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					INFORMATION
MEMORANDUM


PROPOSED AMENDMENTS TO THE
NATIONAL THIRD PARTY ACCESS CODE FOR
NATURAL GAS PIPELINE SYSTEMS




NATIONAL GAS PIPELINES ADVISORY
COMMITTEE
OCTOBER 1999
Table of Contents

1.    Introduction                                                  3

2.    Background                                                    5
      2.1   The Natural Gas Pipelines Access Agreement               5
      2.2   What the Code Provides                                   6
      2.3   How the Code is given legal effect                       8
      2.4   How the Code is amended                                  9
      2.5   The purpose of this Information Memorandum             10

3.    First Proposed Amendment: When an Access Arrangement may
      be Accepted by a Regulator                              11
      3.1   Overview                                               11
      3.2   Current position                                       11
      3.3   Proposed amendment being considered                    13
      3.4   Why such an amendment may be desirable                 14
      3.5   Request for Public Comments                            15

4.    Second proposed amendment: Who may be a Service Provider?17
      4.1   Overview                                               17
      4.2   Current Position                                       17
      4.3   Proposed amendment being considered                    18
      4.4   Why such an amendment may be desirable                 19
      4.5   Request for Public Comments                            24

5.    Third proposed amendment: factors to be considered by Relevant
      Regulator in determining whether to waive ring-fencing
      obligations                                                 25
      5.1   Overview                                               25
      5.2   Current Position                                       25
      5.3   Proposed Amendment Being Considered                    27
      5.4   Why such an amendment may be desirable                 28
      5.5   Request for Public Comments                            31



                                                                Page (i)
6.   Fourth proposed amendment: Disclosure of End User Information33
     6.1     Overview                                                        33
     6.2     Current Position                                                34
     6.3     Proposed Amendment Being Considered                             35
     6.4     Why Such an Amendment May be Desirable                          36
     6.5     Request for Public Comments                                     37

Annexure A                                                                   39
     Amendments to Sections 2.38, 2.41 and 2.42

Annexure B                                                                   41
     OTHER PROPOSED AMENDMENTS
     RECOMMENDATION A: Proposed Change To Definition Of ‘Associate’ In The
          Code
     EXTRACT FROM CORPORATIONS LAW
     DIVISION 2 – ASSOCIATES
     RECOMMENDATION B: Reference Tariffs: Real vs Historical Cost
     RECOMMENDATION C: Disclosure Of End User Information




                                                                        Page (ii)
1.   Introduction
     On 7 November 1997, the Commonwealth and each of the States and
     Territories agreed upon a National Third Party Access Code for Natural Gas
     Pipeline Systems (the Code). The Code was intended to establish a uniform
     national framework regulating third party access to natural gas pipelines.
     Each of the States and Territories has passed, or is expected to pass shortly,
     legislation applying the Gas Pipelines Access Law, including the Code as
     Schedule 2, as a law of that State or Territory.

     The Commonwealth, States and Territories have established the National
     Gas Pipelines Advisory Committee (NGPAC). The members of NGPAC
     include an independent chair and representatives of the Commonwealth and
     each of the States and Territories, together with industry and regulator
     representatives. One of NGPAC’s functions is to make recommendations
     to Commonwealth, State and Territory Ministers on amendments to the
     Code. The relevant Ministers may, following receipt of a recommendation
     from NGPAC, amend the Code by agreement between them.

     NGPAC is currently considering recommending to relevant Ministers that a
     number of amendments be made to the Code.

     This Information Memorandum, first, sets out the background to the
     amendments being considered, including a description of the Code, how it is
     given legal effect and how it can be amended (section 2). The Information
     Memorandum then, for each of the four amendments being considered
     (sections 3, 4, 5 and 6):
     • sets out the possible amendments to the Code NGPAC is considering;
     • explains why such amendments may be desirable; and
     • seeks public comments on the possible amendments being considered.
     Written comments on the possible amendments should be sent to:
            Ms Anna Witty
            Executive Officer
            National Gas Pipelines Advisory Committee
            Level 13, Wakefield House
            30 Wakefield Street
            ADELAIDE         SA    5000
            Fax: (08) 8226 5866
            Email: Witty.AnnaK@saugov.sa.gov.au
     Respondents should, if possible, supply a copy of their submission in
     electronic form (Word 6 or 7), as well as a printed version. The electronic
     form can be forwarded to the Executive Officer’s above e-mail address.
     Written comments should be received by 29 October 1999. All written
     comments will be treated as public documents and will be made available to
     interested parties on payment of an administration fee.


                                                                                Page 3
In addition to the possible amendments discussed in this Information
Memorandum, NGPAC proposes to recommend to Ministers that a number
of other technical amendments not requiring public consultation be made to
the Code. Papers describing these proposed amendments are set out in
Annexure B to this Information Memorandum.
Should you have any queries in relation to this Information Memorandum,
please contact Ms Anna Witty on (08) 8226 5783.




                                                                       Page 4
2.    Background
2.1   The Natural Gas Pipelines Access Agreement
      On 7 November 1997, the Commonwealth and each of the States and
      Territories signed the Natural Gas Pipelines Access Agreement (the Inter
      Governmental Agreement). The objective of the Inter Governmental
      Agreement was to establish a uniform national framework for third party
      access to natural gas pipelines that:
      (a)       facilitated the development and operation of a national market for
                natural gas;
      (b)       prevented abuse of monopoly power;
      (c)       promoted a competitive market for natural gas in which customers
                could choose suppliers, including producers, retailers and traders;
      (d)       provided rights of access to natural gas pipelines on conditions that
                were fair and reasonable for both service providers and users; and
      (e)       provided for resolution of disputes.
      Under the Inter Governmental Agreement, the Commonwealth, States and
      Territories agreed upon the Code, which was intended to establish the
      proposed uniform national framework for third party access to natural gas
      pipelines. The parties also agreed upon a legislative scheme to give legal
      effect to the Code (described in Section 2.3 below).
      The Inter Governmental Agreement also established NGPAC. NGPAC’s
      members are:
           an independent Chair (Mr Greg Harvey);
           the Code Registrar;
           one representative of each of the Commonwealth and each State and
            Territory;
           one representative of each of:
            -   Australian Gas Association;
            -   Australian Petroleum Production & Exploration Association;
            -   Australian Pipeline Industry Association;
            -   Business Council of Australia (Energy Working Group); and
           two representatives of State and Territory independent regulators and one
            representative of the Australian Competition & Consumer Commission
            (ACCC).
      One of NGPAC’s functions is to make recommendations to Commonwealth,
      State and Territory Ministers on amendments to the Code. The Code may
      be amended by agreement between the Commonwealth, State and Territory
      Ministers.

                                                                                     Page 5
2.2   What the Code Provides
      The key provisions of the Code are summarised below.
      Coverage
      The Code applies to pipelines used for transporting natural gas (pipelines).
      The Code applies to both gas transmission pipelines and gas distribution
      networks but does not apply to upstream facilities.
      The operative provisions of the Code apply only to pipelines that are
      “covered” by the Code. A pipeline may become covered in a number of
      ways.
      •   Certain pipelines, which are listed in a Schedule to the Code, are covered
          automatically. The Schedule to the Code lists all major pipelines in
          Australia.
      •   A pipeline may be declared to be “covered”, on a case by case basis, by a
          relevant Minister (after having received a recommendation from the
          National Competition Council) if the pipeline satisfies certain criteria for
          coverage.
      •   The owner or operator of a pipeline may volunteer to have the Pipeline
          covered. A pipeline will also become covered if a competitive tender
          process conducted under section 3 of the Code is used to select the
          Service Provider for a new Pipeline.
      The coverage of a Pipeline may be revoked by a relevant Minister (after
      having received a recommendation from the National Competition Council)
      if the Minister is satisfied that the criteria for coverage are not satisfied.
      Access Arrangements
      The owner or operator of a covered pipeline (a Service Provider) must
      establish an “Access Arrangement” to the satisfaction of the relevant
      regulator for that covered pipeline. An Access Arrangement is a statement
      of the policies and the basic terms and conditions which will apply to third
      party access to a covered pipeline. The relevant regulator will be the ACCC
      in the case of transmission pipelines (except in Western Australia where an
      independent State regulator is the regulator) and will be an independent State
      or Territory regulator in the case of distribution pipelines (except in the
      Northern Territory where the ACCC is the regulator).
      As a minimum, an Access Arrangement must include:
      •   a description of the services provided by means of the covered pipeline (a
          Services Policy);
      •   a statement of the “Reference Tariffs” that a Service Provider will
          charge for certain defined services provided by the covered pipeline
          (Reference Services) and a statement of the principles that were used to
          determine the Reference Tariff (a Reference Tariff Policy);
      •   the Terms and Conditions on which the Service Provider will supply
          each Reference Service;
      •   a Capacity Management Policy;

                                                                                   Page 6
•   a policy on the trading of pipeline capacity (a Trading Policy);
•   a Queuing Policy, which defines the priority that prospective users will
    have to negotiate for spare capacity;
•   an Extensions/Expansions Policy; and
•   a Review Date.
A Service Provider and a person seeking access are free to agree to terms and
conditions that differ from those contained in the Access Arrangement
(except the Queuing Policy). If a dispute about access arises, however, and
is referred to the relevant regulator for arbitration (see below), the regulator
must, amongst other things, apply the provisions of the Access Arrangement
in resolving the dispute.
Reference Tariff Principles
The Code sets out principles with which Reference Tariffs and the Reference
Tariff Policy contained in an Access Arrangement must comply. The
overarching requirement is that when Reference Tariffs are determined and
reviewed, they should be based on the efficient cost (or anticipated efficient
cost) of providing the Reference Services. Within these parameters, the
Reference Tariff Principles are designed to provide a high degree of flexibility
so that the Reference Tariffs and Reference Tariff Policy can be designed to
meet the specific needs of each pipeline.
Negotiation
The Code includes a number of provisions designed to facilitate negotiation
between a Service Provider and a person seeking access. In particular,
Service Providers are required to:
   establish, and provide to bona fide access seekers, an information
    package containing general information on the terms and conditions of
    access and explaining how to make a specific access request;
   respond within 30 days of a specific request for access; and
   establish and maintain a public register of spare and developable capacity.
Dispute Resolution
The Code establishes a mechanism whereby disputes between a Service
Provider and access seekers can be submitted to the relevant regulator for
binding arbitration (or, in the case of Western Australia, to a separate
statutory body, the Gas Disputes Arbitrator). The regulator’s decision may
deal with any matter relating to access. For example, the decision may
require the Service Provider to offer to enter into a contract to provide a
service to the access seeker at a specified tariff and on specified terms and
conditions.
In resolving an access dispute the regulator must, amongst other things, apply
the provisions of the Access Arrangement. If the sole subject of a dispute is
what tariff should apply to a Reference Service, the regulator must make a
determination requiring the Reference Service to be provided at the
Reference Tariff.

                                                                             Page 7
      Ring fencing
      The Code includes a number of provisions designed to ensure the separation
      of activities in non-contestable markets (the ownership and operation of a
      covered pipeline) from activities in contestable upstream and downstream gas
      markets (for example, retailing of gas) (a Related Business). In particular:
         a Service Provider must not conduct a Related Business (as a
          consequence a vertically integrated Service Provider will need to transfer
          its upstream or downstream activities to another company, for example, a
          subsidiary);
         any contract between a Service Provider and an “associate” for a service
          may be entered into only if approved by the relevant regulator;
         Service Providers must maintain separate accounts for activities that are
          the subject of an Access Arrangement;
         confidential information provided to a Service Provider by a user of a
          covered pipeline, or obtained by a Service Provider which might
          reasonably be expected to affect materially the commercial interests of a
          user, must be kept confidential and not disclosed, for example, to an
          associate of the Service Provider who competes with the user; and
         marketing staff of a Service Provider must not work for an associate that
          takes part in a Related Business and marketing staff of an associate that
          takes part in a Related Business must not work for the Service Provider.

2.3   How the Code is given legal effect
      The Code has been given legal effect through an application of laws scheme
      with South Australia acting as the lead legislator.
      In 1997, in accordance with the Inter Governmental Agreement, the State of
      South Australia passed the Gas Pipelines Access (South Australia) Act. That
      Act applied the “Gas Pipelines Access Law” comprising Schedule 1 (Third
      Party Access to Natural Gas Pipelines) (Schedule 1) and Schedule 2 (the
      Code), as laws of South Australia. Schedule 1 contains various provisions
      necessary to give the Code legal effect (for example, it deals with such things
      as how the Code may be amended, the procedures to apply in the arbitration
      of access disputes and the consequences for a breach of the Code and
      provides for administrative appeals from decisions of various bodies made
      under the Code).
      Each other State and Territory (other than Western Australia) has passed, or
      proposes to pass, its own Gas Pipelines Access (name of State/Territory)
      Act, which applies the Gas Pipelines Access Law, including the Code, as set
      out in the schedules to the South Australian Act (and amended from time to
      time), as laws of their State or Territory.
      Western Australia has enacted the Gas Pipelines Access (Western Australia)
      Act 1998, which has essentially identical effect to the Gas Pipelines Access
      (South Australia) Act 1997. That Act applies the Gas Pipelines Access Law,



                                                                                 Page 8
      including the Code (as set out in Schedules to the West Australian Act and as
      amended from time to time) as laws of Western Australia.
      The Gas Pipelines Access (Commonwealth) Act 1998 completes the coverage
      of the access regime by ensuring, among other things, that it applies in
      offshore waters. It also permits the use of certain Commonwealth bodies in
      the operation of the Code.

