Draft consultation letter by tyndale

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									         DEPARTMENT OF TRADE AND INDUSTRY



           OIL AND GAS INFRASTRUCTURE:
   GUIDANCE ON APPLICATIONS FOR RESOLUTION OF
        DISPUTES OVER THIRD PARTY ACCESS




Consultation Document on Proposals for Guidance on Use of
 Legal Powers to Settle Disputes over Third Party Access to
 Infrastructure (Petroleum Act (consolidating the Petroleum
and Submarine Pipe-lines Act 1975), Pipe-lines Act 1962 and
                        Gas Act 1995)

                      (URN 01/1465)


                      December 2001
GUIDANCE ON APPLICATIONS FOR RESOLUTION OF DISPUTES OVER
THIRD PARTY ACCESS TO OIL AND GAS INFRASTRUCTURE

           Consultation by Department of Trade and Industry



CONTENTS

Preface - Administrative details of consultation………………………………… 2

Executive Summary…………………………………………………………………4

Consultation on draft dispute settlement guidance………………………………6

The consultation criteria ………………………………………………….. Annex A

Summary of responses to February 2001 consultation on dispute settlement
guidance …………………………………………………………………… Annex B

Draft dispute settlement guidance……………………………………….. Annex C
GUIDANCE ON APPLICATIONS FOR RESOLUTION OF DISPUTES OVER
THIRD PARTY ACCESS TO OIL AND GAS INFRASTRUCTURE

            Consultation by Department of Trade and Industry



Preface - Administrative details of consultation

You are invited to make comments on the issues and proposals in this
consultation paper. Specific questions are raised in the text, though you are
welcome to make comments on any other aspects.

Your response to this consultation exercise will be made publicly available in
whole or in part at the Department’s discretion. If you do not wish all or part of
your response (including your identify) to be made public, you must state in
your response which parts you wish us to keep confidential. Where
confidentiality is not requested, responses may be made available to any
enquirer, including enquirers outside the UK, or published by any means,
including on the internet.

The consultation criteria, which apply to all public consultations, are at Annex
A.

Responses should be sent, preferably by email, by 31 March 2002 to:

Infrastructure Consultation
Department of Trade and Industry
Room 243
1 Victoria Street
LONDON
SW1H 0ET

Fax: 020 7215 5231

Email: infrastructure.consultation@dti.gov.uk



Electronic copies of this consultation paper can be obtained from the DTI
website at http:www.dti.gov.uk

Requests for additional hard copies of this consultation paper should be
addressed to:

Keith Khoo
Oil and Gas Directorate
Telephone: 020 7215 5065
Fax: 020 7215 5231
email: keith.khoo@dti.gov.uk




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If you have any questions about this consultation or wish to discuss particular
points before responding, please contact:

Celia Frank
Oil and Gas Directorate
Telephone: 020 7215 5039
Fax: 020 7215 5231
email: celia.frank@dti.gov.uk

or

Valerie Haines
Oil and Gas Directorate
Telephone: 020 7215 5285
Fax: 020 7215 5231
email: valerie.haines@dti.gov.uk


If you have any questions about the tariff setting principles, please contact:

Tina Dallman
Oil and Gas Directorate
Telephone: 020 7215 5251
Fax: 020 7215 5228
email: tina.dallman@dti.gov.uk

or

Mike Earp
Oil and Gas Directorate
Telephone: 020 7215 5271
Fax: 020 7215 5228
email: mike.earp@dti.gov.uk




                                        3
GUIDANCE ON APPLICATIONS FOR RESOLUTION OF DISPUTES OVER
THIRD PARTY ACCESS TO OIL AND GAS INFRASTRUCTURE

            Consultation by Department of Trade and Industry

EXECUTIVE SUMMARY

1 An earlier consultation covering wider issues concerning access to
upstream oil and gas infrastructure (Oil and Gas in: Access Provisions and
Voluntary Arrangements, February 2001) sought industry views on proposed
principles the Department would apply if called on to exercise longstanding
dispute settlement powers. It also asked for views on handling the process.

