Gas Code requirements for ring fencing arrangements
There is a ring fencing compliance report pro-forma at the bottom of this page.
What is ring fencing?
Ring fencing is designed to assist the introduction of effective competition into markets traditionally supplied by natural monopolies. It involves putting structures into place to prevent flows of information and personnel, and inappropriate transferring of costs and revenues within an integrated utility and between related businesses.
Why is ring fencing important?
It is likely that an integrated firm or group of related businesses will be faced with incentives for anti-competitive behaviour. Such behaviour may include providing preferential treatment to upstream and downstream operations or related entities, joint marketing and the sharing of information between operations or related businesses. Ring fencing limits the scope for these types of anti-competitive behaviour with the aim of allowing all upstream and downstream entities to compete on a level playing field.
What are the obligations placed on service providers?
The National Third Party Access Code for Natural Gas (the Code) provides minimum ring fencing obligations that each service provider must comply with. The ACCC has responsibility under s. 4 of the Code to monitor compliance with these obligations and may commence enforcement action if the provisions are breached.
The Code places obligations on service providers of regulated gas transmission pipelines to report to the ACCC at reasonable intervals as required. The ACCC requires reports from service providers on an annual basis.
Broadly, the minimum obligations in the Code require the service provider to:
be a legal entity
not carry on a related business (essentially a business producing, purchasing or selling natural gas)
establish and maintain separate accounts for the activity that is the subject of each access arrangement
establish and maintain a consolidated set of accounts for all the activities undertaken by the service provider
allocate costs shared between different accounts in a fair and reasonable manner
ensure that confidential information is not disclosed to any other person without the permission of the person to whom the information pertains
ensure that marketing staff do not work for both the service provider and an associate taking part in a related business.
The Code provides scope for the ACCC to impose additional obligations on service providers. At this stage the ACCC has not done this. The Code also includes provisions regarding waiving some of the minimum ring fencing obligations.