2.4   How the Code is amended
      The Code may be amended by agreement between the relevant Ministers of
      the Commonwealth, States and Territories. Subject to certain limitations
      specified in the Gas Pipelines Access Law, the Code can be amended by
      agreement between Ministers without the need for an amending Act to be
      passed by the State of South Australia or any other State or Territory.
      Section 6(1) of Schedule 1 provides:
             “If the relevant Ministers of the scheme participants have received
             advice in accordance with any relevant provisions of the Code relating
             to amendment of the Code, the relevant Ministers may, by agreement
             in accordance with this Law, amend the Code to make provision for
             or with respect to any matter relevant to the subject matter of the
             Code as set out in Schedule 2 to the Gas Pipelines Access (South
             Australia) Act 1997 of South Australia, as enacted.”
      Sections 9.1 and 9.2 of the Code provide:
             “9.1    This Code may be amended by agreement between the
                     Relevant Ministers of the Scheme Participants in accordance
                     with the Gas Pipelines Access Law if, not earlier than eight
                     weeks prior to the agreement, the NGPAC has provided a
                     report to all Relevant Ministers of the Scheme Participants in
                     accordance with section 9.2 which:
                     (a)    makes a recommendation in relation to an amendment
                            to the Code;
                     (b)    sets out reasons for that recommendation; and
                     (c)    sets out a summary of the views of any member of the
                            NGPAC who does not agree with the
                            recommendation.
             9.2     A report by the NGPAC for the purposes of section 9.1(a)
                     must state whether the NGPAC considers the amendment it
                     recommends to be significant or not significant. If the
                     amendment is considered to be significant, the report must
                     confirm that the recommendation is made following a public
                     consultation process under which the NGPAC has:
                     (a)    prepared an information memorandum setting out the
                            amendment being considered and a statement of why
                            such amendment may be desirable;



                                                                                Page 9
                    (b)     published a notice in a national daily newspaper which
                            at least:
                            (i)     stated that the NGPAC was considering
                                    recommending an amendment to the Code;
                            (ii)    stated how copies of the information
                                    memorandum could be obtained; and
                            (iii)   requested submissions by a specified date,
                                    being a date not less than 21 days after the date
                                    of the notice; and
                    (c)     considered any submissions received within the time
                            period specified in the notice.”

2.5   The purpose of this Information Memorandum
      NGPAC is currently considering recommending to Ministers certain
      amendments to the Code that NGPAC considers to be significant. As
      required by section 9.2(a) of the Code, this Information Memorandum sets
      out the significant amendments being considered and includes statements of
      why such amendments may be desirable.
      In addition, NGPAC proposes to recommended to relevant Ministers that a
      number of other amendments be made which NGPAC does not consider to
      be significant. A copy of papers outlining these proposed amendments are
      set out in Annexure B.




                                                                                Page 10
3.    First Proposed Amendment: When an Access
      Arrangement may be Accepted by a Regulator
3.1   Overview
      When a relevant regulator issues its final decision in relation to an Access
      Arrangement proposed by a Service Provider, that final decision may either:
         approve the Service Provider’s original Access Arrangement;
         approve a revised Access Arrangement submitted by the Service Provider
          which the relevant regulator is satisfied incorporates the amendments
          which were required by the relevant regulator in an earlier draft decision
          on the Access Arrangement; or
         not approve the Access Arrangement and state the amendments which
          would have to be made to it for the regulator to approve it.
      If the Access Arrangement is not approved, the Service Provider must submit
      a revised Access Arrangement by a date specified by the regulator. The
      regulator must approve that revised Access Arrangement if the regulator is
      satisfied that the revised Access Arrangement incorporates the amendments
      required by the regulator in the final decision. If the Service Provider does
      not submit a revised Access Arrangement that incorporates the amendments
      required, the regulator must impose its own Access Arrangement on the
      Service Provider.
      NGPAC has been advised that the regulator may not have any discretion to
      accept a revised Access Arrangement proposed by a Service Provider that
      does not exactly incorporate the amendments required by the regulator in its
      final decision. For example, if the regulator in its final decision requires an
      amendment which contains an error or requires something which is
      unworkable and the Service Provider proposes a revised Access Arrangement
      which corrects the minor error or which deals with the regulator’s concerns
      in a more practical way, the regulator has no discretion to accept that revised
      Access Arrangement. This lack of flexibility seems undesirable.
      As a consequence, NGPAC is considering recommending amending the
      Code to enable regulators to accept a revised Access Arrangement which
      either substantially incorporates the amendments required by the regulator in
      its draft or final decision, or otherwise satisfactorily address the concerns the
      regulator identified in its draft or final decision as the reasons for requiring
      amendments.

3.2   Current position
      Sections 2.10 to 2.22 of the Code establish the procedure to be followed by a
      regulator in determining whether or not to approve an Access Arrangement
      proposed by a Service Provider. The procedure established by those
      sections is as follows.


                                                                                   Page 11
   Having received a draft Access Arrangement proposed by a Service
    Provider, the regulator must take steps to publicise and make available
    the draft Access Arrangement and seek submissions on it: sections 2.10
    and 2.11.
   The regulator must consider any submissions received on the draft
    Access Arrangement: section 2.12.
   The regulator must issue a draft decision which either:
     proposes to approve the Access Arrangement; or
     proposes not to approve the Access Arrangement and states the
      amendments which would have to be made in order for the regulator
      to approve it: section 2.13.
   The regulator must take steps to publicise and make available the draft
    decision and seek submissions on it: section 2.14.
   The regulator must consider submissions received on the draft decision:
    section 2.15.
   The regulator must issue a final decision which:
     approves the Access Arrangement; or
     approves a revised Access Arrangement which: "the Relevant
      Regulator is satisfied incorporates the amendments specified by the
      Relevant Regulator in its draft decision"; or
     does not approve the Access Arrangement and states the
      amendments which would have to be made to it in order for the
      regulator to approve it: sections 2.16 and 2.17.
   If the Access Arrangement is not approved, the Service Provider must
    submit a revised Access Arrangement by the date required by the
    regulator: section 2.18.
   Section 2.19 then provides:
       “If the Service Provider submits a revised Access Arrangement by the
       date specified by the Relevant Regulator under section 2.16(b), which
       the Relevant Regulator is satisfied incorporates the amendments
       specified by the Relevant Regulator in its final decision, the Relevant
       Regulator must issue a final decision that approves the revised Access
       Arrangement.”
   If the Service Provider does not submit a revised Access Arrangement by
    the date specified by the regulator or submits a revised Access
    Arrangement which the regulator is not satisfied incorporates the
    amendments specified by the regulator in its final decision, the regulator
    must draft and approve its own Access Arrangement (or, in the case of a
    voluntary Access Arrangement, must not approve the Access
    Arrangement): section 2.20.



                                                                          Page 12
      This procedure is intended to create an open and transparent regulatory
      decision making process. The requirement for a draft decision prior to a
      final decision allows the opportunity for further public comment and to
      correct any errors or misunderstandings by the regulator before they are
      enshrined in a final decision. Where a regulator rejects a Service Provider’s
      Access Arrangement, an opportunity is first given to the Service Provider to
      “voluntarily” amend its Access Arrangement as required by the regulator and
      submit that revised Access Arrangement to the regulator. If the revised
      Access Arrangement is not satisfactory then the regulator may impose its
      own Access Arrangement on the Service Provider.

3.3   Proposed amendment being considered
      NGPAC is considering recommending to relevant Ministers that
      sections 2.16, 2.19 and 2.20 of the Code be amended to read as follows:
             “2.16 After considering submissions received by the date specified
                   by the Relevant Regulator under section 2.14, the Relevant
                   Regulator must issue a final decision that:
                     (a)    approves the Access Arrangement originally proposed
                            by the Service Provider; or
                     (b)    if the Service Provider has submitted a revised Access
                            Arrangement after the date of the draft decision,
                            subject to section 2.16A, approves the revised Access
                            Arrangement; or
                     (c)    does not approve the Access Arrangement originally
                            proposed by the Service Provider or, if the Service
                            Provider has submitted a revised Access Arrangement
                            after the date of the draft decision, does not approve
                            that revised Access Arrangement, and states the
                            amendments (or nature of the amendments) which
                            would have to be made to the Access Arrangement in
                            order for the Relevant Regulator to approve it and the
                            date by which a revised Access Arrangement must be
                            resubmitted by the Service Provider.
             2.16A The Relevant Regulator may (in the Relevant Regulator’s
                   discretion) approve a revised Access Arrangement under
                   section 2.16(b) only if the Relevant Regulator is satisfied that
                   the revised Access Arrangement:
                     (a)    incorporates or substantially incorporates the
                            amendments specified by the Relevant Regulator in its
                            draft decision; or
                     (b)    otherwise addresses to the Relevant Regulator’s
                            satisfaction the matters the Regulator identified in its
                            draft decision as being the reasons for requiring the
                            amendments specified in its draft decision.



                                                                                 Page 13
             2.19    If the Service Provider submits a revised Access Arrangement
                     by the date specified by the Relevant Regulator under
                     section 2.16(c) then the Relevant Regulator must issue a
                     further final decision that:
                     (a)     if the Relevant Regulator is satisfied that the revised
                             Access Arrangement incorporates the amendments
                             specified by the Relevant Regulator in its final decision
                             under Section 2.16(c), approves the revised Access
                             Arrangement; or
                     (b)     if the Relevant Regulator is satisfied that the revised
                             Access Arrangement either substantially incorporates
                             the amendments specified by the Relevant Regulator
                             or otherwise addresses to the Relevant Regulator’s
                             satisfaction the matters the Regulator identified in its
                             final decision as being the reasons for requiring the
                             amendments specified in its final decision, either
                             approves or does not approve the revised Access
                             Arrangement (in the Regulator’s discretion); or
                     (c)     in any other case, does not approve the revised Access
                             Arrangement.
             2.20    If the Service Provider does not submit a revised Access
                     Arrangement by the date specified by the Relevant Regulator
                     under section 2.16(c) or the Relevant Regulator does not
                     approve the revised Access Arrangement under section 2.19,
                     the Relevant Regulator must:
                     (a)     in the case of an Access Arrangement submitted under
                             section 2.2, draft and approve its own Access
                             Arrangement, instead of the Access Arrangement
                             proposed by the Service Provider; or
                     (b)     in the case of an Access Arrangement submitted
                             voluntarily under section 2.3, not approve the Access
                             Arrangement.”
      References to section 2.16(b) in other sections of the Code would be
      amended to references to section 2.16(c).
      Equivalent amendments would be made to sections 2.38, 2.41 and 2.42
      dealing with the process to be followed when revisions to Access
      Arrangements are considered (the wording proposed is set out in
      Annexure A).

3.4   Why such an amendment may be desirable
      The process of issuing a draft decision and seeking public comment on the
      draft decision, is intended to allow the regulator to consider further public
      input regarding the judgements made in coming to the draft decision and also
      to ensure that any errors or misunderstandings by the regulator are not
      repeated in the final decision. In practice, however, there is always a risk that


                                                                                  Page 14
      if a regulator rejects an Access Arrangement proposed by a Service Provider
      and specifies amendments required to be made, those amendments may
      contain errors or not be workable in practice. At present if the Service
      Provider proposes in response to a regulator’s draft or final decision a revised
      Access Arrangement which corrects such regulator errors, or proposes an
      alternative, more workable solution, to the regulator’s concerns, the regulator
      would have no discretion to accept that Access Arrangement. Even if the
      regulator agrees with the variations proposed by the Service Provider, the
      regulators only available option currently following a final decision would be
      to reject the Access Arrangement proposed by the Service Provider and
      instead impose its own Access Arrangement under section 2.20 (which
      Access Arrangement could in fact be identical to that proposed by the Service
      Provider).
      This inflexibility seems undesirable. As a consequence, NGPAC is
      considering recommending an amendment to the Code to give the relevant
      regulator a discretion to accept a revised Access Arrangement which either
      substantially incorporates the amendments specified by the regulator or
      otherwise satisfactorily addresses the matters the regulator identified as being
      its reasons for requiring amendments. This discretion would be given to the
      regulator following both the original draft decision and the final decision.
      For example, if a Service Provider believed a particular amendment requested
      by a regulator was unworkable, it could propose in its final Access
      Arrangement an alternative way of addressing the regulator’s concerns. The
      proposed amendment would permit (but not require) the regulator to accept
      that final Access Arrangement if the variation was not substantial or if the
      regulator’s original concerns were satisfactorily addressed. The proposed
      amendments would not permit the regulator to accept a final Access
      Arrangement where the Service Provider had made no change to its Access
      Arrangement at all to accommodate concerns the regulator had expressed.
      In practice it is likely that a regulator may wish to consult with industry
      participants in relation to any significant differences between the final Access
      Arrangement proposed by the Service Provider and that which the regulator
      had required in its draft or final decision. A regulator is able to conduct such
      public consultations if it wishes but it is not proposed, however, that there
      would be a mandated (third) round of public consultation required by the
      Code in these circumstances. Rather public consultation at this stage would
      be left to the regulator’s discretion.

