required to take account of similar factors in assessinga proposed Access Undertaking as it must take account of in its capacity as arbitrator underSection 6.2 of the Code. The factors to be taken into account by the Regulator in assessing aproposed Access Undertaking are listed in section 2.12 of the Code.

Issues and Analysis

1 Language and additional matters

While section 6.2 of the NSW Code as submitted to the Council in October 1996 was similarto clause 6(4)(i) of the CPA, there were several differences in wording.

In addition, sections 6.2(i), (ii) and (x) of the NSW Code were additional matters that did notdirectly relate to any elements in clause 6(4)(i) of the CPA.

AGL argued that both the wording variations and the inclusion of additional matters wereinconsistent with clause 6(4)(i). The AGL submission expressed the view that clause 6(4)(i) ismainly directed at creating protective rights for service providers and existing users, and thatthe variations in the NSW Regime altered this focus by giving less weight to the position of thepipeline owner:

The change of language in the Access Code from the CPA must be intended to imply a differentmeaning, or as a minimum, a different emphasis in the arbitrator’s exercise of ... discretion ...The effect of the change of language and the additional matters to be taken into consideration is adistortion of the balance of the rights created under the CPA between the prospective user, theservice provider and existing users (Sub. 2, p. 7).

The Australian Gas Association adopted a similar view, arguing that the NSW Regime shouldincorporate:

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the form and effect of the CPA, including the balance of rights established in clause 6(4)(i) (Sub.1, p. 1).

Gascor took a different view, noting that clause 6(4)(i):

lists the eight factors that a dispute resolution body should take into account in deciding on theterms and conditions for access. Clause 6.2 of the NSW Code replicates these factors with minorwording changes in some cases and includes three additional factors which Gascor considers donot conflict with the principles contained in clause 6(4)(i) of the CPA (Sub. 8, p. 6).

In its draft recommendation, the Council expressed the view that, for the most part, thewording differences between clause 6(4)(i) of the CPA and section 6.2 of the NSW Code wereminor and would not have a material bearing on outcomes achieved under the NSW Regime(National Competition Council 1997, p. 33). However, the Council noted that at least twowording variations could potentially affect outcomes:

⟩ Clause 6(4)(i)(ii) of the CPA requires the arbitrator to take into account the costs of‘extending the facility’, whereas section 6.2(iv) of the NSW Code referred to ‘costs ofexpanding the pipeline’.26

⟩ While clause 6(4)(i)(iii) of the CPA requires the arbitrator to take into account the‘additional investment that the person seeking access or the owner has agreed toundertake’, section 6.2(v) of the NSW Code referred to the ‘additional investment thatthe prospective user or the service provider may be required to incur’.

Further, while the additional matters for consideration by the arbitrator did not appearinconsistent with specific elements of clause 6(4)(i) of the CPA, the Council acknowledgedthat their inclusion might, in certain contexts, affect an arbitrator’s determination. As such,their inclusion may be inconsistent with clause 6(4)(i).

To resolve these concerns the NSW Government has amended section 6.2 of the Code bysubstituting the wording of clause 6(4)(i) of the CPA. This amendment was implemented inApril 1997. At the same time, the NSW Government inserted an additional provision intosection 6.2 requiring the arbitrator to take account of transitional arrangements to rebalancenetwork charges to phase out over-recovery of costs in the contract market. IPART hasargued that cost over-recovery in the contract market has partly funded cross-subsidisation ofthe retail (tariff) market. The process of rebalancing network charges is to be concluded byJune 2002.

This additional provision was inserted on NSW Government legal advice to ensure that theCode is a robust legal document.

In considering this amendment, the Council notes that in its draft guide to Part IIIA of theTPA, the Council stated that an access regime must require the dispute resolution body to takeall of the clause 6(4)(i) matters into account. However, an arbitrator may also be required totake account of other matters which are not inconsistent with those set out in clause 6(4)(i).The Council notes in this regard that an effective regime may incorporate wording variationsfrom the clause 6(4)(i) principles, provided these variations are unlikely to have a materialeffect on outcomes or relate only to approved transitional arrangements.

