COAG and pipeline tariffs

Arbitration threat looms for gas pipeline operators

• The Australian
• 12:00AM December 14, 2016
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• Kylar Loussikian
  
  Journalist
  Sydney
  @kloussikian
  

The nation’s gas pipeline operators will be forced into arbitrated commercial agreements if they fail to negotiate in good faith, under a reform plan to be put to Energy Minister Josh Frydenberg and his state counterparts at the COAG Energy Council today.
A report into the gas pipeline market commissioned by energy ministers and conducted by Michael Vertigan recommends a series of proposals to lower transportation prices and increase supply, including threats of binding arbitration if supply negotiations fail. The review, obtained by The Australian, finds that “the existing threat of arbitration is unlikely to be a constraint on the behaviour of pipeline operators”, which benefit from significant power imbalances in the market.
But Dr Vertigan, who advised the Abbott government on the National Broadband Network, dismissed suggestions from the Australian Competition & Consumer Commission about the need for more regulatory tests, so-called coverage tests, to address market problems.
“The pipeline industry and most shippers have little appetite for more onerous regulatory solutions,” the report reads. “Rather, it provides shippers with increased negotiating power through the introduction of a credible threat of arbitration that, when actioned, can be quickly resolved.”
Gas pricing figures for the largest industrial users prepared for the federal government show increases of up to 113 per cent in parts of Queensland between 2002 and last year.
Meanwhile the food and grocery lobby has warned in a report that a forecast tripling of gas prices between 2014 and 2021 would cost its members $9.7 billion and result in 3000 job losses.
The report will be discussed as a group of six industry associations call on the ministers to tackle skyrocketing energy prices. “Short-term energy prices are skyrocketing due to increasingly tighter supply and limited competition,’’ they said.
It is expected that state and federal governments will back the Vertigan recommendations, with NSW Energy Minister Anthony Roberts telling The Australian he has been a “strong advocate for measures that will see increased openness, transparency and security of supply in the gas market”.
“The recommendations made address concerns about negotiating access to pipelines, without raising broader concerns regarding regulatory risk,” he said. “Along with the broader gas market reform measures being implemented by the Energy Council, we are serious about increasing the availability of gas and putting downward pressure on prices.”
Dr Vertigan agreed with the ACCC that there was little publicly available information about costs for pipeline operators and the prices charged for the transmission of gas. “Pricing principles, and/or information on the methodology used to determine prices, including costs incurred, should be published to enable shippers, or potential shippers, to better assess the reasonableness of the tariffs and terms offered,” the report recommends.