2 The Department has analysed the reactions to the principles proposed for
tariff-setting and the views expressed on how the process should be handled,
including the timetable, information requirements on the parties and
publication of various levels of detail about the outcome, and has further
developed its thinking into draft guidance for parties in dispute.

3 The Department now seeks views on this draft guidance, in particular on:

   a) the underlying approach of encouraging maximum transparency,
      where this is possible and useful, both between the parties during
      the consideration of an application to settle a dispute and in publishing
      the outcome

      The Department proposes to encourage the parties, during
      consideration of an application, to agree as much as possible to narrow
      the focus of the dispute, and to help validate information. Having
      informed the parties of the Secretary of State’s decision, the
      Department proposes to publish immediately, on the DTI website and
      in the next Energy Trends, a determination with excisions, if required,
      setting out details of the disputed access including the parties and
      infrastructure involved, the nature of the access requested, the
      elements determined, e.g. tariffs set, volumes, period of access, and
      the Secretary of State’s reasoning;

   b) the detail of the process, in particular, the timetable

      The draft guidance sets out the stages in consideration of applications
      and timings of actions by the parties which would deliver a
      determination to the parties in 16 weeks, though some cases would
      take longer.

   c) the revisions to the proposals for tariff-setting principles

      The Department has concluded following the February 2001
      consultation that the broad principles were well-founded. This




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      consultation therefore seeks views only on the revisions to those
      principles.

4 You are invited to respond by 31 March 2002. Administrative details are in
the Preface.




                                      5
Introduction

1. The Department proposed publishing guidance on the basis on which
long-standing legal powers in the Petroleum Act 1998 and other legislation for
the Secretary of State to settle disputes over third party access to
infrastructure would be used, if requested, as part of the wider consultation on
third party access to infrastructure "Oil and Gas Infrastructure: Access
Provisions and Voluntary Arrangements" published in February 2001.

2. Chapter 4 of that consultation document invited views on:

    ● the proposed principles for the tariff-setting approach likely to be
      followed in certain broad cases, and

    ● the process for handling an application to the Secretary of State,
      including the timetable, information requirements on the parties and
      publication of various levels of detail about the outcome.

3. The issues raised by this part of the consultation are significant and
complex. Not surprisingly, therefore, a wide range of views was received.
During and after the consultation, officials also met a number of companies
and trade associations to explore their views. The responses are summarized
in the note summarising the responses to the consultation together with the
Department’s conclusions attached at Annex B. Views ranged from strong
support for the proposed guidance to strong opposition to the content of the
guidance (as harmful or too prescriptive) and to publication of any guidance.
Downstream market participants advocated regulated access.

4. Having considered the responses, the Department has concluded that:

   the tariff setting principles are appropriate, subject to limited revision
    We believe the original principles are broadly appropriate because we
    judge the expected benefits of removing a disincentive to exploration and
    inward investment outweigh concerns about the possible negative effect
    on infrastructure owners’ incentives to invest and maintain infrastructure
    and offer capacity to third parties. We have made some limited revisions to
    indicate better the Department’s intentions and to cover an additional
    broad case - changing case headings, the treatment of capacity in
    oversized lines and adding guidance for the case where there is current
    competition for limited capacity;

   further consultation was needed on how any applications would be
    handled. A minority opposed publication of any guidance, whether on
    principles or process. However, there was considerable interest from many
    respondents in the existence of and clarification of this process, including
    any interaction with the field development approval process and, in
    particular, of its timing, though a variety of opinions on detail. In view of
    this interest, as well as administrative efficiency, officials have developed
    fuller guidance on how the process would be structured and the
    Department’s general approach.



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5. This consultation document therefore seeks views on the attached
proposed Departmental guidance to parties in dispute (attached in
Annex C) by 31 March 2002. Administrative details in the Preface. The
proposed guidance covers both the process and principles the Department
would follow in considering applications under the dispute settlement
provisions.