3.5   Request for Public Comments
      NGPAC is seeking public comments on the proposed amendment to the
      Code. In addition to seeking any general comments on the proposed
      amendment (including whether the amendment is supported or opposed or
      whether an alternative is favoured) NGPAC is seeking public comments on
      the following specific issues.
         Does the inflexibility in the Code described above exist?
         Has the inflexibility in the Code described above created real problems in
          practice or is it likely to create real problems in practice?

                                                                                  Page 15
   Is there a risk that the amendments proposed could or could be perceived
    to diminish the transparency of the regulatory decision making process or
    result in “capture” of the regulator by a Service Provider?
   Are there any other implications of making the amendment proposed that
    are not described above?




                                                                        Page 16
4.    Second proposed amendment: Who may be a Service
      Provider?
4.1   Overview
      Section 4.1(a) of the Code requires each Service Provider to “be a legal entity
      incorporated pursuant to the Corporations Law, a statutory corporation, a
      government or an entity established by Royal Charter”. Each owner or
      operator of the whole or any part of a covered pipeline will be a “Service
      Provider”.
      One effect of section 4.1(a) is that an owner or operator of a covered pipeline
      cannot be a company incorporated in another country. A foreign company
      that wishes to own or operate a covered pipeline must establish an Australian
      subsidiary to own or operate the covered pipeline.
      It has been suggested to NGPAC that this requirement may discourage
      foreign investment in Australian covered pipelines because the need to
      establish an Australian subsidiary may impose additional administrative and
      taxation costs on the foreign investor concerned. The Victorian Gas
      Pipelines Access (Victoria) Act, which applies the Code in Victoria, already
      permits foreign companies to be Service Providers. The catalyst for
      NGPAC considering the proposed amendment is the desirability of ensuring
      the Code is applied in a consistent manner nationally. The benefits of not
      permitting foreign companies to be Service Providers appear to be limited.
      NGPAC is therefore considering recommending that the Code be amended
      to permit foreign companies (and certain other entities) to be Service
      Providers.

4.2   Current Position
      Section 4 of the Code imposes a variety of “ring fencing” obligations on
      Service Providers. The object of the ring fencing obligations is to separate
      activities in a market (the market for services provided by means of a covered
      pipeline) and activities in potentially contestable markets (for example, the
      market for the sale of natural gas). So, for example, a company which owns
      and operates a covered pipeline must not also carry on a “Related Business”
      (that is, the business of producing, purchasing or selling natural gas).
      In order to facilitate the application of these ring fencing obligations,
      section 4.1(a) of the Code provides:
              "4.1    A person who is a Service Provider in respect of a Covered
                      Pipeline... must comply with the following...
                      (a)     be a legal entity incorporated pursuant to the
                              Corporations Law, a statutory corporation, a
                              government or an entity established by royal charter;"
      "Service Provider" is defined for these purposes in the Gas Pipelines Access
      Law as follows:


                                                                                  Page 17
             "Service Provider, in relation to a pipeline or proposed pipeline,
             means the person who is, or is to be, the owner or operator of the
             whole or any part of the pipeline or proposed pipeline".
      The effect of section 4.1(a) is that the owner or operator of a covered
      pipeline must be a company incorporated under the Australian Corporations
      Law (unless it is a statutory corporation, a government or an entity
      established by royal charter). The owner or operator of a covered pipeline
      cannot be a company incorporated in another country. A foreign company
      that wishes to own or operate a covered pipeline must establish an Australian
      subsidiary to own or operate the covered pipeline.
      It is thought that there were two reasons for Clause 4.1(a) being included in
      its current form:
         to aid enforcement of the Code against Service Providers and, in
          particular, to avoid issues in relation to service of process and
          enforcement of judgments outside Australia; and
         to reinforce the ring fencing obligations by ensuring that directors of a
          Service Provider are subject to Australian directors' duty obligations to
          act in the best interests of the Service Provider (thereby making it more
          difficult for a Service Provider to cross subsidise or otherwise aid a
          related company carrying on an upstream or downstream business).
      Victoria has amended its Gas Pipelines Access (Victoria) Act 1998 to
      expressly permit foreign companies to be Service Providers. Section 24B of
      that Act now provides as follows (references to the ‘old’ Access Code are to a
      Code which applied in Victoria prior to the introduction of the “national”
      Code):
             “24B.     (1)   Section 4.1 of the old Access Code has effect as if for
                             paragraph (a) there were substituted –
                             ‘(a)    be a legal entity registered under the
                                     Corporations Law or a foreign company within
                                     the meaning of that Law, a statutory
                                     corporation, a government or an entity
                                     established by royal charter;’
                     (2)     Until paragraph (a) of section 4.1 of the new Access
                             Code is amended in accordance with that Code, that
                             section has effect as if for paragraph (a) there were
                             substituted –
                             ‘(a)    be a legal entity registered under the
                                     Corporations Law or a foreign company within
                                     the meaning of that Law, a statutory
                                     corporation, a government or an entity
                                     established by royal charter;’.”

4.3   Proposed amendment being considered
      NGPAC is considering recommending to relevant Ministers that
      paragraph (a) of section 4.1 of the Code be amended to read:

                                                                                 Page 18
            “be a legal entity registered under the Corporations Law, a foreign
            company within the meaning of the Corporations Law that has
            appointed a local agent in accordance with sections 601CF and
            601CG of that Law, a statutory corporation, a Government or an
            entity established by royal charter.”

4.4   Why such an amendment may be desirable
      (a)   The effect of the amendment
            Reference to “registration” rather than “incorporation”
            The first amendment to Clause 4.1(a) proposed is to change the
            reference to "a legal entity incorporated pursuant to the
            Corporations Law" to "a legal entity registered under the
            Corporations Law".
            This amendment is proposed because following recent amendments
            the Corporations Law no longer refers to a company being
            "incorporated" under the Corporations Law. Instead, the
            Corporations Law now refers to a company being brought into
            existence by being "registered" under the Corporations Law: see
            section 119 Corporations Law.
            However, the concept of a legal entity "registered" under the
            Corporations Law includes more than just companies who are
            brought into existence under the Corporations Law. In particular:
               a "registerable Australian body" may "register" under the
                Corporations Law with the Australian Securities and Investments
                Commission (ASIC). The term "registerable Australian body"
                includes a body corporate that is not incorporated under the
                Corporations Law (for example, an association incorporated
                under a State Incorporated Associations Act);
               a "foreign company" may "register" under the Corporations Law
                with the ASIC. The Corporations Law requires a foreign
                company that carries on business in Australia to register with
                ASIC: Section 601CD. ASIC may not register a foreign company
                unless the foreign company has appointed at least one local agent
                who is authorised to accept service of process and notices on the
                foreign company's behalf: Sections 601CF and 601CG. The
                meaning of "foreign company" under the Corporations Law is
                discussed in detail below.
            As a consequence, changing the word "incorporated" to "registered"
            would change the meaning of Clause 4.1(a) to permit registerable
            Australian bodies, and foreign companies that register with ASIC, to
            be Service Providers.
            Inclusion of ‘foreign company’ in clause 4.1(a)
            The second amendment proposed is to permit all foreign companies
            within the meaning of the Corporations Law to be Service Providers
            (whether or not they “register” with ASIC), provided they have

                                                                             Page 19
      appointed a local agent under the Corporations Law to accept
      service of process and notices on the Service Provider’s behalf.
      Section 9 of the Corporations Law defines "foreign company" to
      mean:
             "(a)    a body corporate incorporated in an external territory
                     or outside Australia and the external territories, not
                     being:
                     (i)     a corporation sole;
                     (ii)    an exempt public authority; or
             (b)     an unincorporated body that:
                     (i)     is formed in an external territory or outside
                             Australia and the external territories; and
                     (ii)    under the law of its place of formation, may
                             sue or be sued, or may hold property in the
                             name of its secretary or of an officer of the
                             body duly appointed for that purpose; and
                     (iii)   does not have its head office or principal place
                             of business in Australia."
      Importantly, the amendment proposed would permit a foreign
      company to be a Service Provider whether or not the foreign
      company has registered with ASIC. This is thought necessary
      because section 601CD of the Corporations Law requires a foreign
      company to be registered only if it “carries on business” in Australia.
      Because the term Service Provider is broadly defined, it is possible
      that a foreign company that is a passive investor in a pipeline would
      not be “carrying on business” in Australia and therefore would not be
      required to register with ASIC.
      Summary of changes
      The effect of the proposed amendment is that the following classes of
      persons would be permitted to be Service Providers:
         registerable Australian bodies which register under the
          Corporations Law (for example, associations incorporated under a
          State Incorporated Associations Act); and
         foreign companies (as defined above), whether or not such
          foreign companies have registered with ASIC, provided they have
          appointed a local agent to accept service of process and notices.
(b)   Reasons why proposed amendment may be desirable
      The catalyst for NGPAC considering the proposed amendment has
      been the amendment to the Victorian legislation and the desirability
      of ensuring the Code is applied in a consistent manner nationally.
      Section 4.1(a) currently requires a foreign company wishing to invest
      in a covered pipeline to incorporate an Australian subsidiary to hold


                                                                         Page 20
      its interests in the covered pipeline. It has been suggested to
      NGPAC that this may discourage foreign investment in Australian
      covered pipelines by imposing additional costs on such foreign
      investors. In particular, a foreign company that wishes to make a
      passive investment in a covered pipeline (perhaps as a beneficiary
      under a trust) may not be liable to Australian income tax. Because
      “Service Provider” is defined broadly, however, that foreign company
      may be regarded as a “Service Provider” and may be required to
      establish an Australian subsidiary to hold its interests in the covered
      pipeline. The Australian subsidiary may be subject to additional
      Australian income tax. This may deter foreign investment in
      Australian covered pipelines.
      In addition, an alteration of the reference to “incorporation” to a
      reference to “registration” may be desirable in order to ensure
      consistency with the language currently used in the Corporations Law.
      There appears to be no reason not to permit an association that
      registers under the Corporations Law to be a Service Provider.
      As noted above, clause 4.1(a) was included in its current form to aid
      enforcement of the Code and to reinforce Service Providers’ ring
      fencing obligations.
      For the reasons outlined below, however, it is possible that amending
      the Code as proposed may not substantially weaken the enforceability
      of the Code or the nature of the obligations imposed on Service
      Providers.
(c)   Effect of the proposed change on the enforcement of the Code
      If a Service Provider fails to comply with the Code, the relevant
      regulator, and in some circumstances, private parties may bring civil
      proceedings seeking amongst other things:
         civil penalties;
         damages;
         injunctions; and
         declarations.
      Permitting registerable Australian bodies who register with ASIC to
      be Service Providers should not materially affect the ability of the
      regulator and private parties to enforce the Code against such Service
      Providers.
      NGPAC understands that permitting foreign companies to be Service
      Providers may make bringing enforcement proceedings against such
      Service Providers more difficult in certain circumstances.
      In order to commence legal proceedings, documents initiating the
      legal proceedings must be served upon the defendant (in this case the
      Service Provider). In the case of a company incorporated in
      Australia, service can be effected by leaving documents at the
      Company's registered office. In the case of a foreign company that

                                                                         Page 21
has registered with ASIC, service can be effected by serving
documents on the local agent or leaving the documents at the foreign
company's registered office.
If a foreign company is not registered with ASIC and does not have a
local agent, however, the service of process can be more difficult.
The legal documents must be served on the foreign company outside
Australia. NGPAC understands that before legal documents can be
served outside Australia, the leave of the Court in which the legal
action is being brought must be obtained. The Federal Court and
each of the State and Territory Supreme Courts have detailed rules
about when the Court will give leave allowing service outside
Australia. Whether leave would be given in a particular case would
depend on the Court involved and its rules and the nature of the
proceedings being brought.
To avoid these difficulties, the amendment being considered would
permit a foreign company to be a Service Provider only if it had
appointed a local agent pursuant to the Corporations Law to accept
service of process. This should overcome the possible difficulty with
initiating legal proceedings against a foreign company Service
Provider.
If the necessary documents are served on the local agent and a
judgment is ultimately obtained against the foreign company Service
Provider, it may then be necessary to enforce that judgment. Such
enforcement proceedings could be brought against assets located in
Australia (notably against the covered pipeline or possibly an interest
in the pipeline) or against individual officers resident in Australia.
NGPAC understands that there are, however, likely to be practical
difficulties in enforcing any judgment against assets or individuals
located outside Australia. Whether it would be possible to enforce a
judgment against assets or individuals located in a foreign country will
depend upon the laws of that country. As a general matter, it is likely
to be difficult to enforce civil penalty orders against foreign
companies.
Despite the possible difficulties in enforcing a judgment against a
foreign company Service Provider the practical implications of such
difficulties may be limited. It is highly likely that there would be at
least one Service Provider with respect to a covered pipeline who was
either incorporated or carrying on business in Australia. For
example, ordinarily an "operator" of the covered pipeline would of
necessity either be incorporated in Australia or be carrying on
business and have assets in Australia even if the owners of the
pipeline are all located offshore. This means it should be possible to
bring proceedings seeking, for example, injunctions against the
operator of the pipeline. In the most obvious situations where an
injunction might be sought (for example, a mandatory injunction to
compel a Service Provider to comply with an arbitrator's access
determination) an injunction against one Service Provider (particularly
if that one Service Provider is the operator) should be adequate to

