The Australian Energy Regulator (AER) has made a final decision not to make a scheme pipeline determination for the South West Queensland Pipeline (SWQP) which is owned and operated by the APA Group (APA). This means SWQP will remain a non-scheme pipeline.
Earlier this year the AER used its newly legislated powers for regulating gas pipelines to announce a ‘form of regulation’ review of the pipeline to consider whether continuing with light regulation of the pipeline remained in the best interests of consumers.
The SWQP, which transports gas in both directions between Wallumbilla in south-east Queensland and Moomba in South Australia, was chosen as the AER’s first self-initiated review because of its strategic importance to east coast gas operations.
A shift to scheme regulation would have required APA to submit a proposal, otherwise known as an access arrangement, to the AER every five years which sets the price it can charge customers for base services over that period.
On 9 October the AER released a draft decision to keep the pipeline as lightly regulated. This was based on analysis that showed the costs of moving to full regulation, including what it means for future pipeline access and investment, could be higher than the more uncertain benefits for consumers from full regulation at this time.
The AER has now confirmed this in its final decision.
AER Board Member Lynne Gallagher said “analysis suggests APA is able to exercise its market power over the supply of services in the SWQP including some users reporting that they have been unable to genuinely negotiate on terms and conditions of access to the SWQP.
“However, the decision also considers the potential constraints on this market power, including the countervailing power of major users and the potential for substitute gas transportation services to emerge in future.”
“Concerns about investment uncertainty came through loud and clear during the consultation on our draft decision,” Ms Gallagher said. “Very few stakeholders that participated in our consultation process, including users of the SWQP, were in favour of scheme regulation.”
Ms Gallagher said last year’s improvements to the gas access dispute resolution process as well as new transparency measures for better contract negotiations also may improve users’ ability to negotiate access to the SWQP.
“Light regulation means APA are still required to be transparent in its reporting and publishing of financial and contract information to assist those making commercial decisions to access the pipeline.
“The AER now administers the dispute resolution process for these users as well under the new gas rules,” she said.
Ms Gallagher said that the decision highlights that current prices and returns on the SWQP appear to be higher than the AER would expect in a workably competitive environment. The AER would therefore like to see the downward pressure on prices paid, particularly for smaller users of the SWQP and would be very concerned if they increase.
“Our final decision also comes with a clear message that we will continue to closely monitor how services are provided on the SWQP as part of our new gas pipeline monitoring and reporting powers,” she said.
ENDS
Note to Editors
The AER gained responsibility for determining the form of regulation of pipelines in March 2023, when reforms to the gas pipeline regulatory regime commenced.
Operators of lightly regulated pipelines are required to publish information that enable users, otherwise known as “shippers”, to make informed decisions about whether to seek access to a pipeline service.
Requirements include:
• service and access information,
• standing terms,
• financial information, and
• weighted average price information.
Lightly regulated pipelines are referred to as “non-scheme” pipelines.
Operators of fully regulated or “scheme” pipelines are required to submit an access arrangement to the AER for approval every five years, which sets the price it can charge customers for base services over that period.