The AER regulates gas pipelines in all Australian jurisdictions except for Western Australia.
All gas pipelines in Australia are classified as either scheme pipelines (which are subject to full regulation), or non-scheme pipelines (which are subject to light regulation). There are a number of common regulatory requirements that apply to both scheme and non-scheme pipelines, such as information disclosure requirements, access dispute resolution obligations, and various prohibitions/competitive safeguards (e.g. prohibition on preventing or hindering access and ring-fencing provisions). They key difference between these forms of regulation is that scheme pipelines are subject to full price regulation and must submit access agreements to the AER for approval.
The AER is responsible for determining whether the form of regulation of a pipeline should change and does this through making one of two types of form of regulation determinations. The first type is a scheme pipeline determination, which has the effect of making a non-scheme pipeline a scheme pipeline. The second type is a scheme pipeline revocation determination, which has the effect of making a scheme pipeline a non-scheme pipeline.
In assessing whether to make a form of regulation determination (i.e. whether the level of regulation applying to a gas pipeline should change), the AER will conduct a process referred to as a ‘form of regulation review’. As part of a form of regulation review, there will be a public consultation process through which the AER will seek stakeholder comment and views on whether the form of regulation applying to a pipeline should change.
The AER will conduct a form of regulation review in two circumstances:
- First, if the AER receives an application from any person to make a form of regulation determination for a pipeline, it will assess the application and then conduct a review to decide whether to make the determination. There are some limited circumstances where the AER is not required to conduct a review in response to an application, such as where the application is misconceived or lacking in substance.
- Second, the AER may conduct a form of regulation review for a pipeline without receiving an application. That is, the AER may decide whether to make a form of regulation determination of its own initiative.
What the AER is currently considering
The AER is currently considering whether it should initiate form of regulation reviews of any gas pipelines, without first receiving any applications to do so.
The AER has not yet decided whether it will conduct any self-initiated reviews. Additionally, it is not making any determinations on whether the level of regulation of any pipelines should change at this stage or forming any views on this. Instead, the AER is currently only considering whether there is evidence to suggest we should initiate form of regulation reviews in the future.
The AER's view is that it should actively consider whether it should conduct any self-initiated reviews. This is because the changes to the gas pipeline regulatory regime (including the AER’s ability to self-initiate reviews) were intended to ensure that the level of regulation applying to gas pipelines is appropriate and that the long-term interests of consumers are promoted.
In deciding whether to conduct self-initiated reviews, the AER will be guided by the factors relevant to the statutory ‘form of regulation test’ (discussed below) that it must apply when conducting a form of regulation review. However, at this stage, the AER will not be making a full assessment of all elements of the form of regulation test.
Applying the form of regulation test
When conducting a form of regulation review, the AER must apply the statutory ‘form of regulation test’ under section 112 of the National Gas Laws. Under the form of regulation test, the AER must consider the effect that fully or lightly regulating a gas pipeline will have on:
- the promotion of access to pipeline services
- the costs that are likely to be incurred by an efficient service provider, efficient users and efficient prospective users of the pipeline service, and the likely costs to end users.
In doing this, the AER must have regard to the National Gas Objective and the form of regulation factors. The form of regulation factors help the AER to assess a service provider’s market power, and the ability of that service provider to exercise that market power. In summary, the factors are:
- the presence and extent of barriers to entry
- the presence and extent of network externalities, between the pipeline services and other services provided by the service provider
- countervailing market power of users or prospective users
- the extent of substitutes, and elasticity of demand, for the pipeline service and gas.
Following a form of regulation review, the AER will either make a form of regulation determination (i.e. a decision to change the form of regulation) or decide not to make a form of regulation determination.
If the AER decides to make a scheme pipeline determination, the relevant pipeline will become a scheme pipeline. If the AER decides to make a scheme pipeline revocation determination, the relevant pipeline will become a non-scheme pipeline. If the AER decides not to make a determination, the pipeline will retain its current classification as a scheme or non-scheme pipeline.
Further information on the AER’s powers and functions in relation to regulatory determinations, processes for making applications for regulatory determinations, and how the AER will assess applications can be found in the regulatory determinations and elections guide.