AER Draft decision - Meridian JV and WestSide ring fencing exemption application (public) - June 2012

On the 6 June 2012 the AER issued a draft decision under s. 146(2) of the National Gas Law (NGL) exempting the applicants from the requirement under s. 140 of the NGL. The exemption will allow marketing staff of WestSide to undertake marketing work for the Meridian JV. The AER considers that the applicants’ costs of complying with the ring fencing obligations outweigh any associated public benefit.

In this draft decision, the AER has decided to not grant exemptions from s. 139 of the NGL (carrying on of related businesses prohibited) as it considers that one of the criteria for exemption set out in r. 31(3) of the NGR has not been satisfied.

In particular, rule 31(3)(c) requires the service provider to establish internal controls within its business that substantially replicate the effect that would be achieved if the related business were divested to a separate entity, and dealings between the service provider and the entity were subject to associate contracts. In order to fully satisfy this criterion, the AER requires the applicants to provide a final gas transportation term sheet to the AER’s satisfaction.

Compliance with s. 139 prohibits the service providers of the DVP from carrying on a related business.
The AER’s draft decision also does not grant the applicants exemptions from s. 141 of the NGL (accounts that must be prepared, maintained and kept) as the AER considers that the criterion for exemption set out in r. 31(4) of the NGR has not been satisfied.

Since the DVP is a covered pipeline that is subject to full regulation under the NGL, the AER considers that compliance with the requirements of s. 141 of the NGL maintains the integrity of the access arrangement regime. Therefore, the AER considers that the public benefit of complying with s. 141 of the NGL outweighs the costs of compliance.
Compliance with s. 141 of the NGL means that the service providers of the DVP need to prepare, maintain and keep separate accounts in respect of the pipeline services provided by the DVP.

The granting of the exemption will not preclude the AER from reviewing the exemption if market conditions change substantially at any time in the future.

The draft decision also repeals a previous ring fencing exemption granted to the Dawson Joint Venture by the ACCC in February 2007.