                                                                   Page 22
      achieve the objectives of the Code. It is possible, however, to
      envisage situations where an injunction would be sought against a
      specific foreign company Service Provider (for example, if that
      Service Provider fails to comply with the obligations in relation to
      confidential information set out in section 4.1 of the Code). It is also
      possible to imagine a situation where it would be desirable to obtain
      orders for civil penalties or damages against a specific foreign
      company Service Provider, as well as the local operator (for example
      if the local operator is a company with limited resources, it may be
      desirable to bring proceedings for civil penalties or damages against
      the owners of the pipeline who could be located offshore).
      In summary, permitting a foreign company Service Provider may in
      certain circumstances give rise to practical difficulties with enforcing
      judgements. However, situations in which practical difficulties would
      arise are likely to be rare and there may not be a compelling reason
      for not making the Code change being considered.
(d)   Effect of the proposed change on ring fencing obligations
      The directors of an Australian incorporated company have a legal
      obligation to act in good faith for the benefit of their company as a
      whole. In deciding whether to enter into a contract or commercial
      arrangement with a related company, directors must consider the
      interests of their company and their company alone, not the interests
      of the related company. This obligation may reinforce some of the
      ring fencing obligations, particularly the ring fencing obligations
      designed to prevent a Service Provider cross subsidising its related
      companies.
      The directors of a registerable Australian body or a foreign company
      may not be subject to the same obligations to act in the best interests
      of their company as directors of an Australian company (this would
      depend upon the rules regulating the registerable Australian body or
      the laws of the country of incorporation of the foreign company).
      Permitting bodies to be Service Providers whose directors may not
      have the same obligations as directors of Australian companies may
      therefore be thought to weaken the ring fencing provisions by making
      cross subsidisation of a related company easier.
      The obligation of directors to act in the best interest of their
      company, however, may not materially add to the ring fencing
      obligations. The obligations of directors in considering an intra
      group transaction are notoriously uncertain in practice. Although a
      director must act in the best interests of his or her company, the
      director may, in determining what is in the best interests of his or her
      company take into account how a transaction that benefits the
      corporate group as a whole will in turn benefit the directors'
      company. Because of this uncertainty, the obligation on directors is
      unlikely in a practical sense to add greatly to the ring fencing
      obligations. More importantly, the Code already contains explicit



                                                                          Page 23
             ring fencing obligations to directly prevent cross subsidisation of any
             type. In particular:
                Sections 4.1(f), (g), (h) and (i) contain detailed obligations about
                 confidential information and the sharing of marketing and other
                 staff; and
                Sections 7.1 to 7.6 require a Service Provider to obtain regulatory
                 approval for any contracts entered into with an associate.

4.5   Request for Public Comments
      NGPAC is seeking public comments on the proposed amendment to the
      Code. In addition to seeking any general comments on the proposed
      amendment (including whether the amendment is supported or opposed or
      whether an alternative is favoured) NGPAC is seeking comments on the
      following specific issues.
         Do the requirements of section 4.1(a) impose impediments on foreign
          investment in Australian covered pipelines?
         If so, what exactly are those impediments? What administrative or
          taxation costs may be incurred by a foreign company wishing to invest in
          a covered pipeline as a result of having to incorporate an Australian
          subsidiary to hold its interests in the pipeline?
         Are there any foreign investment proposals which may depend upon the
          amendment of section 4.1(a)?
         Have any investments in covered pipelines in Victoria been made in
          reliance on the provisions quoted above contained in the Victorian
          legislation?
         Would the proposed amendment have any adverse impacts on domestic
          investment in covered pipelines?
         Are the possible difficulties in enforcing judgments against foreign
          company Service Providers likely to create problems in practice?
         Do Australian directors duties add materially to the ring fencing
          obligations?
         Are there any other implications of making the amendment proposed that
          are not described above?




                                                                                  Page 24
5.    Third proposed amendment: factors to be considered by
      Relevant Regulator in determining whether to waive
      ring-fencing obligations
5.1   Overview
      Section 4.15 of the Code permits a regulator to waive certain of the
      ring-fencing obligations that would ordinarily apply to a Service Provider.
      One of the things a regulator must be satisfied of before waiving a ring
      fencing obligation is that the "administrative costs to the Service Provider
      and its associates of complying with [the relevant ring-fencing obligation]
      outweigh any public benefit arising from the Service Provider meeting the
      obligation".
      Although it could be argued that under the existing wording of the Code the
      Regulator already has the discretion to include any taxes that a Service
      Provider may incur in complying with ring fencing obligations in assessing
      these “administrative costs”, the meaning of the phrase “administrative
      costs” is not clear. NGPAC is considering recommending that the Code be
      amended so as to:
         allow the regulator in determining whether to waive ring-fencing
          obligations to have regard to all costs of complying with ring-fencing
          obligations (other than costs of a type arising from an increase in
          competition), not just “administrative” costs; and
         expressly permit a regulator to have regard to any tax costs of a Service
          Provider of complying with ring-fencing obligations.
      The Gas Pipelines Access (Western Australia) Act, which applies the Code in
      Western Australia, includes a provision, not included in the other States and
      Territories Acts, which, for the avoidance of doubt, expressly permits a
      regulator to have regard to any tax costs to the Service Provider incurred in
      complying with ring-fencing obligations. The catalyst for NGPAC
      considering the proposed amendment has been the existence of this variation
      in the Western Australian legislation and the desirability of ensuring the Code
      is applied in a consistent manner nationally.

5.2   Current Position
      As noted in section 4 above, the Code places a variety of ring-fencing
      obligations on Service Providers. These obligations are designed to separate
      non-contestable activities (owning and operating a covered pipeline) from
      contestable activities (for example, the sale of natural gas). The ring-fencing
      provisions are important to ensure the development of competition in
      contestable areas such as the sale of natural gas.
      In certain circumstances, the Code permits a regulator to waive certain of the
      ring-fencing obligations. The ring-fencing obligations that can be waived are
      those contained in:


                                                                                   Page 25
   section 4.1(b), which requires a Service Provider not to carry on a “related
    business” (that is, essentially, the business of producing, purchasing or
    selling natural gas); and
   sections 4.1(h) and (i), which provide that marketing staff of a Service
    Provider must not work for an associate that takes part in a related
    business and marketing staff of an associate that takes part in a related
    business must not work for a Service Provider.
The relevant regulator’s ability to waive these ring-fencing obligations is
contained in section 4.15 of the Code which provides:
        “4.15 The Relevant Regulator may by notice to a Service Provider
              waive any of a Service Provider’s obligations under:
               (a)      section 4.1(b) where the Relevant Regulator is satisfied
                        that:
                        (i)     either the Covered Pipeline is not a significant
                                part of the Pipeline system in any State or
                                Territory in which it is located or there is more
                                than one Service Provider in relation to the
                                Covered Pipeline and the Service Provider
                                concerned does not have a significant interest
                                in the Covered Pipeline and does not actively
                                participate in the management or operation of
                                the Covered Pipeline; and
                        (ii)    the administrative costs to the Service Provider
                                and its Associates of complying with that
                                obligation outweighs any public benefit arising
                                from the Service Provider meeting the
                                obligation, taking into account arrangements
                                put in place by the Service Provider (if any) to
                                ensure that Confidential Information the
                                subject of sections 4.1(f) and (g) is not
                                disclosed to the Service Provider or is not
                                disclosed to the servants, consultants,
                                independent contractors or agents of the
                                Service Provider who take part in a Related
                                Business; and
                        (iii)   an arrangement has been established between
                                the Service Provider and the Relevant
                                Regulator which the Relevant Regulator is
                                satisfied replicates the manner in which
                                section 7.1 would operate if the Service
                                Provider complied with section 4.1(b); and
               (b)      sections 4.1(h) and (i) where the Relevant Regulator is
                        satisfied that the administrative costs to the Service
                        Provider and its Associates of complying with that
                        obligation outweigh any public benefit from the
                        Service Provider meeting the obligation.”

                                                                              Page 26
      Sections 4.16 to 4.24 set out the procedures which must be followed by the
      regulator in considering whether to waive ring-fencing obligations.
      In Western Australia, the Western Australian Parliament included in the Gas
      Pipelines Access (Western Australia) Act subsection 23(3) which provides:
             “In making a decision under section 4.15 of the Code, the Relevant
             Regulator may treat any tax liability arising from an exempt matter as
             an administrative cost referred to in section 4.15(a)(ii) or (b) of the
             Code.”
      An equivalent subsection has not been included in the other States and
      Territories Acts.

5.3   Proposed Amendment Being Considered
      NGPAC is considering recommending to Ministers that the following
      amendments be made to the Code.
      Section 4.15(a)(ii) would be amended to read:
             “(ii)   The costs to the Service Provider and its Associates that
                     would be incurred solely as a result of complying with that
                     obligation (other than costs associated with losses arising from
                     increased competition in upstream or downstream markets)
                     outweigh any public benefits that would arise from the Service
                     Provider meeting the obligation, taking into account
                     arrangements put in place by the Service Provider (if any) to
                     ensure that Confidential Information the subject of
                     sections 4.1(f) and (g) is not disclosed to the Service Provider
                     or is not disclosed to the servants, consultants, independent
                     contractors or agents of the Service Provider who take part in
                     a Related Business;”
      Paragraph 4.15(b) would be amended to read:
             “sections 4.1(h) and (i) where the Relevant Regulator is satisfied that
             the costs to the Service Provider and its Associates that would be
             incurred solely as a result of complying with that obligation (other
             than costs associated with losses arising from increased competition
             in upstream or downstream markets) outweigh any public benefits
             that would arise from the Service Provider meeting the obligation.”
      A new section 4.15A would be inserted into the Code providing:
             “In making a decision under section 4.15 of the Code, the Relevant
             Regulator may treat a tax liability arising from an Exempt Matter as a
             cost for the purposes of sections 4.15(a)(ii) and 4.15(b)”.
      Exempt Matter would be defined to mean:
             “Exempt Matter means an Exempt Matter within the meaning of
             the Gas Pipelines Access Legislation of any Scheme Participant.”
      Gas Pipelines Access Legislation would be defined to mean:



                                                                                 Page 27
            “Gas Pipelines Access Legislation has the meaning given in the
            Gas Pipelines Access Law.”

5.4   Why such an amendment may be desirable
      (a)   Background
            In order to comply with the ring-fencing obligations, particularly
            section 4.1(b), a Service Provider that is currently vertically integrated
            (for example one that owns a pipeline and is involved in the sale of
            natural gas) will need to transfer to a separate company either the
            pipeline or the business of selling natural gas. This transfer of assets
            may ordinarily be subject to tax (for example, stamp duty or capital
            gains tax).
            The Commonwealth, States and Territories agreed in clause 12.3 of
            the Natural Gas Pipelines Access Agreement that:
                    “It is the intention of the Parties that the implementation of
                    the Access Code will not result in additional transitional
                    expenditures for Pipeline owners such as additional taxes. In
                    particular each Party will exempt from stamp duty and other
                    taxes the transfer of assets by a Service Provider (as defined in
                    the Access Code) made to comply with the ring fencing
                    obligations in the Access Code”.
            In compliance with clause 12.3, South Australia enacted section 22 of
            the Gas Pipelines Access (South Australia) Act 1997 which provides:
                    “22.    (1)     Any stamp duty or other tax imposed by or
                                    under a law of this State is not payable in
                                    relation to-
                                    (a)     an exempt matter; or
                                    (b)     anything done (including, for example,
                                            a transaction entered into or an
                                            instrument or document made,
                                            executed, lodged or given) because of,
                                            or arising out of, an exempt matter.
                            (2)     In this section-
                                    ‘exempt matter’ means a transfer of assets or
                                    liabilities that the Minister and the Treasurer
                                    are satisfied is made for the purpose of
                                    ensuring that a person does not carry on a
                                    business of producing, purchasing or selling
                                    natural gas in breach of the Code or for the
                                    purpose of the separation of certain activities
                                    from other activities of a person as required by
                                    the Code, and for no other purpose.”
            There is an equivalent provision in the Gas Pipelines Access (name of
            State/Territory) Act of each other State and Territory.


                                                                                  Page 28
There is also an equivalent provision in the Commonwealth Act,
although it applies only to taxes prescribed by regulation. No such
taxes have been prescribed by regulation because on the advice
available to the Commonwealth, there are no transitional
Commonwealth taxes (either petroleum resource rent tax. (PRRT) or
capital gains) that a company would incur as a result of complying
with ring-fencing obligations.
As noted above, in Western Australia an additional subsection,
subsection 23(3), was included by the Western Australian Parliament
in the Gas Pipelines Access (Western Australia) Act expressly
permitting a Regulator to treat any tax liability arising from an exempt
matter as an administrative cost for the purposes of determining
whether to waive ring fencing obligations.
The amendment is intended to clarify the regulator’s discretion to
consider potential tax liabilities as an administrative cost when
assessing whether the public benefit of complying with the ring
fencing obligations exceeds the cost of those ring fencing obligations.
NGPAC understands that one reason for the inclusion of this section
was a concern of the local industry that, in the absence of a
Commonwealth regulation prescribing taxes for the purpose the
Commonwealth exemption, Service Providers transferring assets in
order to comply with ring fencing obligations may be subject to
Commonwealth capital gains tax or PRRT.
In fact, it is not clear that there are any Commonwealth taxes which a
Service Provider would necessarily incur as a result of complying with
ring-fencing obligations.
In the case of capital gains tax, where assets are transferred between
wholly-owned group companies capital gains tax rollover relief is
available. The Commonwealth has advised NGPAC that it is not
aware of any particular situations in the gas pipeline industry where it
would not be possible to attract capital gains tax rollover relief.
More detailed information would be required in relation to proposed
company structures in order for the Treasury to assess whether there
is a potential capital gains tax problem that could arise solely from
complying with ring-fencing obligations and that cannot be solved
under existing tax law.
For example, assume an unincorporated joint venture of 10 equal
participants carries on business both as a producer of gas and as the
owner and operator of a covered pipeline. If the joint venture
partners transferred their interests in the pipeline to a new company
in which they hold shares in equal proportions, then capital gains tax
may be incurred (because the joint venture company would not be a
wholly-owned subsidiary of any of the 10 joint venturers).
Alternatively, however, the 10 joint venture partners could each
establish a 100% owned subsidiary and transfer their individual
interests in the pipeline to that subsidiary (ie create a mirror joint
venture of 10 new subsidiary companies in relation to the pipeline).


