Australian Competition And Consumer Commission Gas Inquiry

30 July, 2015

 

In brief

On 8 April 2015, the Minister for Small Business, Bruce Billson, issued a notice requiring the Australian Competition and Consumer Commission (ACCC) to commence a public inquiry into the competitiveness of wholesale gas prices and the structure of the upstream, processing, transportation, storage and marketing segments of the gas industry (the Gas Inquiry). The scope of the Gas Inquiry includes but is not limited to Victoria, New South Wales, the Australian Capital Territory, South Australia, Queensland and Tasmania.

The ACCC is required to submit a final report to the Government by April 2016. 

Background – price inquiries

The ACCC has broad prices surveillance powers under Part VIIA of the Competition and Consumer Act 2010 (Cth) (CCA) to conduct price inquiries, declare goods or services to be subject to the price notifications regime, or conduct price monitoring. Part VIIA is directed at markets where competitive pressures are not sufficient to achieve efficient prices and protect consumers. The ACCC has previously held inquiries into the price of unleaded petrol in 2007 (Petrol Inquiry) and the competitiveness of retail prices of standard groceries in 2008 (Groceries Inquiry). 

Scope of the Gas Inquiry

The Gas Inquiry will consider the state of competition and whether Australia’s eastern gas market is operating effectively, with all upstream and marketing activities in focus. The Minister emphasised that gas market participants have complained about a lack of transparency in the gas market and the information asymmetry facing those trying to secure gas.¹

Pursuant to the notice issued by the Minister, the matters that the ACCC must take into consideration in the Gas Inquiry include:

• the availability and competitiveness of offers to supply gas and the competitiveness and transparency of gas prices,
• the competitiveness of, access to, and any restrictions on market structures for gas production, gas processing and gas transportation,
• the significance of barriers to entry into the upstream production sector,
• the existence of, or potential for, anti-competitive behaviour and the impact of such behaviour on purchasers of gas, and
• transaction costs, information transparency including gas supply contractual terms and conditions, and other factors influencing the competitiveness of the markets.

As specified in the notice, the Gas Inquiry will not consider competition in gas retail markets.

On 4 June 2015, the ACCC published an issues paper on matters relevant to the Gas Inquiry and called for submissions in response to the questions posed by the ACCC.²The ACCC stated that its key focus is to obtain a comprehensive understanding of the structure of the gas industry for the purpose of:

• making factual findings and recommendations; and 
• assessing the state of competition in the wholesale supply of gas (including associated services such as processing, transportation and storage).³

The ACCC’s competition assessment will focus predominantly on whether:

• there are any features of the gas industry in Eastern Australia that limit competition between suppliers of gas or providers of associated services,
• there is, or has been, any specific behaviour by gas industry participants in Eastern Australia that either restricts competitive access to supply of gas or provision of associated services or involves the exercise of market power.⁴

As outlined in the issues paper, the areas for inquiry are:

(a) Gas exploration, production and supply:

1. Changes affecting the domestic gas industry,
2. Access to new gas resources,
3. Access to processing facilities,
4. Negotiation of new gas supply agreements,
5. Rising domestic gas prices,
6. Changes in non-price terms and conditions of gas supply agreements,
7. Availability of information and trading liquidity, and
8. Joint marketing.

(b) Gas transportation and storage:

1. Ownership and regulation of transmission pipelines,
2. Pipeline services,
3. Terms and conditions in gas transportation agreements,
4. Pipeline capacity trading,
5. The role of storage, and
6. Co-ordination requirements.

Inquiry procedure

The Gas Inquiry is a public inquiry. The ACCC has indicated that it intends to hold public hearings, which will enable the ACCC to hear directly from parties in relation to the issues being considered in the Gas Inquiry.⁵ The ACCC may also hold private hearings where the evidence to be given at those hearings is of a confidential nature.

The ACCC can receive evidence and submissions in the Gas Inquiry in a number of ways:

• written submissions: the ACCC may permit or require a person to make a written submission. The ACCC indicated that it will seek the views of interested parties by way of written submissions and hearings throughout the inquiry,⁶
• oral evidence: the ACCC has indicated that all parties providing information orally at public or private hearings will be required to do so under oath or affirmation,⁷
• written statements: the ACCC may permit a person to give evidence in a written statement, verified by oath or affirmation,
• evidence on summons: under section 95S of the CCA, the Inquiry Chair may summon a person to appear at an inquiry to give evidence and produce such documents as are specified in the summons,
• mandatory documents and information: under section 95ZK, the ACCC may, by notice, require a person to give specified information and/or produce documents relevant to a supply of goods or services by the person that is of a kind relevant to the Gas Inquiry. The ACCC has stated that it will use this power to overcome confidentiality restrictions on critical information about gas supply agreements and contractual negotiations.⁸ Parties should note that a failure or refusal to comply with the notice without a ‘reasonable excuse’ is an offence. 

During the Groceries and Petrol Inquiries, the information gathered as a result of issuing the notices formed the basis of the examination of witnesses at public and confidential hearings and, subject to confidentiality, was also discussed in each inquiry’s final report. It is likely that the ACCC will adopt a similar approach to gathering information for the purpose of the Gas Inquiry.

Endnotes

1. Joint media release of the Minister for Small Business and Minister for Industry and Science, ‘ACCC review of Eastern Australian wholesale gas market’ (Media Release, 13 April 2015).
2. ACCC, East Coast Gas Inquiry: Issues paper, 4 June 2015.
3. ACCC, East Coast Gas Inquiry: Issues paper, 4 June 2015, page 4.
4. ACCC, East Coast Gas Inquiry: Issues paper, 4 June 2015, pages 4 to 5.
5. ACCC, East Coast Gas Inquiry: Issues paper, 4 June 2015, page 7.
6. ACCC, East Coast Gas Inquiry: Issues paper, 4 June 2015, page 5.
7. ACCC, East Coast Gas Inquiry: Issues paper, 4 June 2015, page 7.
8. ACCC, East Coast Gas Inquiry: Issues paper, 4 June 2015, page 4.