Application Martin No: gr9902 Jones Contents

Variations to service

The Commission’s view is that the wording of clause 6.7(b)(i) is similar to the test prescribed by section 3.10 of the Code. However, the meaning of ‘prudent’ is significantly different to that of ‘reasonable’. If ‘prudent’ were accepted, Epic could refuse to vary a service for reasons relating only to Epic’s profitability and commercial interests, whereas ‘reasonable’ would require a more global consideration that also takes into account the interests of users and possibly other relevant interests.

The Commission would also prefer the word ‘commercial’ to be used in clause 6.7(b)(i) in place of ‘economic’. The Commission is concerned that Epic could interpret the term ‘economic’ to have a meaning such as ‘avoiding waste or extravagance’ when deciding whether or not to vary a service. Epic might refuse to vary a service on the grounds that it would incur higher costs in doing so, even if Epic would also earn higher revenues.

The Commission considers that for Epic to refuse to vary a service on the grounds that it would not be commercially reasonable to do so, it would need to consider a wider range of factors than merely saving costs; it might also consider potential revenues, future business opportunities, and the longer term viability of maintaining services.

The Commission considers that the wording of the Code in relation to this issue is preferable to the wording suggested by Epic in its access arrangement. Epic has indicated that it would be agreeable to the proposed amendment.²³⁸

Accordingly, the Commission requires, in amendment FDA3.3, that the words ‘economically or technically prudent’ in clause 6.7(b)(i) be changed to ‘commercially or technically reasonable’, to more closely reflect the wording of section 3.10 of the Code as well as commercial practice in the industry.

Amendment FDA3.

For the access arrangement to be approved, the Commission requires that clause 6.7(b)(i) of the access arrangement be amended to read:

it would not be technically or commercially reasonable for it to do so;

in order for clause 6.7(b)(i) to reflect the wording of section 3.10 of the Code.

Back haul and part haul services

Section 2.24 of the Code provides that:

The Relevant Regulator must not refuse to approve an Access Arrangement solely for the reason that the proposed Access Arrangement does not address a matter that sections 3.1 to 3.20 do not require an Access Arrangement to address.

Section 3.3 of the Code provides:

An Access Arrangement must include a Reference Tariff for:

(a) at least one Service that is likely to be sought by a significant part of the market; and

(b) each Service that is likely to be sought by a significant part of the market and for which the Relevant Regulator considers a Reference Tariff should be included.

The combined effect of these sections is that the Commission can not require the service provider to include a reference tariff for any service that is not ‘likely to be sought by a significant part of the market’.

In determining whether a ‘significant’ part of the market is likely to seek the service it would be inappropriate to have regard only to numbers or percentages; even if one person is likely to seek a service, it is appropriate to examine whether that person is (or could be) a significant player in the market.

‘Likely’ means at its lowest that there is a ‘real chance or possibility’ that something will occur, and at its highest that it is ‘more probable than not’ that an event will occur.²³⁹

In the light of these judicial interpretations, it is the Commission’s view that a significant part of the market is likely to seek back haul service only in the event that an alternative source of gas becomes available via a pipeline that links into the bottom of the MAPS. The Commission is unable to ascribe a level of probability to such a development eventuating. The Commission notes that numerous interested parties have submitted that a back haul tariff should be included. The Commission also notes that Epic has declined to offer a back haul tariff at this stage, and remains opposed to its inclusion in the access arrangement.²⁴⁰ However, the Commission takes the view that it is not clear that the tests of 2.24 and 3.3 are satisfied at this time, and is therefore unable to compel Epic to include a back haul reference service in the access arrangement.

With regard to part haul services, the Commission notes that numerous interested parties have submitted that a part haul tariff should be included in the access arrangement. The Commission particularly notes the submission by DIT listing numerous projects for the Upper Spencer Gulf region that may create significant demand for part haul services. The Commission also notes that Epic has declined to offer a part haul tariff at this stage, and remains opposed to its inclusion in the access arrangement.²⁴¹ However, it remains unclear at this stage whether, pursuant to sections 2.24 and 3.3 of the Code, a significant part of the market is likely to seek a part haul service. Accordingly, the Commission does not consider that it is able to compel Epic to include part haul service at this time.

In relation to the issue of a trigger mechanism, the Commission accepts the weight of submissions that a trigger mechanism in this circumstance is not especially helpful to access seekers. Accordingly, the Commission does not require Epic to include a trigger mechanism in the access arrangement. However, the evidence and requirements for these services will be reviewed at the time of the scheduled review of the access arrangement.

The Commission requested Epic to include a statement of pricing principles in the access arrangement to guide users in negotiating with Epic for back haul or part haul services under clause 4.1(b) of the access arrangement. However, Epic declined to include pricing principles and under the Code the Commission does not consider that it can compel Epic to include such principles at this time.

The Commission gave serious consideration to Potential Energy’s submission that a description of the back haul and part haul services offered by Epic should be included. The Commission considers that section 3.2(a)(ii) of the Code could permit it to require such a description to be included in the access arrangement. However, it is not clear that such a description would significantly assist access seekers at this time. It is also not clear how such a description would interact with a potential arbitration process that might be invoked should a potential user not be able to obtain these services on reasonable terms and conditions.

On the balance of evidence available at this time, the Commission considers that it may not compel Epic to include part haul and back haul services as reference services at this time.