                                                                    Page 29
      Capital gains tax rollover relief should be available if the second
      alternative is adopted. In order to attract the capital gains rollover
      relief, however, 10 new companies must be established and
      administered. If such restructure is solely for compliance with
      ring-fencing, the companies would be exempted from Government
      fees, eg stamp duty, relating to the establishment of those companies.
      Other administrative costs would be considered by the regulator in
      assessing in the context of an application for waiver of ring-fencing,
      whether the private costs exceed the public benefits of ring-fencing.
      In relation to PRRT, the Commonwealth has advised NGPAC that
      the Petroleum Taxation Section of the Commonwealth Department
      of Industry Science and Resources has concluded that compliance
      with the ring-fencing arrangements would have no impact on any
      company’s PRRT liabilities. The Commonwealth has advised
      NGPAC that this is because the Code explicitly excludes upstream
      facilities from its operations and only applies to pipelines carrying
      natural gas that has been processed suitable for consumption.
      The Commonwealth has been presented with no evidence which
      demonstrates that companies are likely to incur PRRT liabilities
      and/or immediate capital gains tax liabilities as a result of complying
      with the ring-fencing requirements under the Code. However, the
      Commonwealth remains willing to examine whether changes to the
      PRRT arrangements are required if evidence of liabilities arising from
      ring-fencing is presented.
      Even if capital gains tax and PRRT need not be incurred in a transfer
      of assets in compliance with ring-fencing obligations, it is conceivable
      that a foreign tax akin to stamp duty or capital gains tax could be
      incurred by a company in complying with the ring-fencing
      obligations, although no practical example of this occurring or being
      likely to occur is known of by NGPAC.
(b)   Reasons for proposed amendments
      The purpose of sections 4.15(a)(ii) and (b) was to require the regulator
      to weigh, on the one hand, the costs of compliance with the
      ring-fencing obligation concerned and, on the other hand, the public
      benefits that could arise from the Service Provider complying with
      the obligation, in determining whether the obligation should be
      waived. There does not appear to be any reason for requiring a cost
      to be of an “administrative” nature before the regulator can consider
      it in weighing costs and benefits. The regulator should be able to
      have regard to all types of costs a Service Provider would incur in
      complying with the ring fencing obligations in carrying out the
      exercise of balancing costs and benefits. The only possible exception
      to this is that the regulator should not be permitted to regard the
      increased competition that come from compliance with ring-fencing
      as a “cost to the Service Provider” for this purpose. For this reason,
      NGPAC is considering recommending an amendment to permit the



                                                                          Page 30
              regulator to have regard to all costs, other than costs arising from
              increased competition.
              Given the specific issue that has arisen in relation to taxes, it may be
              desirable to specifically state that the costs the regulator may have
              regard to include taxes provided they are incurred solely because of
              the need to comply with the ring-fencing requirements. Based on the
              Commonwealth’s advice to NGPAC, it appears unlikely that there
              would in fact be any capital gains tax or PPRT necessarily incurred
              solely as a result of compliance with the ring-fencing obligations for
              the regulator to have regard to. If, however, for some unforeseen
              reason such taxes were incurred solely as a result of compliance with
              the ring-fencing obligations, there appears to be no reason why the
              regulator should not be permitted to have regard to those taxes in
              weighing the costs and benefits of compliance with the ring-fencing
              obligation.
              Similarly, NGPAC is unaware of any foreign taxes a Service Provider
              would be likely to incur as a result of complying with the ring-fencing
              obligations. It should be noted, however, that if the proposed
              amendment to section 4.1 discussed in section 4 above is made, then
              foreign companies will be permitted to be Service Providers. This
              may increase the possibility of the Service Provider incurring foreign
              taxes as a result of compliance with ring-fencing obligations. Again,
              provided the foreign tax is incurred solely as a result of complying
              with the ring-fencing obligation, there seems no reason to exclude
              that tax from the costs to which the regulator may have regard in
              weighing costs and benefits before determining whether to waive
              ring-fencing obligations.

5.5   Request for Public Comments
      NGPAC is seeking public comments on the proposed amendment. In
      addition to any general comments on the proposed amendment (including
      whether the amendment is supported or approved or an alternative is
      favoured), NGPAC is seeking comments on the following specific issues.
         Are there any circumstances in which Commonwealth capital gains tax or
          petroleum resource rent tax or other taxes could be incurred as a result of
          a Service Provider complying with ring-fencing obligations?
         Are there any circumstances where a Service Provider could incur a
          foreign tax as a result of complying with a ring-fencing obligation? What
          types of foreign tax may be involved? What level of foreign taxes may
          be involved?
         Are there any costs, other than taxation costs, which may not be of an
          “administrative nature”, which a Service Provider could incur in
          complying with ring-fencing obligations?
         Could difficulties in verifying claims about foreign tax liabilities facilitate
          the avoidance of ring-fencing obligations if the proposed amendment was
          made?

                                                                                     Page 31
   Could the proposed amendment create an unlevel playing field between
    Australian and foreign company Service Providers?
   If the proposed amendment is made should the costs to which the
    regulator is permitted to have regard be described as “the costs to the
    Service Provider and its Associates which would be incurred solely as a
    result of complying with that obligation” (as proposed) or should the
    phrase used be “the costs to the Service Provider and its Associates
    which would unavoidably be incurred solely as a result of complying
    with that obligation”?
   Are there any other implications of making the changes being considered
    that are not described above?




                                                                         Page 32
6.    Fourth proposed amendment: Disclosure of End User
      Information
6.1   Overview
      Sections 4.1(f) and 4.1(g) of the Code require a Service Provider to keep
      confidential certain “Confidential Information” which is provided to a
      Service Provider by a user or prospective user of the pipeline, or which the
      Service Provider obtains in conducting its business that might materially
      affect the interests of a user or prospective user of the pipeline.
      A user of a pipeline need not be the end consumer of the gas transported.
      For example, a user could be a retailer of gas. Such a user will in turn have
      customers to whom it sells gas (for example, a small factory or a household)
      (End Users). Because the definition of Confidential Information has been
      drafted broadly, it would include information about such End User’s gas
      usage patterns or “load characteristics” (End User Information) (because
      End Users are customers of the user).
      If an End User wishes to switch from the incumbent retailer to a new retailer,
      it may need to provide to the new retailer information about its load
      characteristics. This information may be in the possession of the Service
      Provider. An End User may therefore request the Service Provider to
      disclose its load characteristic information to the possible new retailer.
      In certain circumstances, however, load characteristic information about an
      End User would be treated as “Confidential Information” of the existing
      user/incumbent retailer and section 4.1(g) of the Code could prevent Service
      Providers disclosing such End User Information to the prospective new
      retailer. This could inhibit the development of competition between gas
      retailers. As a consequence, NGPAC already proposes to recommended to
      Ministers that the Code be amended to make it clear that a Service Provider
      may, at the request of an End User, disclose certain End User Information
      to the End User or to a person who carries on, or proposes to carry on, the
      business of supplying Natural Gas. NGPAC does not regard this
      amendment as significant and, as a consequence, public consultation in
      relation to the proposed amendment has not been conducted. A copy of a
      paper describing the proposed amendment is set out in Annexure B.
      In certain circumstances, a Service Provider may not wish to release End
      User Information (for example, it may not wish to release End User
      Information to a potential new retailer if the incumbent retailer is the Service
      Provider’s associate). In order to facilitate the development of retail
      competition, NGPAC is considering whether to recommend to Ministers that
      a new provision be included in the Code placing an obligation on Service
      Providers to disclose End User Information at the request of an End User.
      NGPAC is of the view that such a change would be significant and as a
      consequence should be the subject of public consultation.



                                                                                 Page 33
6.2   Current Position
      The Code does not currently oblige Service Providers to disclose End User
      Information at the request of an End User.
      Sections 4.1(f) and 4.1(g) place obligations on Service Providers not to
      disclose Confidential Information. Those sections provide:
             “4.1    A person who is a Service Provider in respect of a Covered
                     Pipeline … must …
                     (f)     ensure that all Confidential Information provided by a
                             User or Prospective User is used only for the purpose
                             for which that information was provided and that such
                             information is not disclosed to any other person
                             without the approval of the User or Prospective User
                             who provided it [subject to certain exceptions];
                     (g)     ensure that all Confidential Information obtained by
                             the Service Provider or by its servants, consultants,
                             independent contractors or agents in the course of
                             conducting its business and which might reasonably be
                             expected to affect materially the commercial interests
                             of a User or Prospective User is not disclosed to any
                             other person without the approval of the User or
                             Prospective User to whom that information pertains;
                             [subject to certain exceptions]
      Confidential Information is defined in section 10.8 as follows:
             ‘Confidential Information’ means information that is by its nature
             confidential or is known by the other party to be confidential and
             includes:
             (a)     any information relating to the financial position of the party
                     and in particular includes information relating to the assets or
                     liabilities of the party and any other matter that affects or may
                     affect the financial position or reputation of the party;
             (b)     information relating to the internal management and structure
                     of the party or the personnel, policies and strategies of the
                     party;
             (c)     information of the party to which the other party has access,
                     other than information referred to in paragraphs (a) and (b),
                     that has any actual or potential commercial value to the first
                     party or to the person or corporation which supplied that
                     information; and
             (d)     any information in the other party’s possession relating to the
                     other party’s clients or suppliers and like information.
      As noted above, the definition of Confidential Information (particularly
      paragraph (d)) would include information about a user’s clients (that is, End
      Users). A Service Provider is likely to generate information about an End
      User’s load characteristics in the course of conducting its business.

                                                                                  Page 34
      Section 4.1(g) would require the Service Provider not to disclose that
      information where doing so might reasonably be expected to affect materially
      the commercial interests of the user concerned. Disclosing an End User’s
      load characteristic information to a rival retailer could well affect materially
      the commercial interests of the user/incumbent retailer concerned.
      To enable a Service Provider to disclose End User Information, if requested
      to do so by an End User, NGPAC proposes to recommend to Ministers that
      the following amendments be made to the Code.
      After section 4.1 of the Code insert:
             “4.1A If requested to do so in writing by an End User, a Service
                   Provider may disclose End User Information about that End
                   User to the End User or to any other person or persons
                   nominated by the End User who carry on, or propose to carry
                   on, a business of supplying Natural Gas, notwithstanding and
                   without contravening either section 4.1(f) or 4.1(g).”
      As a consequence, the following definitions will need to added in
      section 10.8:
             “End User means:
             (a)     a person who acquires or proposes to acquire Natural Gas
                     from a User; or
             (b)     a person who proposes to acquire Natural Gas from a
                     Prospective User.
             End User Information means, in relation to an End User,
             information obtained by a Service Provider, or by its servants,
             consultants, independent contractors or agents, in the course of
             conducting its business that relates to the actual Natural Gas usage
             and usage patterns of that End User, but does not include any such
             information provided by a User or Prospective User to the Service
             Provider.”
      NGPAC does not consider this amendment would be significant and that it
      could be made without first following the public consultation process
      required by section 9.2 of the Code for significant amendments.

6.3   Proposed Amendment Being Considered
      In addition to the above, NGPAC is considering recommending to relevant
      Ministers that new sections 7.20 and 7.21 be added to the Code (or
      alternatively included in the Gas Pipelines Access Law) providing as follows:
             “7.20 If requested to do so in writing by an End User, a Service
                   Provider must disclose any End User Information about that
                   End User of a type described in the End User’s written
                   request that is in the Service Provider’s possession or under its
                   control, to the End User or to any other person or persons
                   nominated by the End User who carry on, or propose to carry
                   on, a business of supplying Natural Gas.


                                                                                  Page 35
             7.21     A Service Provider must not disclose the fact that an End
                      User has made a request under section 7.20 to any person
                      (other than a person nominated by the End User under
                      section 7.20).”
      If these sections are added to the Code NGPAC is considering
      recommending amending section 10.7 so as to provide that the new sections
      are “conduct provisions” enforceable by any party including in an action for
      damages. Section 10.7 would be amended by adding to paragraph (b):
                  “7.20 and 7.21 (Disclosure of End User Information)”.
      In addition, NGPAC is considering whether the definition of the phrase
      “Confidential Information” should be amended (to enhance its readability) to
      read as follows:
             “Confidential Information means information that is by its nature
             confidential or is known by the Service Provider to be confidential
             and includes:
             (a)      any information relating to the financial position of a User or
                      Prospective User and, in particular, includes information
                      relating to the assets or liabilities of the User or Prospective
                      User and any other matter that affects or may affect the
                      financial position or reputation of the User or Prospective
                      User;
             (b)      information relating to the internal management and structure
                      of the User or Prospective User or the personnel, policies and
                      strategies of a User or Prospective User;
             (c)      information of a User or Prospective User to which the
                      Service Provider has access, other than information referred
                      to in paragraphs (a) and (b), that has any actual or potential
                      commercial value to the User or Prospective User or the
                      person or corporation which supplied that information; and
             (d)      any information in the Service Provider’s possession relating
                      to the User’s or Prospective User’s customers or suppliers and
                      like information.”

