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The Council's work during 2019-20

During 2019-20, the Council:

  • Finalised its consideration of a request from Port of Newcastle Operations Pty Ltd (PNO) to recommend to the relevant Minister that s/he should revoke the declaration of the shipping channel service at the Port of Newcastle
  • Received and finalised its consideration of an application for certification of the New South Wales water infrastructure access regime; and
  • Participated in a number of government policy reviews relating to regulation of access to infrastructure services.

The Council’s work on each of these matters is discussed in more detail below.

Consideration of possible recommendation to revoke the declaration of shipping channel service at the Port of Newcastle

As noted in the Council’s 2018-19 Annual Report, on 2 July 2018, the Council received an application from PNO, requesting that the Council recommend under s 44J of the CCA that the Minister revoke the declaration of the shipping channel service at the Port of Newcastle.

At the completion of the previous financial year, the Council’s consideration of this request was still ongoing, with the Council having issued a Statement of Preliminary Views on 19 December 2018, and having undertaken a number of stages in its consultation process. The steps taken by the Council to consider the application are described in full in the Council’s 2018-19 Annual Report.[1]

On 26 July 2019, the Council completed its consideration of this matter by recommending to the Commonwealth Treasurer, the Hon. Josh Frydenberg MP, that the declaration of service at the Port of Newcastle be revoked. In making this recommendation, the Council concluded that, although some of the declaration criteria set out in section 44CA of the CCA were satisfied, it considered that the declaration criterion described in subsection 44CA(1)(A) (criteria (a)) was not satisfied. This is because the Council could not be satisfied that access to the service on reasonable terms and conditions, as a result of declaration, would promote a material increase in competition in at least one market, other than the market for the service.

Further, the Council considered that the designated Minister could reasonably form the view criterion (d) was not satisfied. The Council considered it was possible (but not certain) that declaration would generate some marginal improvement in the efficient use of and investment in relevant infrastructure. However, this benefit must be set against considerable administrative, compliance and legal costs associated with declaration (and any subsequent negotiation and arbitration of terms and conditions of access under the Part IIIA access regime).

The Council must have regard to the objects of Part IIIA of the CCA and cannot recommend revocation of a declaration unless it is satisfied that subsection 44F(1) or 44H(4) of the CCA would prevent the declaration of service from being considered, recommended or made (as applicable). Subsection 44H(4) prevents the declaration of a service unless the Minister is satisfied of all of the declaration criteria set out in section 44CA. The Council considered, therefore, that the Minister could not be satisfied of all the declaration criteria. Having regard to the objects of Part IIIA of the CCA, the Council recommended revocation of the declaration.

Upon receipt of a recommendation from the Council regarding revocation of declaration of a service, the Minister must make and publish a decision within 60 days of receiving the recommendation. If the Minister does not make and publish a decision within 60 days, s/he is deemed to have made a decision in accordance with the Council’s recommendation.

The 60-day period in relation to the recommendation made by the Council to revoke declaration of service at the Port of Newcastle ended on 23 September 2019. As the Minister had not published a decision on the Council’s recommendation by the end of this date, it is taken that a decision to revoke the declaration has been made. The Minister made a statement confirming this decision on 24 September 2019.

[1] See pages 10-13 of the Council’s 2018-19 Annual Report.

Application for extension of the certification of the NSW water infrastructure access regime

On 31 July 2019, the Council received an application under section 44NA of the CCA from the Premier of NSW, the Hon Gladys Berejiklian MP (applicant) for a recommendation to the designated Minister to extend an existing certification in relation to the NSW third-party access regime for water infrastructure services. The regime is set out in Part 3 of the Water Industry Competition Act 2006 (NSW) (WIC Access Regime).

Previously, the WIC Access Regime had been certified as an effective access regime by the then Minister for Competition Policy and Consumer Affairs for a period of ten years from 13 August 2009. The application for extension of the existing certification requested that the Council recommend to the designated Minister that the regime be certified for a further period of ten years.

Following publication of the Premier of NSW’s application on the Council’s website, the Council invited interested parties to make submissions on the application by 13 September 2019. However, no submissions were received in relation to this matter.

Following detailed consideration of the application, and despite raising some issues with respect to the accounting separation requirements set out in the regime and the precise wording of the regime’s access pricing principles, the Council released a Draft Recommendation on 12 December 2019 that the regime be certified as effective for a further period of ten years (from 13 August 2019 to 12 August 2029).