6. The issues for consideration fall into the following areas:

   ● the Department’s underlying approach of encouraging maximum
     transparency, where this is possible and useful;

   ● the detail of the process: the stages in consideration of applications
     and timings of actions by the parties;

   ● the revisions to the proposals for tariff setting principles: the
     Department has concluded following the February 2001 consultation
     that the broad principles were well-founded. This consultation therefore
     seeks views only on the revisions to those principles.

The Department’s approach - an open and transparent process

7. In handling applications, and in publishing guidance, the Department
proposes to take an open approach, both in making clear to potential
applicants and owners of infrastructure the stages, roles, responsibilities etc in
the process of consideration of an application to the Secretary of State, and
that consideration of applications would also be as transparent as possible to
all the parties with a direct interest in the application.

8. The drivers and benefits of this approach include:

   ● the procedure is fair and transparent, removing uncertainty about the
     process of handling applications which may be a factor in deterring
     applications;

   ● applications are dealt with effectively and expeditiously, avoiding
     unnecessary expense;

   ● the parties to a dispute will be encouraged to agree between them the
     facts in order to ensure that the Secretary of State is properly informed
     and can focus on the request for determination rather than on
     validation of information presented.

9. The key features of the proposed open approach are that:

   ● the Department will:

       i) set out in detail in the guidance the type of information it expects to
          require to make a determination;

       ii) make clear in the guidance that the Department may draw on other
           information it may already have (respecting its confidentiality) in


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          considering an application e.g. information provided under the
          licence and field development approval requirements;

      iii) set out in the guidance a schedule/timetable for handling
           applications making clear the stages, identifying actions required by
           all parties (i.e. the applicant, the owner of the relevant infrastructure
           and the Department) and the target time for those actions;

      iv) encourage the parties to a dispute to agree as much as possible to
          narrow the scope of the application, and to share with each other
          information provided to the Department to inform its consideration
          of the application; encourage both parties to be present at meetings
          with officials which form part of the consideration of the application;

      v) publish those elements of the outcome of an appeal which would
         contribute to the better understanding of the process of appeals and
         to competition on the UKCS, subject to the consent of the relevant
         parties.

10. While the Secretary of State is legally bound not to disclose information
provided as part of the process, without the consent of the relevant party, the
Department strongly encourages companies to consider carefully whether and
to what extent they would need to exercise that right for all information.

Points for consultation

11. You are invited to comment on this approach, and on the following
questions.

Transparency in publication of outcomes and consideration of an application

12. The February consultation document stated that information provided to
the Secretary of State in considering an application would be treated as
confidential, as would the detail of individual determinations. The document
asked about the level of detail it would be helpful and appropriate to release
about the outcome of an application to settle a dispute.

13. There was some concern from respondents that information provided as
part of the process should not be published. However, more of those who
commented on this issue wanted to understand better the process (in
particular the time taken) and principles, and favoured publication of
outcomes (infrastructure involved and access arrangements determined, in
similar format to that used for publication of indicative tariffs in the next
Energy Trends and the time taken to reach a decision.

14. The Department recognises the force of these arguments, while also
recognising the sensitivity of the issue and that it is bound by statutory
constraints on disclosing information provided as part of the determination
process without consent. However, having considered the issues and how the
process could work in more detail, in the light of responses, it considers that
there is advantage in voluntary disclosure:



                                        8
   ●   between the parties during the consideration of an application, to help
       to validate the information put before the Secretary of State and reduce
       the range of the information and issues in dispute; and

   ● in publication of the decision, with sufficient detail of the case and the
      Secretary of State's reasoning in reaching decisions on disputed
      access. There is public interest in improving public understanding of
      how the Department has approached and would be likely to approach
      determinations.

