Application Martin No: gr9902 Jones Contents

Clause 9 Creditworthiness requirements

Origin submitted that to satisfy the creditworthiness criteria a prospective user should be able to demonstrate that it is able to:

1. 
   pay all charges which will be levied on it; and
   
2. 
   meet any liability it may incur to Epic under the agreement.²⁵⁷
   

Origin also noted that:

• 
  pursuant to (b) above, all users should be required to take out $100 million of general liability insurance as a precondition to obtaining service; this is necessary to prevent all users suffering loss arising from damage caused by a user to the pipeline;²⁵⁸
  
• 
  Epic should also be required to obtain $100 million of general liability insurance, to protect users from costs arising from damage to the pipeline from Epic’s default, a user’s default or from force majeure.²⁵⁹
  

In response to Origin’s submissions, Epic submitted that it proposes to add a new section into the access arrangement dealing with insurance.²⁶⁰ No such provision appears in Epic’s access arrangement of 29 June 2001.

Commission’s considerations

The Commission takes the view that the service provider, users and prospective users should have adequate insurance cover. The operation of the pipeline system could be jeopardised if one party did not have adequate insurance and damage occurred to the pipeline system.

Epic indicated that it would be agreeable to incorporating a requirement for insurance, but suggested that this should be provided, at the service provider’s discretion, as part of the creditworthiness requirements so as to avoid any unnecessary costs being incurred by a user.²⁶¹ The Commission largely accepts this reasoning and requires Epic to make changes to this effect in amendment FDA3.5.

Amendment FDA3.

For the access arrangement to be approved, the Commission requires that Epic insert a provision into the access arrangement to provide that the service provider may, at its discretion, require a user to demonstrate that it has adequate insurance.

Origin suggested that Epic should be required to obtain sufficient insurance to cover potential damage to the pipeline system.²⁶² In its response to Origin’s submission, Epic indicated that it would add a section into the access arrangement dealing with insurance.²⁶³ Epic has inserted no such provision in the access arrangement. Epic indicated that the terms of its pipeline licence require it to insure against certain risks, and it is unreasonable for Epic to be required to effect insurance against any other risks than are required by virtue of the pipeline licence.²⁶⁴

The Commission agrees that it is sufficient that Epic complies with the insurance requirements of its pipeline licence.

Following the release of the Commission’s Draft Decision, Epic indicated that it would comply with proposed amendment A3.9, which provided:

For the access arrangement to be approved, the Commission requires that clauses 9.1 and 9.2 be modified so that:

• 
  they read as proposed by Epic in its letter dated 15 June 2000 to the Commission, as follows:
  

9.1 The Service Provider will not be required to commence the Specified Service for a Prospective User or to continue to provide the Specified Service to the User if the Prospective User/User is not able to satisfy the Service Provider of the ability of the Prospective User/User to fulfil its obligations under the Agreement.

9.2 If the Service Provider is not satisfied that the Prospective User/User will fulfil its obligations or continue to fulfil its obligations under the Agreement, the Service Provider may require, and the Prospective User/User will provide, security for those obligations to the Service Provider’s reasonable satisfaction.

• 
  they are cross-referenced to Schedule 2, Form 3, of the access arrangement so as to clearly indicate the credit and financial information that the service provider can reasonably request of the user or prospective user.
  

However, clauses 9.1 and 9.2 as amended by Epic in its revised access arrangement differ from proposed amendment A3.9 in several respects. Firstly, clause 9.1 of the access arrangement reads ‘a Service’, rather than ‘the Specified Service’. The practical effect of this is that the creditworthiness requirements extend to all services offered by Epic. The Commission considers that since Epic is likely to provide all services on credit, it is reasonable for Epic to extend the creditworthiness obligations accordingly.

Secondly, clause 9.1 and 9.2 read ‘contractual obligations’, rather than ‘its obligations under the Agreement’. The effect of these is that the creditworthiness requirements extend to all the terms of a contract entered into between Epic and users. The Commission considers that this is not a significant change.

Thirdly, users and prospective users must provide to Epic the information set out in Form 3 of Schedule 5 whenever reasonably requested by the service provider. The Commission considers that, since the information must be reasonably requested, this provision is acceptable.

Clause 11 Commencement, term and extension

Energy South Australia commented that clause 11.3(b) needs to be brought to the attention of users and prospective users.²⁶⁵ Energy South Australia suggested that the right to extend the term of service under clause 11.3(b) would be exercised by some users but not by others.²⁶⁶

AGL submitted that a two-year term is unlikely to match customer requirements, and that a one-year term should be preferred.²⁶⁷ AGL also submitted in respect of clause 11.3(a) that a one-year extension would be preferable.²⁶⁸

AGLES&M submitted that clause 11.3 is not unreasonable. AGLES&M felt that the minimum two-year term for agreement is an improvement over the seven-year term in the original access arrangement, but may still be overly restrictive in future wholesale gas markets.²⁶⁹

NRG Flinders submitted that there should be no automatic rollover or extension of contracts, and that new agreements should be negotiated at or before the termination of existing agreements.²⁷⁰

TGT accepted that the Commission’s proposed amendment A3.10 met its concerns.²⁷¹