The Council invited submissions on the Draft Recommendation by 10 January 2020, but did not receive any.

On 1 February 2020, the Council concluded its consideration of this matter and provided the designated Minister, the Hon. Josh Frydenberg MP, with a recommendation that the NSW third-party access regime for water infrastructure services be certified as effective for a ten year period ending 12 August 2029.

As noted earlier in this report, the Minister must make and publish a decision within 60 days of receiving a recommendation from the Council regarding certification of an access regime. If the Minister does not make and publish a decision within 60 days, the Minister is taken, immediately after the end of that 60-day period, to have made and published his decision in accordance with the recommendation by the Council.

The 60-day period in relation to the recommendation made by the Council to certify the regime ended on 31 March 2020. Given the Minister did not publish a decision on the Council’s recommendation by the end of this date, it is taken that a decision to certify the regime has been made. The Minister made a statement confirming his decision on 2 April 2020.

Participation in policy reviews

Gas pipeline regulation and possible future reforms

The regulation of gas pipelines has attracted considerable policy attention in recent years. Following the ACCC’s East Coast Gas Inquiry in 2015-16 and Dr Michael Vertigan AC’s Examination of the Current Test for the Regulation of Gas Pipelines in 2016, the then Council of Australian Governments (COAG)[1] Energy Council endorsed a new gas pipeline information disclosure and commercial arbitration regime.

The new regime took effect upon commencement of Part 23 of the National Gas Rules on 1 August 2017, and applies to ‘non-scheme’ pipelines – mainly, pipelines that are not subject to a ‘coverage’ determination under the NGL.[2] In effect, this regime has bypassed the coverage criteria as the ‘gateway’ to access regulation, and has ‘deemed’ all non-scheme pipelines[3] as requiring regulation, based on the assumption that they all have market power.

In 2017-18, the Australian Energy Market Commission (AEMC) completed a review into the economic regulation of covered pipelines, in which it also examined the new Part 23 regime and its interaction with the other pre-existing forms of regulation determined by the Council under the NGL.[4] The AEMC canvassed potential options to re-design the overarching regulatory framework, including changing the processes and criteria by which the Council makes recommendations regarding the coverage of pipelines and decisions regarding the forms of regulation for covered pipelines.

In April 2018, the Council provided a submission to the AEMC expressing its concerns regarding the proposed re-design of the regulatory framework and putting forward an alternative re-design option for consideration.[5]

The AEMC released its final report in July 2018. Following this, in December 2018, the COAG Energy Council[6] requested its Senior Committee of Officials to prepare a Regulatory Impact Statement (RIS) to review the issues highlighted in the AEMC’s proposed re-design of the regulatory framework and to consider possible options for further reform.

On 1 November 2019, the COAG Energy Council published its consultation RIS. The primary objectives of the RIS were to identify and evaluate the options to deliver a more efficient, effective and well-integrated regulatory framework for gas pipelines; and to assess how effective Part 23 has been in meeting its objectives. In December 2019 and in February 2020, the Council provided submissions to COAG’s consultation RIS.

In its first submission (provided in December 2019), the Council focused on the governance arrangements under the NGL. The Council emphasised the importance of having the current two-step Council recommendation/Ministerial decision-making arrangements under the NGL. This is because under the NGL, the Council/Minister serve different functions under existing governance arrangements. The Council provides an independent recommendation to the Minister whereas the Minister makes a decision, having regard to the Council’s recommendation. The Council considered that these two steps are designed to address concerns that Ministers might be subject to pressure or influence from stakeholders seeking to advance their own private interests.

The Council also warned against regulators determining the service they regulate. The Council considered that having bodies, other than the regulator itself considering and making decisions on what should be regulated, can better attend to concerns relating to real or perceived regulatory bias. The Council also considered there is the potential for industry participants to perceive that regulators have a vested interest in decisions regarding what should be the subject of regulation. The Council therefore considered that undertaking a transparent assessment of declaration applications, and providing designated Ministers with independent expert advice in relation to these, are critical roles that should not be subsumed within any agency.

Lastly, the Council addressed concerns regarding the costs and time delays associated with making third party decisions. The Council noted that time delays are mostly caused by the Tribunal and Courts appeal processes rather than the two stage Council recommendation/Minister decision process itself. Amendments to the CCA in 2010 have introduced time limits for the Council to make a recommendation to the Minister (within 180 days, subject to clock stoppers) and the Minister making a decision (within 60 days of receipt of the recommendation).