15. The Department will encourage the parties to consent to publication of the
relevant details, or to sufficient information to allow the decision and
reasoning to be understood by others. Where consent is not given or is
limited, the Department proposes to publish a notice of the determination with
appropriate excisions, after notification of the Secretary of State's decision to
the parties:

   ● what? - a determination with excisions, if required, setting out details of
     the disputed access including the parties and infrastructure involved,
     the nature of the access requested, the elements determined, e.g.
     tariffs set, volumes, period of access, and the Secretary of State’s
     reasoning

   ● when? - immediately after the parties have been notified

   ● where? - on the DTI website and in the next Energy Trends

16. You are invited to comment.

Commercial Sensitivities

17. The Department recognises that the burden of information provision during
consideration of an application and also perhaps the level of sensitivity of that
information is likely to be greater in the case of the owner of the infrastructure.
While eager to ensure that the process of considering an application is as
open and transparent to all parties as possible, the Department does not wish
to compromise the quality of information available to the Secretary of State
when considering a dispute because of commercial sensitivities over specific
information, nor to discourage applications that would otherwise have been
made.

18. Q What types of information required as part of the dispute
settlement process would be sensitive for your company (when in the
position of applicant or owner), and why? (See Annexes 3 and 4 of the
accompanying draft guidance for the requirements.) For both this and the next
question, please comment in relation both to sharing of information during the
process of an application and publication of the Secretary of State’s decision.

19. Q Is this likely to be a significant problem and, if so, why?




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Timetable

20. The February 2001 consultation document asked about the length of time
taken for commercial third party access negotiations, to get a feel for the
constraints within which the Department should try to work to avoid excessive
delay to field development. Responses ranged from several months to a few
years, with the conclusion of contracts sometimes a few days before start of
production. The impression was that negotiations tended to fill the time
available for various other reasons, and that developers would not be
prepared to sign contracts until all the pieces were in place.

21. While the legislation provides for the timing of certain events in relation to
action by the parties in a dispute, it is silent on the length of time taken by the
Secretary of State to reach a decision. The underlying assumption is that the
Secretary of State would behave in a way that was reasonable in the
circumstances. The Department recognises that uncertainty over the likely
timetable could be a factor in deterring applications to the Secretary of State.
Responses to the earlier consultation indicated that an understanding of the
process of handling applications, including the length of time which the
Secretary of State might need to make a determination, would be welcomed
by the industry. While there was some concern that an application to the
Secretary of State would be an additional stage that would cause a delay to
the development of a field, other respondents recognised that complete
consideration rather than a speedy response was the right approach.
Respondents who were new entrants considered speed to be an important
aspect of their business approach and would look for a decision in a matter of
weeks.

22. The Department has therefore included in the proposed guidance a
timetable of events, some set by statute, to deliver a determination to the
parties. The Department will wish to agree a timetable with the applicant and
the infrastructure owner, although without a track record of handling
applications, it is difficult to be sure how long this would take. The Department
will deal promptly and properly with all applications and hopes to complete
this process within 16 weeks. Achievement of any timetable depends heavily
on the ability of companies to respond in the proposed timeframe and the co-
operation of all those involved. The Department recognises the potential for
particularly complex cases to take longer. It would expect such cases to be
exceptional, and would discuss and agree a revised timetable with the parties
at the outset.

23. Q What are your views on the proposed schedule, and any possible
improvements?

   ● Does the proposed schedule of events cover all the milestones of
     interest to the parties to a dispute? Are there others which should
     be included?

   ● Do you think the proposals give the Department enough time to
     fully consider a case? If you consider the Department should be



                                        10
       able to respond more quickly, what do you think should be done
       differently?

   ● Do parties expect to be able to respond adequately to written
     requests and to proposals for meetings in the time proposed?

General

24. The Department expects that the majority of contact with the parties to an
application i.e. in requesting information and setting up meetings, will be by
email and telephone, supported by hard copies, in the interests of speed and
efficiency.

25. Q Do you see any difficulties in this approach in responding, and in
ensuring communications are received and acted on?

26. Where infrastructure or a third party development is owned jointly by
several parties, the Department would encourage the parties to appoint a lead
contact, for practical reasons. Such an arrangement would not amount to
endorsement of whatever capacity selling arrangements have been agreed
(which would, separately, have to meet the requirements of competition law).