6.4   Why Such an Amendment May be Desirable
      Even if the Code is amended to permit a Service Provider to disclose End
      User Information as NGPAC proposes to recommend, there may be
      circumstances in which a Service Provider may not wish to disclose End User
      Information (for example, because an associate of the Service Provider is the
      existing user/incumbent retailer concerned). Requiring a Service Provider to
      disclose End User Information at the request of an End User would appear
      to facilitate competition between an incumbent retailer (which may be an
      associate of the Service Provider) and new retailers. The amendment
      proposed would therefore appear to encourage competition and for this
      reason seems desirable. Importantly, the Service Provider would be required
      to disclose only End User Information it generates and not information


                                                                                   Page 36
      about an End User provided to it by a user (which may be proprietary to the
      User): See the proposed definition of Confidential Information.
      An issue which may be of concern to Service Providers is the potential that if
      End User Information disclosed contains errors, the Service Provider could
      in certain circumstances incur a liability to a prospective new retailer for
      misleading and deceptive conduct. The potential for such liability could be
      controlled, at least to some extent, by the Service Provider including an
      appropriate statement about the accuracy or otherwise of the End User
      Information provided and the degree to which it can be relied upon. It has
      been suggested that to reduce this risk, the obligation to disclose End User
      Information should be limited to a proposed obligation to disclose that
      information to End Users and that Service Providers should not be required
      to disclose information to third parties at the request of End Users. This
      may reduce (but may not entirely eliminate) the risk of Service Providers
      incurring liability for misleading and deceptive conduct.
      One specific issue on which public comments are sought therefore is whether
      the obligation proposed to be included in section 7.20 should be limited to an
      obligation to provide information to the End User.
      If section 7.20 and 7.21 are included in the Code it will be necessary for
      section 10.7 of the Code to classify them as either “regulatory provisions”
      (ie enforceable only by the regulator) or “conduct provisions” (ie enforceable
      by any person and a breach of which may give rise to a claim for damages).
      Given the importance and nature of the proposed clauses, it seems
      appropriate that they be classified as “conduct provisions”. NGPAC is not
      proposing that the new provisions would be “civil penalty” provisions a
      breach of which may give rise to a liability to pay pecuniary penalties.
      In addition, it appears that the current definition of Confidential Information
      is unnecessarily difficult to follow (because of the use of the terms “party”
      and “other party”). The terms “Service Provider and “User or Prospective
      User” could seemingly be used instead of “party” and “other party” as
      outlined above.

6.5   Request for Public Comments
      NGPAC is seeking public comments on the proposed amendments to the
      Code. In addition to seeking any general comments on the proposed
      amendment (including whether the amendment is supported or opposed),
      NGPAC is seeking public comments on the following specific issues.
         Is the proposed amendment described desirable in order to promote
          retail competition?
         Is there real risk that Service Providers may incur a liability as a result of
          being obliged to disclose End User Information?
         Would this risk be substantially reduced if Service Providers were obliged
          to disclose End User Information only to End Users and not to third
          parties at the request of an End User?



                                                                                     Page 37
   Is there any other reason for confining the obligation to disclose End
    User Information to an obligation to disclose to End Users?
   Would there be any practical disadvantages in confining the obligation to
    an obligation to disclose to an End User only?
   Should the proposed new provisions be “regulatory provisions” or
    “conduct provisions”? Should the proposed new provisions be civil
    penalty provisions?
   Is the proposed amendment to the definition of “Confidential
    Information” appropriate?
   Are there any other implications of making the amendments proposed
    that are not described above?




                                                                             Page 38
Annexure A

Amendments to Sections 2.38, 2.41 and 2.42

Sections 2.38, 2.41 and 2.42 would be amended to read:
              “2.38 After considering submissions received by the date specified
                    by the Relevant Regulator under section 2.36, the Relevant
                    Regulator must issue a final decision that:
                      (a)    approves the revisions to the Access Arrangement
                             originally proposed by the Service Provider; or
                      (b)    if the Service Provider has submitted amended
                             revisions to the Access Arrangement after the date of
                             the draft decision, subject to section 2.38A, approves
                             the amended revisions to the Access Arrangement; or
                      (c)    does not approve the revisions to the Access
                             Arrangement originally proposed by the Service
                             Provider or, if the Service Provider has submitted
                             amended revisions to the Access Arrangement after
                             the date of the draft decision, does not approve those
                             amended revisions, and states the amendments (or
                             nature of the amendments) which would have to be
                             made to the revisions, in order for the Relevant
                             Regulator to approve them and the date by which the
                             amended revisions must be resubmitted by the Service
                             Provider.
              2.38A The Relevant Regulator may (in the Relevant Regulator’s
                    discretion) approve amended revisions provisions to an
                    Access Arrangement under section 2.38(b) only if the
                    Relevant Regulator is satisfied that the amended revisions:
                      (a)    incorporate or substantially incorporate the
                             amendments specified by the Relevant Regulator in its
                             draft decision; or
                      (b)    otherwise address to the Relevant Regulator’s
                             satisfaction the matters the Regulator identified in its
                             draft decision as being the reasons for requiring the
                             amendments specified in its draft decision.
              2.41    If the Service Provider submits amended revisions to the
                      Access Arrangement by the date specified by the Relevant
                      Regulator under section 2.38(c) then the Relevant Regulator
                      must issue a further final decision that:
                      (a)    if the Relevant Regulator is satisfied that the amended
                             revisions to the Access Arrangement incorporate the
                             amendments specified by the Relevant Regulator in its


                                                                                  Page 39
               final decision under section 2.38(c), approves the
               amended revisions to the Access Arrangement; or
       (b)     if the Relevant Regulator is satisfied that the amended
               revisions to the Access Arrangement either
               substantially incorporate the amendments specified by
               the Relevant Regulator or otherwise address to the
               Relevant Regulator’s satisfaction the matters the
               Regulator identified in its final decision as being the
               reasons for requiring the amendments specified in its
               final decision, either approves or does not approve the
               amended revisions to the Access Arrangement; or
       (c)     in any other case, does not approve the amended
               revisions to the Access Arrangement.
2.42   If the Service Provider does not submit amended revisions to
       the Access Arrangement by the date specified by the Relevant
       Regulator under section 2.38(c) or the Relevant Regulator
       does not approve the amended revisions to the Access
       Arrangement under section 2.41, the Relevant Regulator must
       draft and approve its own amended revisions to the Access
       Arrangement, instead of the revisions proposed by the Service
       Provider.
References in other sections of the Code to section 2.38(b) would be
amended to references to section 2.38(c).




                                                                    Page 40
Annexure B

OTHER PROPOSED AMENDMENTS
RECOMMENDATION A: Proposed Change To Definition Of ‘Associate’
In The Code


1.   Current Position
     Section 7.1 of the Code provides:
            A Service Provider must not enter into an Associate Contract without first
            obtaining the approval of the Relevant Regulator. The Relevant Regulator
            must not refuse to approve a proposed Associate Contract unless it
            considers that the contract would have the effect, or would be likely to have
            the effect, of substantially lessening, preventing or hindering competition in
            a market.
     An Associate Contract is defined in section 10.8 of the Code to mean:
            Associate Contract means:
            (a)      a contract, arrangement or understanding between the Service
                     Provider and an Associate in connection with the provision of a
                     Service; or
            (b)      a contract, arrangement or understanding between a Service
                     Provider and any person in connection with the provision of a
                     Service which provides a direct or indirect benefit to an Associate
                     and which is not an arms length transaction.
     Associate is defined in section 10.8 as follows:
            Associate has the meaning given in the Gas Pipelines Access Law.
     Section 13(7) of the Gas Pipelines Access Law (Schedule 1 to the Gas
     Pipelines Access (South Australia) Act 1997) (Schedule 1) provides:
            In this section -
            “Associate” in relation to a person, has the meaning it would have under
            Division 2 of Part 1.2 of the Corporations Law if sections 13, 14, 16(2) and
            17 of that Law were repealed.
     Section 13 prohibits a Service Provider or an ‘Associate’ of the Service
     Provider from hindering access to a Covered Pipeline.
     The relevant sections of the Corporations Law are attached (see attached).
     In broad terms, the effect of the definition of Associate in the Gas Pipelines
     Access Law is that one body corporate will be an associate of another body
     corporate:
        where they are ‘related bodies corporate’ (that is, where one company is a
         subsidiary of another or both companies are the subsidiaries of a
         common holding company) (section 11 ‘related bodies corporate’); or
        where they are acting or propose to act in concert in respect of the matter
         to which the associate reference relates, or they are deemed by regulation
         to be associates, or they are associated, whether formally or informally, in
         any other way (section 15 ‘acting in concert’).


                                                                                     Page 42
     At present no regulations have been made for the purpose of deeming
     companies to be Associates.
     Pursuant to section 6 of the Appendix to the Gas Pipelines Access Law, a
     reference to a law such as the Corporations Law is a reference to that law as
     amended from time to time.
     It should be noted that the term Associate is not only used in section 7.1 of
     the Code. It is also used, for example, in section 4.1 of the Code dealing
     with the separation of the marketing staff of Service Providers and Service
     Providers’ Associates, section 4.3 of the Code dealing with additional ring
     fencing obligations and section 4.15 of the Code dealing with the waiver of
     ring fencing obligations.
     The definition of Associate used in section 13(7) of the Gas Pipelines Access
     Law is used, with some variations, in a number of other statutes (for example,
     the Business Franchise (Tobacco) Act 1974, the Gaming and Betting Act
     1984, the Electricity Act 1993, the Totalisator Agency Board Privatisation Act
     1997 and the Rail Corporations Act 1996, all of Victoria, and the Retirement
     Savings Account Act 1997 and Superannuation Industry (Supervision) Act
     1993, both of the Commonwealth).
2.   Issue
     (a)     Method of Defining Associate
             It has been suggested that because the definition of Associate in
             section 13(7) of Schedule 1 is expressed to apply ‘in this section’ the
             definition does not apply in the Code. This would have the
             consequence that the term ‘Associate’ would be undefined for the
             purposes of the Code and parts of Chapter 7 would be rendered
             inoperative.
     (b)     ‘Acting in concert’ head of association
             It has also been suggested that the ‘acting in concert’ head of
             association, which the definition of Associate in Schedule 1
             incorporates by reference from the Corporations Law, is
             inappropriate in the context of Associate Contracts. Parties are
             regarded as ‘acting in concert’ if there is an understanding between
             them as to their common purpose and the parties take steps to
             implement that common purpose. For example, joint venture
             partners may not be related bodies corporate but they may be ‘acting
             in concert’ in relation to the joint venture. They would, therefore, be
             associates in relation to the joint venture. Parties who are proposing
             to enter into a contract necessarily have a common objective when
             they enter into that contract so that every party to a contract is
             necessarily acting in concert and necessarily an associate of the other
             party in relation to that contract. If this interpretation is correct, a
             Service Provider and its customer would by definition be ‘Associates’
             and the Service Provider would be required under section 7.1 of the
             Code to obtain regulatory approval for every contract to provide
             services it entered into. In NGPAC’s view, this outcome was clearly
             not intended.

                                                                                 Page 43
3.   Discussion
     (a)   Method of Defining Associate
           NGPAC has received legal advice that the word ‘Associate’ when
           used in the Code currently has the meaning given to it in section 13(7)
           of Schedule 1. The fact that the definition in section 13(7) of
           Schedule 1 begins with the words ‘in this section’ does not mean the
           definition is not the ‘meaning given in’ Schedule 1 to the word
           Associate. Nonetheless, as some readers of the Code have a
           different view, it seems desirable to remove any doubt by repeating
           the current definition of ‘Associate’ in Schedule 1. Doing so may
           also enhance the ease with which the Code can be read.
     (b)   ‘Acting in concert’ head of association
           It is clear from section 7.1 of the Code that it was not intended that
           Service Providers would have to obtain regulatory approval for all
           contracts to provide services they entered into. Regulatory approval
           is needed only for that sub-set of services contracts entered into by
           Service Providers with their ‘Associates’. NGPAC has received legal
           advice that, as a consequence, a Court would be reluctant to adopt an
           interpretation of the definition of Associate that deemed a Service
           Provider and a customer to be ‘Associates’ in all cases and therefore
           required regulatory approval for all contracts.
           Nonetheless, it seems desirable to clarify in the Code what was
           intended.
           One way of achieving this would be to simply delete the “acting in
           concert” head of association. A possible difficulty with simply
           deleting the acting in concert head of association, however, is that the
           definition of Associate may then be too narrow to cover all possible
           situations when regulatory approval for a contract should be obtained.
           Take, for example, a situation where an unincorporated joint venture
           owns and operates a pipeline and wishes to enter into a contract to
           supply gas transportation services to a joint venture company that the
           parties to the unincorporated joint venture each hold shares in. The
           joint venture company will not be a related body corporate of any of
           the participants in the unincorporated joint venture (unless one of the
           participants holds more than 50% of the shares in the joint venture
           company). The contract may, however, be of a type that should be
           the subject of regulatory approval. It may well be possible to say that
           the participants in the unincorporated joint venture and the joint
           venture company are ‘acting in concert’ and are therefore associates
           within the meaning of the expanded definition.
4.   Recommendation
     NGPAC recommends the definition of Associate in the Code be amended to
     read:
           ‘Associate’, in relation to a person, has the meaning it would have under
           Division 2 of Part 1.2 of the Corporations Law if sections 13, 14, 16(2) and
           17 of that Law were repealed, except that a person will not be considered to

                                                                                   Page 44
be an Associate of a Service Provider solely because that person proposes to
enter, or has entered, into a contract, arrangement or understanding with the
Service Provider for the provision of a Service.