In its consideration of issues arising under clauses 6(4)(a)-(c) of the CPA, the Council foundthe transitional arrangements for rebalancing network charges to be consistent with the clause

26 Possible implications of this variation are noted in the analysis under clause 6(4)(j).

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6(4)(a)-(c) principles. 27 At the same time, the Council notes that an amendment to provide forthe arbitrator to take account of transitional arrangements may be necessary to generateinternal consistency in the Access Code for the transitional arrangements to be sustainablethrough arbitration.

As such, the Council is satisfied that the amendments to section 6.2 of the NSW Code are inaccord with clause 6(4)(i) of the CPA.

Given that IPART operates both in a regulatory capacity and as a dispute resolution bodyunder the Regime, NSW has also amended section 2.12 of the Code (matters to be taken intoaccount by the Regulator in assessing a proposed Access Undertaking) by substituting thewording of clause 6(4)(i) of the CPA.

2 Contradictory provisions

AGL notes that, under subsection 23(4) of the Gas Act, the arbitrator must determine adispute:

(a) in accordance with, and so as to give effect to, the requirements of the Access Code, and

(b) in accordance with the access undertaking or access order for the distribution system to which the dispute relates.

In addition, AGL notes that section 6.5 of the Code provides that in making a determination,the arbitrator is not bound by the reference tariffs in an access undertaking.

AGL argues that these are contradictory provisions – the arbitrator is both bound by the accessundertaking (including the reference tariffs) under the Gas Act, but is not bound by thereference tariffs under the Access Code. The AGL submission notes that as a matter of law,the wording of an Act takes precedence over the wording of a subsidiary document such as anAccess Code. AGL argues, therefore, that the arbitrator is bound by the reference tariffs.

AGL further argues that since the arbitrator is bound to determine a dispute in accordance withthe access undertaking or access order, the arbitrator does not have the discretion to take intoaccount the principles in clause 6(4)(i) of the CPA (Sub. 2, p. 7-8).

The Council makes the following comments on these arguments:

⟩ The first part of AGL’s argument is that the Access Code and an access undertaking ororder create conflicting provisions on whether the reference tariffs are binding on thearbitrator. The Council is not convinced by this argument.

Subsection 23(4) of the Gas Act requires the arbitrator to determine a dispute in accordwith the NSW Code as well as an access undertaking or order made under the Code. Inthis sense, subsection 23(4) ‘calls up’ the provisions of the NSW Code into the Gas Act.Section 6.5 of the Code, and by implication, all undertakings or orders made under theCode, provides that the reference tariffs are not binding on the arbitrator.

The Council notes that the reference tariffs in the NSW Regime differ from ‘postedtariffs’ which are not subject to negotiation or an arbitrator’s discretion. Instead, theNSW Regime provides that the reference tariffs are a negotiable benchmark on accesspricing. Nor are the reference tariffs binding on the arbitrator.

27 See Section 2.4 of Recommendation; see also discussion under clauses 6(4)(a)-(c) of this Attachment.

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⟩ The second part of AGL’s argument is that the NSW Regime puts the arbitrator in thecontradictory position of having to determine a dispute in accordance with both theaccess undertaking (and its reference tariffs) and clause 6(4)(i) of the CPA.

However, the Council believes there is no inherent contradiction between theseprovisions. Clause 6(4)(i) in itself encompasses a broad range of matters for thearbitrator to consider, and the provisions of the access undertaking are to be consideredalongside these matters. Since the arbitrator is not bound by the reference tariffs, thearbitrator is not constrained in its capacity to take account of the principles in clause6(4)(i).

A related issue is raised in another submission. The NSW Minerals Council argues that theaccess pricing principles in section 8 of the Code could allow pricing to exceed reasonablecosts; for example, some provisions might allow for monopoly rents, double counting and/orinclusion of redundant assets. The Minerals Council argues that this may be inconsistent withclause 6(4)(i)-(i), (ii) and (vii) of the CPA in the sense that:

application of the pricing principles could result in the owner receiving more revenue than wouldbe justified by its legitimate business interests and investment in the facility; the receipt ofrevenue far in excess of costs; and recovery of costs in excess of costs required for theeconomically efficient operation of the facility (Sub. 18, p. 3).

The Council notes that the reference tariff principles in section 8 of the Code are to beconsidered by the Regulator in conjunction with the clause 6(4)(i) principles reflected inSection 2.12. While section 2.12 requires the Regulator to take account of the 6(4)(i)principles in assessing an access undertaking, the reference tariff principles in section 8 areprovided as broad principles for the Regulator’s guidance and to act as a general framework,rather than as binding rules.