Revisions to tariff-setting principles

27. The February 2001 consultation document proposed some high level
principles for setting tariffs in a dispute. There was a wide range of views from
respondents. Many were supportive of the need for guidelines. Views ranged
from strong support for the proposed guidance to strong opposition to the
content of the guidance (because it was seen as too prescriptive or even
harmful) and to publication of any guidance. Owners were clearly concerned
that DTI's proposals would be to their detriment while potential users were
generally content with the idea that in future negotiations agreed tariffs might
be lower as a result of the "threat" of seeking resolution of a dispute by
recourse to the Secretary of State. Respondents representing downstream
interests tended to argue for regulated access and therefore made no detailed
comment on the proposed guidance.

28. As explained in paragraph 4 above, in broad terms the Department has
not changed its views on the high level principles proposed in February, but
has made some revisions (shaded in the draft guidance), in the light of
responses and to further clarify the proposals. The attached draft guidance
includes revised tariff-setting principles in paragraphs 33-39. The main
changes (to paragraph 38) are:

   ● the heading “Tariffs for pipelines built as part of an integrated field
     development project” is now used instead of “Tariffs based on
     incremental cost” to illustrate which type of pipeline the principle
     applies to, for this principle it is now acknowledged that recovery of
     capital costs includes a reasonable return, taking into account the costs
     incurred;




                                         11
   ● the second principle now relates to “Tariffs for infrastructure built or
     oversized with a view to taking third party business” instead of “Tariffs
     set to ensure capital cost recovery” because the Department cannot
     ensure capital cost recovery, for example, in the case where third party
     business has been substantially lower than expected;

   ● the same principle has been expanded to indicate that, in general,
     reasonable returns may be earned over the period that third party
     business was anticipated when the pipeline was built;

   ● an additional bullet point has been added relating to “Tariffs where
     there is competition for limited capacity” to indicate that a market value
     may prevail where there are two or more bidders for limited capacity in
     infrastructure;

   ● the next principle which covers a “Tariff set to cover costs of
     displacement of own production or contractual commitments” has been
     modified to indicate that an infrastructure owner would require a tariff
     “at least” equal to the cost of backing off their production and adds that
     this also applies to costs of backing off another party’s contracted
     usage;

   ● in addition, the importance of innovation in transportation and
     processing services is recognised and the Department is prepared to
     consider costs associated with the development of new services of
     benefit to infrastructure users.

29. You are invited to comment.

Department of Trade and Industry
December 2001




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                                                                     ANNEX A
THE CONSULTATION CRITERIA

The following criteria on consultations are taken from the Cabinet Office Code
of Practice on written consultations.

1. Timing of consultation should be built into the planning process for a policy
   (including legislation) or service from the start, so that it has the best
   prospect of improving the proposals concerned, and so that sufficient time
   is left for it at each stage.

2. It should be clear who is being consulted, about what questions, in what
   timescale and for what purpose.

3. A consultation document should be as simple and concise as possible. It
   should include a summary, in two pages at most, of the main questions it
   seeks views on. It should make it as easy as possible for readers to
   respond, make contact or complain.

4. Documents should be made widely available, with the fullest use of
   electronic means (though not to the exclusion of others) and effectively
   drawn to the attention of all interested groups and individuals.

5. Sufficient time should be allowed for considered responses from all groups
   with an interest. Twelve weeks should be the standard minimum period for
   a consultation.

6. Responses should be carefully and open-mindedly analysed, and the
   results made widely available, with an account of the views expressed,
   and the reasons for decisions finally taken.

7. Departments should monitor and evaluate consultations, designating a
   consultation co-ordinator who will ensure the lessons are disseminated.



We confirm that we have complied with this Code in preparing this
consultation. The complete Code is available on the Cabinet Office’s web site,
address:

        www.cabinet-office.gov.uk/servicefirst/index/consultation.htm.

The Department’s consultation co-ordinator is:

Andrew Dobbie                            Telephone: 020 7215 6509
Central Directorate                      email: andrew.dobbie@dti.gov.uk
Department of Trade and Industry
1 Victoria Street
LONDON SW1H 0ET

								
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