                                                                        Page 45
EXTRACT FROM CORPORATIONS LAW

DIVISION 2 – ASSOCIATES
SECTION 10 - EFFECT OF DIVISION
(1)   [Interpretative purpose] This Division has effect for the purposes of
      interpreting a reference (in this Division called the "associate reference"), in
      relation to a person (in this Division called the "primary person"), to an
      associate.
(2)   [Exclusive effect of Division] A person is not an associate of the primary
      person except as provided in this Division.
(3)   [Generality not limited] Nothing in this Division limits the generality of
      anything else in it.
SECTION 11 - ASSOCIATES OF BODIES CORPORATE
      If the primary person is a body corporate, the associate reference includes a
      reference to:
      (a)     a director or secretary of the body;
      (b)     a related body corporate; and
      (c)     a director or secretary of a related body corporate.
SECTION 12 - MATTERS RELATING TO VOTING SHARES
(1)   [Relevant agreement] If the associate reference relates to:
      (a)     the extent of a power to exercise, or to control the exercise of, the
              voting power attached to voting shares in a body corporate;
      (b)     the primary person's entitlement, within the meaning of Chapter 6, to
              shares in a body corporate, or
      (c)     a takeover offer, takeover scheme, or takeover announcement, within
              the meaning of Chapter 6, relating to shares in a body corporate;
      it includes a reference to a person with whom the primary person has, or
      proposes to enter into, a relevant agreement:
      (d)     because of which one of those persons has or will have power (even
              if it is in any way qualified):
              (i)     to exercise;
              (ii)    to control, directly or indirectly, the exercise of; or
              (iii)   to influence substantially the exercise of;
              any voting power attached to shares in the body;
      (e)     for the purpose of controlling or influencing:
              (i)     the composition of the body's board, or
              (ii)    the conduct of affairs of the body;

                                                                                   Page 46
      (f)    under which one of those persons:
             (i)     will or may acquire, or
             (ii)    may be required by the other to acquire;
             shares in the body in which the other has a relevant interest; or
      (g)    under which one of those persons may be required to dispose of
             shares in the body in accordance with the other's directions;
      whatever other effect the relevant agreement may have.
(2)   [Two-way association] In relation to a matter relating to shares in a body
      corporate, a person may be an associate of the body and the body may be an
      associate of a person.
SECTION 13 - REFERENCES IN CHAPTER 7
      If the associate reference occurs in Chapter 7 and relates to a matter that is
      not of a kind referred to in paragraph 12(1)(a), (b) or (c), it includes a
      reference to:
      (a)    a person in partnership with whom the primary person carries on a
             securities business;
      (b)    subject to subsection 16(2), a person who is a partner of the primary
             person otherwise than because of carrying on a securities business in
             partnership with the primary person;
      (c)    a trustee of a trust in relation to which the primary person benefits, or
             is capable of benefiting, otherwise than because of transactions
             entered into in the ordinary course of business in connection with the
             lending of money;
      (d)     a director of a body corporate of which the primary person is also a
              director and that carries on a securities business, and
      (e)    subject to subsection 16(2), a director of a body corporate of which
             the primary person is also a director and that does not carry on a
             securities business.
SECTION 14 - REFERENCES IN CHAPTER 8
      If it occurs in section 29 or 1323 or Chapter 8, the associate reference
      includes a reference to:
      (a)    a person in partnership with whom the primary person carries on a
             business of dealing in futures contracts;
      (b)    subject to subsection 16(2), a person who is a partner of the primary
             person otherwise than because of carrying on in partnership with the
             primary person a business of dealing in futures contracts;
      (c)    a trustee of a trust in relation to which the primary person benefits, or
             is capable of benefiting, otherwise than because of transactions
             entered into in the ordinary course of business in connection with the
             lending of money;



                                                                                  Page 47
      (d)    a director of a body corporate of which the primary person is also a
             director and that carries on a business of dealing in futures contracts;
             and
      (e)    subject to subsection 16(2), a director of a body corporate of which
             the primary person is also a director and that does not carry on a
             business of dealing in futures contracts.
SECTION 15 - GENERAL
(1)   [Persons to whom associate reference applies] The associate reference
      includes a reference to:
      (d)    a person in concert with whom the primary person is acting, or
             proposes to act;
      (e)    a person who, under the regulations, is, for the purposes of the
             provision in which the associate reference occurs, an associate of the
             primary person; and
      (f)    a person with whom the primary person is, or proposes to become,
             associated, whether formally or informally, in any other way;
      in respect of the matter to which the associate reference relates.
(2)   [Entering into association] If the primary person has entered, or
      proposes to enter, into a transaction, or has done, or proposes to do, any act
      or thing, in order to become associated with another person as mentioned in
      an applicable provision of this Division, the associate reference includes a
      reference to that other person.
SECTION 16 - EXCLUSIONS
(1)   [Specified exclusions] A person is not an associate of another person by
      virtue of section 12 or subsection 15(1), or by virtue of subsection 15(2) as it
      applies in relation to section 12 or subsection 15(1), merely because of one or
      more of the following:
      (g)    one gives advice to the other, or acts on the other's behalf, in the
             proper performance of the functions attaching to a professional
             capacity or a business relationship;
      (h)    one, a client, gives specific instructions to the other, whose ordinary
             business includes dealing in securities, to acquire shares on the client's
             behalf in the ordinary course of that business;
      (i)    one has sent, or proposes to send, to the other a takeover offer, or
             has made, or proposes to make, offers under a takeover
             announcement, within the meaning of Chapter 6, in relation to shares
             held by the other;
      (j)    one has appointed the other, otherwise than for valuable
             consideration given by the other or by an associate of the other, to
             vote as a proxy or representative at a meeting of members, or of a
             class of members, of a body corporate.
(2)   [Necessity for knowledge] For the purposes of proceedings under this
      Law in which it is alleged that a person was an associate of another person by

                                                                                    Page 48
       virtue of paragraph 13(b) or (e) or 14(b) or (e), the first-mentioned person
       shall not be taken to have been an associate of the other person in relation to
       a matter by virtue of that paragraph unless it is proved that the
       first-mentioned person knew, or ought to have known, at that time, the
       material particulars of that matter.
SECTION 17 - ASSOCIATES OF COMPOSITE PERSONS
•   A reference to an associate, in relation to a dealer, investment adviser, futures
    broker or futures adviser, is, if 2 or more persons constitute the dealer,
    investment adviser, futures broker or futures adviser, a reference to an associate
    of any of those persons.




                                                                                   Page 49
RECOMMENDATION B: Reference Tariffs: Real vs Historical Cost
1.   Current Position
     The first step in setting a Reference Tariff is to determine the ‘Total Revenue’
     that a pipeline should be permitted to earn. Section 8.4 of the Code outlines
     three alternative methodologies which may be used in determining ‘Total
     Revenue’. The simplest methodology (and that which has been used most
     frequently) is a ‘Cost of Service’ methodology. Section 8.4 provides
     relevantly:
            The Total Revenue (a portion of which will be recovered from sales of
            Reference Services) should be calculated according to one of the following
            methodologies:
            Cost of Service: The Total Revenue is equal to the cost of providing all
            Services (some of which may be the forecast of such costs), and with this
            cost to be calculated on the basis of:
            (a)     a return (Rate of Return) on the value of the capital assets that
                    form the Covered Pipeline (Capital Base);
            (b)     depreciation of the Capital Base (Depreciation); and
            (c)     the operating, maintenance and other non-capital costs incurred in
                    providing all Services provided by the Covered Pipeline
                    (Non-Capital Costs).
     There are two basic ways of expressing the dollar figures which are used in
     the calculation of Total Revenue.
     (a)    Historical cost approach
            Under this approach, the Capital Base is expressed in historical cost
            terms and is not adjusted for inflation. Depreciation of the Capital
            Base therefore returns to the Service Provider only the historical cost
            of the Capital Base. The Depreciation amounts are not increased to
            reflect the fact that a dollar amount paid in subsequent years will be
            worth less because of the effects of inflation. In order to
            compensate the Service Provider for inflation, the Rate of Return
            therefore needs to include an allowance for expected inflation (a
            ‘nominal Rate of Return’).
     (b)    Real or current cost approach
            Under this approach, the Capital Base is escalated each year by actual
            inflation. Depreciation of the Capital Base therefore returns to the
            Service Provider the Capital Base expressed in real terms. The Rate
            of Return therefore need not include an allowance for expected
            inflation (a ‘Real Rate of Return’).
     The difference can be illustrated with the following simple example (which
     assumes a three year access arrangement period and that all costs are borne
     and revenue received on the last day of the year):




                                                                                        Page 50
(a)     Historical cost approach


                                           Year 1    Year 2     Year 3      Year 4
         CAPITAL BASE
         Opening Asset Value                 $100       $90        $80        $70
         Depreciation (10 year, straight     $10        $10        $10
         line)
         Closing Asset Value                 $90        $80        $70
         TOTAL REVENUE
         Depreciation                        $10        $10        $10
         Nominal rate of return 15%          $15       $13.5       $12
         (10% + 5% estimate of CPI)
         Total Revenue*                      $25       $23.5       $22


(b)     Real approach


                                           Year 1   Year 2      Year 3        Year 4
         CAPITAL BASE
         Opening Asset Value               $100     $90(CPI1)   $80(CPI2)     $70(CPI3)
         Depreciation (10 year, straight   $10      $10(CPI1)   $10(CPI2)
         line)
         Closing Asset Value               $90      $80(CPI1)   $70(CPI2)
         TOTAL REVENUE
         Depreciation                      $10      $10(CPI1)   $10(CPI2)
         Real Rate of Return (10%)         $10      $9(CPI1)    $8(CPI2)
         Total Revenue*                    $20      $19(CPI1)   $18(CPI2)
        * Excludes non capital costs
It should be noted that the real approach table above applies a CPI escalation
because the figures are being converted into Year 2, Year 3 and Year 4 dollars
respectively. If all the variables were expressed in Year 1 or ‘real’ dollars
then all of the CPI adjustments in Table (b) disappear and the calculation of
the historical cost and real approach would look identical. The only
difference is that the total revenue and its components in Table (b) are in
constant dollars rather than nominal dollars. Because the price charged to
customers must be in nominal dollars, however, indexation is needed
somewhere and, under the real approach, this is achieved by escalating tariffs
by inflation. This way of viewing the real approach is that adopted by the
regulators in the UK.
If this illustration was continued for the life of the asset, both the historical
cost and real approaches should provide the Service Provider with the same
expected return over the life of the asset concerned.