The reference tariff principles in the NSW Regime allow considerable flexibility for theRegulator to consider the specific needs of each pipeline system. In interpreting theseprinciples, IPART expressly seeks to balance the interests of all parties affected by thereference tariffs.

Recommendation

The Council recommends that the NSW Regime satisfies clause 6(4)(i) in relation to AGL andAGCL network services.

Clause 6(4)(j) The owner may be required to extend, or to permit extension of, thefacility that is used to provide a service if necessary but this would besubject to:

(i) such extension being technically and economically feasible andconsistent with the safe and reliable operation of the facility;

(ii) the owner’s legitimate business interests in the facility beingprotected; and

(iii) the terms of access for the third party taking into account thecosts borne by the parties for the extension and the economicbenefits to the parties resulting from the extension.

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Background

In its draft guide to Part IIIA of the TPA, the Council considered that ‘extend’ includes theexpansion of capacity and the construction of connecting mechanisms. Instead of requiring anowner to permit the geographic extension of a facility, it may be sufficient for an access regimeto require an owner to permit interconnection with an existing facility. This would mean that abusiness seeking geographic extensions to an existing facility could undertake the necessaryconstruction work itself. It could then gain access to the owner’s infrastructure throughinterconnection.

The NSW Regime

Under section 6.8 of the NSW Code as submitted to the Council in October 1996, thearbitrator could require the service provider to install a new facility in order to expand thecapacity of a pipeline to meet the requirements of a prospective user, provided that:

(i) the service provider must not be required to extend the geographical range of a service;

(ii) the expansion is technically feasible and economically feasible and consistent with thesafe and reliable provision of the service;

(iii) the service provider’s legitimate business interests are protected;

(iv) the prospective user must not become owner of a pipeline or part of a pipeline withoutthe agreement of the service provider;

(v) the terms of access for the third party must take into account the costs borne by theparties for the extension and the economic benefits to the parties resulting from theextension; and

(vi) the service provider must not be required to fund part or all of the new facility, exceptwhere the service provider has agreed to the expenditure on the new facility and itstiming being assumed in the calculation of the Reference Tariff in which case the terms ofthe Access Undertaking shall determine the funding arrangements.

Issues and Analysis

Gascor expressed concern that the NSW Regime did not satisfy clause 6(4)(j):

clause 6.8(i) of the NSW Code limits any requirement service providers may have to ‘expand’capacity by specifically mandating that the service provider must not be required to extend thegeographical range of a service. This limitation would appear to conflict with clause 6(4)(j) ofthe CPA which has no such restriction (Sub. 8, p. 6).

The Council stated in its draft recommendation that this matter should be considered inconjunction with wording variations between the CPA and the NSW Regime, also noted byGascor. While clause 6(4)(j) of the CPA provides that the arbitrator may require a facilityowner to ‘extend, or to permit extension of’ a facility, section 6.8 of the NSW Code referred tothe service provider being required ‘to install a new facility in order to expand the capacity ofa pipeline’ (National Competition Council 1997, p. 35).

In the Council’s draft guide to Part IIIA of the TPA, the Council considered that extendincludes expansion of capacity and the construction of connecting mechanisms. The Councilindicated that it may be acceptable for an access regime not to require an owner to extend thegeographical range of a facility, provided that an owner may be required, as a minimum, topermit interconnection with an existing facility. However, the Council noted that section 6.8of the NSW Code did not incorporate such a provision.

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To resolve this issue, the NSW Government implemented the following amendments to section6.8 of the NSW Code in April 1997:

⟩ the words ‘expand’ and ‘expansion’ were replaced by the words ‘extend’ and ‘extension’respectively; and

⟩ the words ‘or to enable a Prospective User to interconnect to a Pipeline’ were insertedafter the words ‘Prospective User’.

The Council is satisfied that these amendments resolve issues arising under clause 6(4)(j) of theCPA.

Recommendation

The Council recommends that the NSW Regime satisfies clause 6(4)(j) in relation to AGL andAGCL network services.