The Council’s supplementary submission (provided in February 2020) addressed the broader design of the gas regulatory regime. The COAG consultation RIS proposed four options for reform for gas pipeline regulation. The Council did not favour any of the four proposed packages in their entirety. Rather, the Council considered that there were elements within each of the four proposed packages that could contribute towards a coherent set of reform proposals. The Council identified the following key elements from the various packages it believed should be included in the final reform proposals:

  • Adopting a single form of regulation that would apply to all non-scheme pipelines similar to that contained in Part 23 of the NGR while still having an option for full regulation for those pipelines that meet certain coverage criteria
  • The provision of information disclosure requirements which would improve transparency in commercial negotiations
  • The provision of an arbitration mechanism to facilitate private commercial negotiations.
  • Amending the coverage test under the NGL so that it is the same as that currently applying to other monopoly infrastructure such as ports and airports under Part IIIA of the CCA.

The Council’s submissions are published on its website.

As these issues relate to the Council’s functions and responsibilities under the NGL, the Council intends to continue to follow the RIS process and engage with the proposed review of the Part 23 regime where appropriate. If these processes result in any policy decisions to change the coverage criteria[7] or any other mechanisms administered by the Council under the NGL, the Council will update its guidelines accordingly.

[1] As at 29 May 2020, COAG is known as the National Federation Reform Council.

[2] The exception is pipelines that do not currently provide third party access.

[3] The exception is pipelines that do not currently provide third party access.

[4] Due to accelerated timeframe in which the Part 23 regime was introduced in 2017, these issues were not able to be considered in much detail by the policy makers at the time.

[5] The Council’s submission also considered issues relating to light regulation (the possibility of removing light regulation in light of the introduction of Part 23) and the 15-year no-coverage exemption for greenfields pipelines. These issues will be considered in the RIS process undertaken by the COAG Energy Council’s Senior Committee of Officials.

[6] The COAG Energy Council also endorsed the AEMC’s recommendations relating to the regulation of covered pipelines by the Australian Energy Regulator and the Economic Regulation Authority (which the Council supported). Most of these recommendations have become law by March 2019.

[7] See also the ‘Coverage criteria under the NGL’ section on page 12 of this annual report.

Productivity Commission Inquiry into the economic regulation of airports

The Council notes that the Productivity Commission’s final report on its inquiry into the economic regulation of airports was handed down during the 2019-20 financial year. This was a significant inquiry as it addressed a number of matters relevant to airport regulation, including whether services provided at a number of Australian airports should be automatically subject to access regulation without needing to first be subject to the declaration inquiry process set out in Part IIIA of the CCA.

As noted in the Council’s 2018-19 Annual report, the Council provided two submissions to an inquiry conducted by the Productivity Commission into the economic regulation of airports during the previous financial year.[1] In these submissions, the Council emphasised its view that airports should not, in effect, be deemed to be declared without having first being subject to a declaration inquiry process. In the Council’s view, the statutory criteria that a designated Minister need be satisfied of when deciding whether to declare a service – and the NCC inquiry process that elicits and analyses relevant material relating to whether these criteria are likely to be met – remains an important step in considerations of whether to regulate access to third-party infrastructure services. Importantly, it helps ensure access regulation is only applied in circumstances where it is necessary to both promote competition in dependent markets and help to achieve economically more efficient market outcomes. The Council also considered any proposed reforms to bypass the declaration criteria would undermine the current light-handed regulatory approach; and the incentives it provides for parties to negotiate outcomes commercially.

The Productivity Commission’s final inquiry report was handed to the Government on 21 June 2019; and released publicly on 22 October 2019. In its final report, the Productivity Commission reiterated its view that an airport-specific negotiate-arbitrate regime that bypasses the safeguards of the National Access Regime would have few benefits and substantial risks; and therefore should not be implemented. In its response on 11 December 2019, the Government agreed with the Productivity Commission’s views. Both the Productivity Commission’s and the Government’s views were in line with the Council’s views that Part IIIA of the CCA remains an important step in the declaration process and should not be bypassed.

The Council’s submissions are available on the Productivity Commission’s website and on the Council’s website.

[1] See pages 13-14 of the Council’s 2018-19 Annual Report.