ENA, on behalf of the industry, has argued for a policy and regulatory environment that encourages gas network businesses to further invest in the expansion of gas networks, particularly in regional areas. This investment is essential in ensuring that gas networks continue to provide the quality and reliability of gas supply that Australians expect.

The gas distribution sector is currently facing a significant package of proposed reforms. This provides the perfect opportunity for the Australian Government and all stakeholders to develop a policy and regulatory environment that encourages competition and ensures the long-term viability of the industry.

A current key focus for the ENA has been responding to the proposed Gas Law and Rules which are expected to be implemented in early 2008. The National Gas Law and Rules package is one of the most critical parts of the framework of economic regulation of gas distribution networks in Australia. ENA members are the largest sector directly affected by the operation of the existing Gas Law and Code.

ENA has actively participated in the consultation process of the National Gas Law and Rules. The first draft of the National Gas Law and Rules raised some significant challenges and issues for the energy distribution industry. Broadly, energy network businesses had a number of serious concerns with the approach of the exposure Gas Law, however, some progress has been made by improving the content of exposure draft.

MCE Minister objectives and governance arrangements not met

The exposure Gas Law stepped away from the positive market governance arrangements established by the Ministerial Council on Energy (MCE) – in particular the separation of rule-making and economic regulation and the commitment that MCE’s role would be to provide higher level policy guidance to the market. In the MCE’s response to industry’s submissions, more balance has been restored between the Law and Rules.

Allowing gas distributors to run their own business

The energy distribution industry has strongly advocated for recognition that it is better able to run its own business as opposed to the regulator. This can be achieved by requiring that the regulator give specific weight to some important elements of a business’ access proposal. Parts of the energy package still fail to allow the business to run its own business in this regard. This approach has potentially broader policy implications, letting a body other than the network to run its business can result in detrimental decisions affecting the long term interests of consumers, networks and the broader community.

Ensuring decisions are accountable

The right to appeal an incorrect or unreasonable decision has been a key issue for the energy industry. The energy sector has strongly advocated for an appropriate merits appeal process, this would help ensure sufficient regulatory accountability and protect against regulatory error. The model of merits review set out in the exposure Gas Law had a number of key weaknesses such as narrow and unbalanced eligibility requirements. Some of these weaknesses have been improved within the MCE response to the consultations. There is still a long way to go, for example, the energy regulator can still respond to appeal against an incorrect decision by stating that it has been generous in another part of its decision which ‘compensates’ for its incorrect decision.

Providing flexible forms of regulation

It has been proposed that certain gas distribution businesses should not be eligible for light regulation, that is, regulation which does not set prices. ENA has serious concerns regarding this proposal as this would be an effective exemption from the National Gas Access Regime. If certain covered networks or pipelines are ineligible for light regulation, this will undermine the integrity of the National Gas Access Regime. Withdrawing the possibility of application of light-handed regulation will result in regulation that does not necessarily reflect the level of competition within the market. The consequence will be potentially disproportionate, unnecessary and costly regulation applying to networks.

Future direction

Across a range of key areas the outcomes provided for under the exposure Gas Law were inconsistent with the objectives set by MCE Ministers for reforms to the economic regulation of gas and electricity infrastructure. A key objective set by Ministers in this regard was:

- to streamline and improve the quality of economic regulation across energy markets, - to lower the cost and complexity of regulation facing investors, - enhance regulatory certainty and lower barriers to competition.

Progress has been made to improve the National Gas Access Regime, but we still have a long way to go in ensuring that the National Gas Law, Rules and Regulations encourage the efficient ongoing development, expansion and maintenance of the energy networks in Australia.