Clause 6(4)(k) If there has been a material change in circumstances, the partiesshould be able to apply for a revocation or modification of the accessarrangement which was made at the conclusion of the disputeresolution process.

Background

In its draft guide to Part IIIA of the TPA, the Council was of the view that this clause shouldbe considered in conjunction with clause 6(4)(a), which places an emphasis on commercialnegotiation. The parties could define for themselves, during the course of commercialnegotiations, what the threshold is for a ‘material change in circumstances’ and may insert inthe contract those events that would trigger a reopening of negotiations.

Alternatively, an access regime could make provision for parties to refer disputes concerning whatconstitutes a material change in circumstances to the dispute resolution body or some otherindependent body.

The NSW Regime

Section 2.26 of the Code provides for an Access Undertaking to be altered before the date onwhich it lapses only with the consent of the facility owner and Regulator.

Subsection 23(1) of the Gas Act provides that a dispute may be referred to arbitration overterms of access or any matter arising under an access determination.

Issues and Analysis

United Energy notes that there is no explicit provision enabling parties to apply for arevocation or modification of an access arrangement where there has been a material change ofcircumstances (Sub. 10, p. 2).

The Council notes, however, that the NSW Regime allows the parties to determine what mightconstitute a material change in circumstances in advance and to build appropriate terms into acontract. Further, a party may seek arbitration in the event that commercial negotiations areunable to reach agreement on the matter of ‘material changes of circumstances’.

Once a contract has been signed (which must occur within 28 days of the arbitrator’sdetermination), the contract governs the relationship between the parties. However, theapplication of common law principles (for example, the doctrine of frustration) is notprecluded.

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The Council believes that the framework in the NSW Regime adequately provides for materialchanges of circumstances.

Recommendation

The Council recommends that the NSW Regime satisfies clause 6(4)(k) in relation to AGL andAGCL network services.

Clause 6(4)(l) The dispute resolution body should only impede the existing right of aperson to use a facility where the dispute resolution body hasconsidered whether there is a case for compensation of that personand, if appropriate, determined such compensation.

Background

In its draft guide to Part IIIA of the TPA, the Council was of the view that this clause does notstop access regimes from preventing dispute resolution bodies impeding the existing rights of aperson to use the facility. However, where a dispute resolution body can do this, it must alsobe empowered to consider and, if appropriate, determine compensation.

The NSW Regime

Section 6.6(iii) of the NSW Code provides that the arbitrator cannot impede the existing rightsof a person to use a facility unless a case for compensation has been considered.

Recommendation

The Council recommends that the NSW Regime satisfies clause 6(4)(l) in relation to AGL andAGCL network services.

Clause 6(4)(m) The owner or user of a service shall not engage in conduct for thepurpose of hindering access to that service by another person.

Background

In its draft guide to Part IIIA of the TPA, the Council indicated that an access regime mayincorporate this clause explicitly or contain general provisions which have the same effect.

The NSW Regime

Section 7.1 of the NSW Code provides that ‘persons must not undertake any activity for thepurpose of hindering access to a Service that is provided by a Covered Pipeline.’

Recommendation

The Council recommends that the NSW Regime satisfies clause 6(4)(m) in relation to AGLand AGCL network services.

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Clause 6(4)(n) Separate accounting arrangements should be required for theelements of a business which are covered by the access regime.

Background

In its draft guide to Part IIIA of the TPA, the Council noted that this clause is designed toensure the availability of financial information exclusively covering the elements of a businesssubject to an access regime.

The NSW Regime

Section 4.1 of the NSW Code provides for minimum ring fencing arrangements. These includethat a service provider must:

⟩ establish and maintain a separate set of accounts in respect of the services that are thesubject of each Access Undertaking;

⟩ establish and maintain a separate consolidated set of accounts in respect of all of theactivities undertaken by the service provider; and

⟩ allocate shared costs according to a methodology that is well accepted, fair andreasonable.

Section 4.1 of the Code includes additional ring fencing provisions not included under clause6(4)(n) of the CPA. These include provisions for legal incorporation, structural separation ofgas transportation business activities from other business activities, confidentiality ofinformation supplied to the service provider and staffing arrangements.