                                                                              Page 51
     As noted in the Victorian Office of the Regulator General (ORG) final
     decision on the Multinet, Westar and Stratus Access Arrangements (October
     1998) at p103:
             The most important difference [between the two methods] is who bears the
             risk associated with inflation being different to that forecast.
             •   Under the [real approach], the Capital Base adjusts to account for actual
                 inflation, and so the Service Provider is insulated from the cost of the
                 unanticipated inflation from the commencement of the next Access
                 Arrangement Period. [The indexation of tariffs within the regulatory
                 period largely will insulate the Service Provider from inflation during the
                 period as well].
             •   Under the [historical approach], as normally implemented, however,
                 where inflation is higher (or lower) than forecast (and thus factored into
                 the nominal Rate of Return), the Service Provider bears (or reaps) this
                 cost (or benefit) as only the nominal value of the Capital Base is carried
                 forward to the next review.
     A second difference between the two approaches is that they may result in
     differences in terms of timing and pattern of allowable revenue and hence the
     cashflows available to the Service Provider, with the real approach generally
     providing a more even return of capital than the historical approach (see the
     New South Wales Independent Pricing and Regulatory Tribunal (IPART)
     final decision Great Southern Energy Access Arrangement, March 1999,
     pp 44-45).
2.   Issue
     Provided a consistent approach is taken across all inputs, both approaches
     will result in the Service Provider receiving the same (expected) net present
     value of revenue over the economic life of the assets concerned. As a
     consequence, either approach could satisfy the general principles set out in
     section 8.1 of the Code. Furthermore, either approach can be categorised as
     being consistent with the very broad requirements of a cost of service
     methodology set out in section 8.4 or, in the case of the real approach, as an
     ‘other methodology’ which may be used pursuant to section 8.5.
     However, in a paper to NGPAC, ORG and IPART reported:
             It is clear, however, that many participants interpret the principles in
             section 8 as referring to costs, revenues and inputs which are defined in
             historical cost or nominal terms. Amongst other things, this is because
             standard accounting practice records all variables in historical cost terms.
             This has led to it being questioned whether the real approach is permitted
             under the Code as currently drafted.
     In addition, ORG and IPART reported that some industry participants
     regard a number of specific provisions in section 8 of the Code as difficult to
     reconcile with a real approach.
3.   Discussion
     There are two sections of the Code in particular which may at first
     impression seem inconsistent with the real approach.
     First, section 8.9 of the Code provides relevantly:

                                                                                       Page 52
        … Consistently with those principles [the principles for adjusting the Capital
        Base], the Capital Base at the commencement of each Access Arrangement
        Period after the first, for the Cost of Service methodology, is determined as:
        (a)     the Capital Base at the start of the immediately preceding Access
                Arrangement Period; plus
        (b)     the New Facilities Investment or Recoverable Portion (whichever is
                relevant) in the immediately preceding Access Arrangement Period
                (adjusted as relevant as a consequence of section 8.22 to allow for
                the differences between actual and forecast New Facilities
                Investment); less
        (c)     Depreciation for the immediately preceding Access Arrangement
                Period; less
        (d)     Redundant Capital identified prior to the commencement of that
                Access Arrangement Period, …
Because section 8.9 does not refer to the Capital Base being increased to
reflect actual inflation, it has been suggested that section 8.9 only permits an
historical approach to be used.
The provisions of section 8.9 quoted above only apply, however, to the Cost
of Service methodology (different rules apply for the IRR or NPV
methodologies).
Section 8.5 of the Code provides:
        ‘Other methodologies [ie. other than cost of service, IRR or NPV] may be
        used provided the resulting Total Revenue can be expressed in terms of one
        of the methodologies described above.’
It is strongly arguable that the real approach is in fact a different
methodology to the Cost of Service methodology (but one which will
generate Total Revenue which can be expressed in terms of the Cost of
Service methodology and hence satisfy section 8.5). The preamble to
section 8 of the Code states amongst other things:
        In addition, other methodologies that can be translated into one of these
        forms are acceptable (such as a method that provides a real rate of return on
        an inflation-indexed capital base).
This clearly suggests the real approach is intended to be an ‘other’
methodology (see section 10.5 of the Code). If the real approach is
categorised as a different methodology to the cost of service methodology,
then the requirements in section 8.9 quoted above do not apply to the real
approach and an alternative method of determining the opening Capital Base
needs to be used. For example, in its final decision on the Transmission
Pipelines Australia Access Arrangement the Australian Competition and
Consumer Commission (ACCC) said at page 26:
        therefore in order for the methodology proposed by TPA to be consistent
        with the requirements of the Victorian Access Code, the appropriate
        formula for determining the capital base at the commencement of the next
        access arrangement period is: Capital Base = Initial Capital Base (Indexed) –
        Depreciation (Indexed) + New Facilities Investment (Indexed) – Redundant
        Capital.


                                                                                 Page 53
     NGPAC has received legal advice that on this basis the requirements of
     section 8.9 are not incompatible with the use of the real approach.
     A second section of the Code which ORG and NCPAC report some industry
     participants regarded as potentially inconsistent with the real approach is
     section 8.33 which provides relevantly:
             The Depreciation Schedule should be designed:
             …
             (e)     subject to section 8.27, so that an asset is depreciated once only
                     (that is, so that the sum of the Depreciation that is attributable to
                     any asset or group of assets over the life of those assets is equivalent
                     to the value of that asset or group of assets at the time at which the
                     value of that asset or group of assets was first included in the
                     Capital Base).
     If the real approach is adopted, then the sum of the depreciation over the life
     of the asset concerned will exceed the nominal value of the asset at the time it
     was first included in the Capital Base. It could be argued therefore that the
     sum of the depreciation attributable to that asset exceeds and is not
     ‘equivalent’ to the value of the asset at the time it was first included in the
     Capital Base as required by section 8.33(e). It should be remembered
     however that the sum of the depreciation received will be ‘equivalent’ to the
     value of the asset at the time it first entered the Capital Base if the
     depreciation received is discounted to reflect the effects of inflation on the
     depreciation stream of income. It is strongly arguable therefore that the sum
     of the depreciation over the life of the assets is ‘equivalent’ to the value of the
     asset at the time it first entered the Capital Base.
     Again, this was the view taken by the ACCC in its final decision on the
     Victorian Transmission Pipelines Access Arrangement (October 1998). The
     ACCC said at page 46:
             Since depreciation costs are linked to an inflation index in the [real]
             approach, the sum of the depreciation costs will not equate to the initial
             value of the assets when they were first introduced to the Capital Base.
             The Commission would argue that the key word in the qualification is
             ‘equivalent’ since it is necessary to inflate the depreciation to achieve the
             same overall return as would be achieved using an equivalent non-index
             accounting framework (for example, a nominal rate of return in
             combination with valuations and depreciation based on historical costs).
4.   Recommendation
     NGPAC has received legal advice that the better view is that the Code does
     permit a real approach to be used in determining Total Revenue. In practice
     the ORG, the ACCC and IPART have permitted the real approach to be
     used.
     The position is, however, not entirely free from doubt and arguments to the
     contrary could be made, in particular relying on sections 8.9 and 8.33. In
     practice a number of users of the Code have apparently understood the Code
     to mean that only the historical approach is permitted.



                                                                                         Page 54
In NGPAC’s view, the intention underlying the Code was clearly to permit
the real approach. While the real approach may already be permitted,
NGPAC recommends the Code be amended to clarify that, in determining
Total Revenue, all costs, revenue or other inputs may be expressed either in
nominal terms, or in real terms, provided that consistency is maintained in
the chosen approach and the approach is clearly identified.
NGPAC recommends a new Section 8.5A be inserted as follows:
       8.5A    Any of the methodologies described in section 8.4 or permitted
               under section 8.5, may be applied:
               (a)      on a nominal basis (under which the
                        Capital Base and Depreciation are
                        expressed in historical cost terms and
                        all other costs and revenues are
                        expressed in current prices and a
                        nominal Rate of Return is allowed); or
               (b)      on a real basis (under which the Capital
                        Base, Depreciation and all costs and
                        revenues are expressed in constant
                        prices and a real Rate of Return is
                        allowed); or
               (c)      on any other basis in dealing with the
                        effects of inflation,
provided that the basis used is specified in the Access Arrangement, is
approved by the Relevant Regulator and is applied consistently in
determining the Total Revenue and Reference Tariffs.
Section 8.9 would be amended by adding at the end of the section:
       subject, irrespective of which methodology is applied, to such adjustment
       for inflation (if any) as is appropriate given the approach to inflation
       adopted pursuant to section 8.5A.
Section 8.33(d) would be amended by inserting at the end of
sub-paragraph (d) the words:
       , subject to such adjustment for inflation (if any) as is appropriate given the
       approach to inflation adopted pursuant to section 8.5A.




                                                                                  Page 55
RECOMMENDATION C: Disclosure Of End User Information
1.    Current Position
1.1   Overview
      The Code requires a Service Provider to keep confidential certain
      ‘Confidential Information’ about a User or prospective User of a pipeline
      covered by the Code. For example, if a Service Provider is approached by a
      prospective User (say, a new gas retailer) seeking access, the Service Provider
      must keep that fact confidential and not pass any information about its
      negotiations on to the Service Provider’s associate retailer (who might then
      target the customers sought by the new retailer). This is a useful
      requirement for introducing competition.
      A view has been expressed, however, that because Confidential Information
      is defined so broadly the Code would prevent a Service Provider disclosing
      information about a User’s customers (an End User) to a new
      retailer/prospective User even if requested to do so by the End User. The
      reasons for this view are summarised below.
1.2   End User information is ‘Confidential Information’
      Confidential Information is defined in section 10.8 of the Code relevantly as:
             Confidential Information means information that is by its nature
             confidential or is known by the other party to be confidential and includes:
             …
             (d)     any information in the party’s possession relating to the other
                     party’s clients or suppliers and like information.
      Information in the possession of a Service Provider relating to an End User
      (for example, information about the End User’s gas usage or usage patterns,
      ie: their ‘load characteristics’) (End User Information) would usually satisfy
      paragraph (d) and be ‘Confidential Information’ as defined.
1.3   Service Provider’s obligations with respect to Confidential Information
      (a)    Confidential Information provided by a User - Section 4.1(f)
             Section 4.1(f) of the Code provides relevantly:
                     ‘A person who is a Service Provider in respect of a Covered
                     Pipeline … must:
                     …
                     (f)     ensure that all Confidential Information provided by a
                             User or Prospective User is used only for the purpose for
                             which that information was provided and that such
                             information is not disclosed to any other person without
                             the approval of the User or Prospective User who provided
                             it [subject to certain exceptions];’ (emphasis added)
             In most cases, End User Information would not be ‘provided by a
             User or a Prospective User’ but rather would be known to the Service


                                                                                       Page 56
      Provider as a result of managing its pipeline. Where this is the case,
      Section 4.1(f) would not apply so as to prevent a Service Provider
      disclosing End User Information to a new retailer/prospective User
      as requested by an End User.
(b)   Confidential Information otherwise obtained by a Service
      Provider - Section 4.1(g)
      Section 4.1(g) of the Code provides relevantly:
             ‘A person who is a Service Provider in respect of a Covered
             Pipeline … must:
             …
             (g)     ensure that all Confidential Information obtained by the
                     Service Provider or by its servants, consultants,
                     independent contractors or agents in the course of
                     conducting its business and which might reasonably be
                     expected to affect materially the commercial interests of a
                     User or Prospective User is not disclosed to any other
                     person without the approval of the User or Prospective
                     User to whom that information pertains [subject to certain
                     exceptions not relevant here];’ (emphasis added)
      In many situations, a Service Provider would obtain End User
      Information ‘in the course of conducting its business’. Such
      information therefore cannot be disclosed by the Service Provider,
      without the User’s or prospective User's consent, if that information
      would ‘materially affect the commercial interests of [the] User or
      Prospective User’. For example, a User’s commercial interests may
      be materially affected if the Service Provider discloses information
      about the User’s customers' load characteristics to a competitor of the
      User and the competitor is thus able to structure an offer to win the
      business of the End User.
      In practice, a court may be reluctant to find that a User’s commercial
      interests are materially affected solely because the disclosure of
      information about an End User, with the consent of that End User,
      might expose the User to competition for the business of the End
      User from a rival retailer. However, the literal words of
      section 4.1(g) do appear to have the potential to prevent a Service
      Provider disclosing information about End Users to competitors of
      the incumbent User, even with the End User's consent, where doing
      so may assist a competitor of the User and thereby harm the interests
      of the User.




                                                                            Page 57
1.4   Conclusion
      The definition of Confidential Information and section 4.1(g) could in some
      circumstances prevent a Service Provider disclosing information about an
      End User’s load characteristics to a person other than the current User (for
      example, to a rival retailer) without the User’s consent, even if the End User
      concerned has consented to the disclosure.
2.    Issue
      If an End User wishes to switch from one gas retailer to another, the End
      User may need to provide the new retailer with information about its load
      characteristics. This information would be in the possession of the Service
      Provider. If the End User requests a Service Provider to disclose such End
      User Information to the prospective new retailer, a Service Provider may be
      reluctant to do so for fear of the existing User/incumbent retailer accusing it
      of breaching section 4.1(g) for the reasons outlined above. Section 4.1(g)
      could therefore inhibit the development of retail competition contrary to the
      objectives of the Code.
      As a consequence, NGPAC recommends the Code be amended to make it
      clear that a Service Provider may, at the request of an End User, disclose End
      User Information that the Service Provider has generated. The obligation
      would not extend to information about End Users provided to a Service
      Provider by a User, nor would it extend to require disclosure to persons other
      than the End User or persons who carry on, or propose to carry on, the
      business of supplying Natural Gas (see below).
3.    Discussion
      There are circumstances in which a Service Provider may not wish to
      voluntarily disclose End User Information (for example, because an associate
      of the Service Provider is the existing User/incumbent retailer concerned or
      the Service Provider is concerned that disclosing information will result in a
      breach of a confidentiality obligation either under the Code or at common
      law).
      As a consequence, NGPAC is considering recommending the Code also be
      amended to place an obligation on Service Providers to disclose End User
      Information at the request of an End User. NGPAC is of the view that such
      a change would be significant and proposes to engage in public consultation
      prior to making any such recommendation.
4.    Recommendation
      NGPAC recommends a new section 4.1A be added to the Code reading:
              4.1A   If requested to do so in writing by an End User, a Service Provider
                     may disclose End User Information about that End User to the
                     End User or to any other person or persons nominated by the End
                     User who carry on, or propose to carry on, a business of supplying
                     Natural Gas, notwithstanding and without contravening either
                     section 4.1(f) or 4.1(g).
      Definitions of End User and End User Information would then need to be
      added as follows:


                                                                                    Page 58
End User means:
(a)     a person who acquires or proposes to acquire Natural Gas from a
        User; or
(b)     a person who proposes to acquire Natural Gas from a Prospective
        User.
End User Information means, in relation to an End User, information
obtained by a Service Provider or by its servants, consultants, independent
contractors or agents in the course of conducting its business that relates to
the actual Natural Gas usage and usage patterns of that End User, but does
not include any such information provided by a User or Prospective User to
the Service Provider.




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