Issues and Analysis

The Gascor submission argued that ring fencing arrangements in the Code may be deficientwith respect to the treatment of marketing staff:

Marketing Staff is a defined term in the NSW Code meaning personnel directly involved in thesale, sale provision and advertising of Natural Gas. However, Clause 4.1(viii) of the NSW Coderefers to Marketing Staff of a ‘Service Provider’ which implies the Service Provider’s staff canbe involved in a business other than a Transportation Business, namely the sale of gas. Thiswould appear to conflict with clause 4.1(ii) (Sub. 8, p. 6).

The Council understands that a gas transportation business would inevitably undertakemarketing of gas transportation services, but under the ring fencing arrangements should notundertake marketing of gas reticulation services.

The Council notes that the definitions of ‘marketing staff’ and ‘transportation business’ in theNSW Code, as submitted to the Council in October 1996, might create uncertainty as towhether the marketing activities undertaken by a gas distribution business are consistent withthe ring fencing arrangements in the Code.

To clarify this point, the NSW Government has now amended part (iv) of the definition ofTransportation Business in the Glossary of the Code to read:

⟩ ‘marketing services but does not include the marketing of the supply of gas by aparticular supplier.’

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The Council is satisfied that this amendment would clarify that the ‘marketing services’ whichmay be undertaken by a gas distribution business are consistent with the ring fencingarrangements in the Code.28

Recommendation

The Council recommends that the NSW Regime satisfies clause 6(4)(n) in relation to AGL andAGCL network services.

Clause 6(4)(o) The dispute resolution body, or relevant authority where provided forunder specific legislation, should have access to financial statementsand other accounting information pertaining to a service.

Background

In its draft guide to Part IIIA of the TPA, the Council indicated that it expects that accessregimes would contain a provision providing the dispute resolution body and any otherrelevant body (for example, the regulator) with the right to inspect all financial documentspertaining to the service.

The NSW Regime

Sections 7.12 to 7.15 of the Code cover provision of information to the Regulator, includinginformation that the Regulator reasonably considers it requires to:

⟩ fulfil its functions under the Code;

⟩ evaluate proposed Access Undertakings;

⟩ monitor compliance; and

⟩ resolve access disputes.

Section 7.12 provides that the Regulator may require provision of any information that itreasonably considers it requires in regard to these functions.

Section 7.9 provides that the Regulator is required to provide any relevant information to theappeal body to assist in its decision making process.

Recommendation

The Council recommends that the NSW Regime satisfies clause 6(4)(o) in relation to AGL andAGCL network services.

Clause 6(4)(p) Where more than one State or Territory access regime applies to aservice, those regimes should be consistent and, by means of vestedjurisdiction or other co-operative legislative scheme, provide for asingle process for persons to seek access to the service, a singlebody to resolve disputes about any aspect of access and a singleforum for enforcement of access arrangements.

28 This amendment differs from that proposed in the draft recommendation, following concerns raised by AGLthat the proposed wording could restrict a service provider from the generic marketing of gas (Sub. 12, pp. 6-8).The revised wording expressly disallows only those marketing activities which could infringe upon the ringfencing arrangements.

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Clause 6(2) The regime to be established by Commonwealth legislation is notintended to cover a service provided by means of a facility where theState or Territory Party in whose jurisdiction the facility is situated hasin place an access regime which covers the facility and conforms tothe principles set out in this clause unless:

(a) the Council determines that the regime is ineffective havingregard to the influence of the facility beyond the jurisdictionalboundary of the State or Territory; or

(b) substantial difficulties arise from the facility being situated inmore than one jurisdiction.

Background

In the Council’s draft guide to Part IIIA of the TPA, the Council noted in its discussion of clause6(4)(p) that where a service is subject to more than one access regime, only one set of accessprovisions should apply to the service. To satisfy this clause, the relevant State and Territory accessregimes could contain provisions to facilitate a seamless and consistent approach to access theservice.

Clauses 6(2) suggests that a State or Territory access regime might be found to be ineffectivedue to:

⟩ its lack of influence beyond the jurisdictional boundary of the State or Territory; or

⟩ substantial difficulties arising because the infrastructure subject to the regime crosses aState or Territory border.

The NSW Regime

Subsections 20(9)−(10) and 23(6)−(7) of the Gas Act provide that:

⟩ an access undertaking made under NSW law would apply to the whole distribution network,including parts of the system situated in another jurisdiction; and

⟩ an access undertaking made under the law of another jurisdiction would apply to the wholedistribution network, including parts of the system located in NSW.

Issues and Analysis

1 Albury Gas Company Limited services

Gascor, as 100 per cent owner of the Albury Gas Company (AGCL), argues that the NSWRegime does not satisfy clause 6(2) in relation to AGCL services. AGCL operates distributionservices in Albury and Moama and plans to extend its distribution network into a number ofother towns on the Murray Valley, many of which are in NSW.

According to Gascor’s submission:

Whilst the AGCL facilities are situated only in NSW, they form part of the wider Gascordistribution system and as such there is a requirement for the operational elements of the regimesgoverning NSW and Victoria to be consistent (Sub. 8, p. 2).

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The submission argues that inconsistencies between the NSW Regime and the draft nationalregime29 are likely to present substantial operational difficulties for the Gascor distributionsystem, with the likelihood of two diverse codes regulating the network on either side of theNSW-Victorian border.

In addition, Gascor argues that the NSW Regime may not satisfy clause 6(4)(p) in relation toAGCL services. As AGCL facilities are entirely situated in NSW, there is a single access processand a single dispute resolution process in relation to these services. But Gascor argues that theinfluence of the AGCL network beyond NSW means that, in practice, access seekers might face adouble process:

whilst AGCL facilities are only in NSW, the NSW Code can nevertheless impact beyond that state.Shippers and aggregators may have customers in both Victoria and NSW which, for commercialreasons, they elect to aggregate under one gas supply agreement. In some cases, Shippers may evenhave single customers with multiple sites in both jurisdictions. In these cases, Gascor would argue that,from a practical standpoint, towns on either side of the Victoria-NSW border should be covered by theone regime (Sub. 8, p. 3).

The Council notes that AGCL services to many NSW settlements are (or will be) connected viaGascor’s distribution network in Victoria. While the Gas Act provides a regulatory frameworkfor cross-vesting arrangements between Victoria and NSW, regulatory arrangements have notyet been implemented. As such, an access seeker in NSW may need to seek access under NSWlaw (for parts of the distribution network in NSW) and Victorian law (covering distribution networkconnections in that state). In other words, a single process is not in place for access to theAGCL/Gascor distribution network. This problem does not apply to AGCL servicesconnected via the city of Albury, which is connected to Victoria via a transmission pipeline (aseparate service) owned and operated by the Gas Transmission Corporation and regulated bythe Office of Regulator-General).30

An issue in this respect is whether the Gascor and AGCL networks are seen as providing asingle service or two distinct services. Section 44B of the TPA defines a ‘provider’ of aservice as:

the entity that is the owner or operator of the facility that is used (or is to be used) to provide theservice.

It should be noted that the TPA does not define ‘provider’ as a separate legal entity. As such,the term ‘provider’ may be subject to interpretation, depending on the circumstances. In thissense it may be reasonable to argue that an interconnected gas distribution network owned andoperated by members of a single corporate group – in this case, a parent company (Gascor)and its fully-owned subsidiary (AGCL) – are in fact operated by a single provider. Under thisinterpretation, the CPA would require a single process for access to the Gascor/AGCLnetworks. On this view, the NSW Regime only satisfies clause 6(4)(p) of the CPA in relationto AGCL services connected via the city of Albury.

To resolve this issue, the NSW Government has amended Schedule A of the NSW Code to:

⟩ delete the words ‘in NSW’ in item (ii), and insert the words ‘in the NSW town of Albury’after the words ‘the Albury Gas Company Limited.’

29 For example, under the draft National Code, the arbitrator is bound by the reference tariffs, while this is not thecase under the NSW Regime.

30 An access regime is not yet in place for this transmission pipeline.

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The Council is satisfied that this amendment resolves issues arising under clauses 6(2) and6(4)(p) in relation to AGCL services.

2 AGL Gas Company (NSW) Limited services

The Council is concerned that a similar problem arises with respect to AGL network services inNSW connected via the ACT. While the Gas Act provides a regulatory framework for cross-vesting arrangements between NSW and the ACT, regulatory arrangements have not yet beenimplemented. For example, an access seeker in Queanbeyan would need to seek access underNSW law (for parts of the pipeline in NSW) and ACT law (covering network connections throughthe ACT). As such, a single process is not in place for access to the AGL distribution network.

While the AGL Gas Company (NSW) Limited and AGL Gas Company (ACT) Limited are separatelegal entities, it may be appropriate to treat them as a single ‘provider’ under section 44B of the Act.As noted earlier, it may be reasonable to argue that an interconnected gas distribution networkowned and operated by two fully-owned subsidiaries of a single corporate group - in this case,AGL Gas Company (ACT) Limited and AGL Gas Company (NSW) Limited, as subsidiaries ofthe Australian Gas Light Company group - are in fact operated by a single provider. Underthis interpretation, the CPA would require a single process for access to the AGL networks inNSW and the ACT. On this view, the NSW Regime would not satisfy clause 6(4)(p) of theCPA in relation to AGL services connected via the ACT.

To resolve this issue, the NSW Government has amended Schedule A of the NSW Code to:

⟩ exclude the AGL Gas Company (NSW) Ltd’s distribution assets servicing Queanbeyanand Yarrowlumla Shire in item (i).

The Council is satisfied that this amendment resolves issues arising under clauses 6(2) and6(4)(p) in relation to AGL services.

Recommendation

The Council recommends that the NSW Regime satisfies clauses 6(4)(p) and 6(2) in relationto AGL and AGCL network services.

3 RECOMMENDED DURATION OF CERTIFICATION

Background

Under section 44M(5) of the TPA, when the Council recommends that the CommonwealthTreasurer make a decision on the effectiveness of a State or Territory Government accessregime, the Council must also recommend the period for which any certification should be inforce.

In its draft guide to Part IIIA of the TPA, the Council indicated that it would adopt a flexibleapproach in recommending a certification period. In doing so, it would consider the views putby the State or Territory applicant and other interested parties. One consideration will be theneed that infrastructure owners/operators and users have for a degree of certainty in theregulatory environment, especially in the development of new infrastructure.

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The NSW Regime

The NSW application does not request a specific period for a certification to remain in force,implicitly recognising that this application is an interim step towards implementation of theNational Code by all jurisdictions. The application notes:

The Regime has been developed in parallel but ahead of the still emerging National AccessFramework. Pending COAG agreement on a National Access Framework covering some or all ofinterstate and intrastate gas trade, the Regime is being implemented to operate on an interim basisto enable free and fair trade in NSW (NSW Government 1996, p. 6).

The application also states:

The third party access rights provided by the Code and relevant Regulations to the Gas Act canbe amended without legislation to accommodate a future National Access Framework for thetransmission and distribution of gas (if and when adopted by the Council of AustralianGovernments) (NSW Government 1996, p. 4).

Issues and Analysis

Most submissions received by the Council emphasised the importance of linking the duration of apossible certification to implementation of a national access code for gas pipelines.

Gascor argues, for example:

The issue of regulatory certainty would normally be of paramount importance to investors in the gasindustry and therefore of prime consideration in determining the period of certification of the regime.From an ‘investment risk’ perspective, a stable regulatory environment for a minimum period of 10years would be desirable. In this case, however, given that the NSW Regime is an ‘interim’ regime, theoverriding consideration should be to link the certification period to the timing of the adoption byCOAG of the National Access Code (Sub. 8, p. 7).

Similar views were expressed by the Commonwealth, Victorian and ACT Governments, the AGA,the APPEA, Boral, the Business Council and AGL. AGL argues that if the NSW Regime is foundto be effective:

certification should be for a short period only – certainly no longer than is administratively necessary toimplement the National Framework after its adoption at the national level. This approach should limitthe number of potential contractual inconsistencies that might arise in NSW access arrangements,where contracts entered into under a NSW Regime remain binding after the introduction of a nationalregime (Sub. 2, p. 10).

The Council believes that the duration of certification should provide certainty for industryplayers, while taking account of the relatively early stage of gas reform and the pendingimplementation of a uniform national access framework for gas pipelines.

In particular, significant differences between the NSW Regime and a future National Code mayhave implications for national reform initiatives in gas. IPART has stated that importantdifferences exist in the area of price determination. Other differences are likely to emerge, with theNSW Code being modelled on a draft version of the National Code which is now superseded. Assuch, a relatively short certification period would limit divergence between access arrangements inNSW and other jurisdictions. NSW supports this approach.

The time period for certification should reflect that the NSW Regime is intended to be a transitionalregime. NSW has clearly indicated that the National Code will be implemented as soon aspracticable and in accordance with the timetable agreed by all jurisdictions through the Gas ReformImplementation Group.

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Recommendation

The Council recommends that the NSW Regime be certified as effective in relation to theservices of:

⟩ natural gas distribution systems in NSW, including any extensions thereof, currentlyowned and/or operated by the AGL Gas Company (NSW) Limited, excluding servicesconnected via the ACT; and

⟩ natural gas distribution systems in the NSW town of Albury, including any extensionsthereof, currently owned and/or operated by the Albury Gas Company Limited;

for the shorter of

⟩ 12 months from the date of enactment of the National Gas Pipelines Access Law by thelead legislator, South Australia; or

⟩ 5 years.

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4 THE COUNCIL’S PUBLIC CONSULTATION PROCESS: SUBMISSIONSRECEIVED

4.1 First Round Public Consultation Process: October - December 1996

ParticipantSubmission

Australian Gas Association (AGA) 1

Australian Gas Light Company (AGL) 2

Australian Petroleum Production & Exploration Association Ltd(APPEA)

3

BHP 4

Boral Energy Limited 5

Commonwealth Department of Primary Industries and Energy,Victorian treasury & ACT Department of Urban Services

6

Energy Australia 7

Gascor 8

Industry Commission 9

United Energy 10

Business Council of Australia 11

4.2 Second Round Public Consultation Process: February - March 1997

ParticipantSubmission

Australian Gas Light Company (AGL) 12

BHP 13

Boral Energy Limited 14

Energy Projects Division, Victorian Department of Treasury andFinance

15

Esso Australia Limited 16

Euan Morton and Catherine Althaus 17

New South Wales Minerals Council Limited 18

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REFERENCES

AGA (Australian Gas Association) 1995, ‘Gas in New South Wales’, Gas Facts, Canberra,September.

AGCL (Albury Gas Company) 1996, Annual Report 1996.

AGL (The Australian Gas Light Company) 1996, Annual Report 1996.

Gas and Fuel 1996, Annual Report 1996.

Gas Council of New South Wales 1996, An Inquiry into Access to the Natural GasDistribution Networks of New South Wales, Sydney, January.

Helm, Dieter 1994, ‘British Utility Regulation: Theory, Practice and Reform’ in OxfordReview of Economic Policy, Autumn 1994.

IC (Industry Commission) 1995, Australian Gas Industry and Markets Study, AGPS,Canberra.

IEA (International Energy Agency) 1994, Natural Gas Transportation: Organisation andRegulation, OECD, Paris.

IPART (Independent Pricing and Regulatory Tribunal) 1996a, Draft Determination on theProposed Access Undertaking of AGL Gas Companies (NSW) Limited, Sydney,September.

— 1996b, AGL’s Proposed Undertaking/IPART’s Draft Determination 1996b, StraightQuestions/ Straight Answers, Sydney, October.

— 1996c, Access to the Distribution Network of AGL Gas Companies (NSW) Limited: AProgress Report from the Secretariat, Sydney, November.

— (Arbitration Registry of) 1997a, Arbitration of Disputes Over Access to MonopolyInfrastructure: Procedures and Practice Notes, January.

— 1997b, Background Notes on Transition Timetable, April.

—1997c, Background Notes on Proposal for Right of Review of the Initial Capital Base,April.

National Competition Council 1996a, The National Access Regime: A Draft Guide to PartIIIA of the Trade Practices Act, Melbourne, August.

— 1996b, The New South Wales Access Regime for Natural Gas Distribution Networks:Issues Paper, Melbourne, October.

— 1997, Application for Certification of NSW Access Regime for Natural Gas DistributionNetworks: Draft Recommendation, January.

New South Wales Government 1996, Application to the National Competition Council for aRecommendation on the Effectiveness of the NSW Third Party Access Regime forNatural Gas Distribution Networks, September.

— 1997a, Responses to Concerns Raised by the NCC Secretariat, January.

— 1997b, Response to the Draft Statement Released by the National Competition CouncilSecretariat, February.

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— 1997c, Amendments to the NSW Regime (letter to the National Competition Council),April.