Application Martin No: gr9902 Jones Contents

Commission’s considerations

In relation to AGL’s comments, the Commission considers that Epic’s amendments to clauses 13.3(a) and (b), which remove Epic’s discretion to make changes to clause 13.3, satisfying AGL’s concerns.

Clause 15 Gas quality

The OEP submitted that the South Australian Government will shortly introduce by legislation a gas quality specification, which has been agreed to nationally.³⁰⁸ The Office of Energy Policy supports the proposal that Epic be required to describe the steps that it will take to ensure that users are not adversely affected by the proposed change.³⁰⁹

Energy South Australia (Energy SA) submitted that the wording of clause 15.2 suggests that the service provider has a discretion as to whether it will adopt any uniform gas specification, when in fact no such discretion exists.³¹⁰ Energy SA further submitted that it recognises the need to provide for the acceptance of non-specification gas into the pipeline system if, following co-mingling, it conforms to the gas specification at each delivery point.³¹¹

Santos also expressed concern that Epic might not be obliged to accept the National Gas Specification under the terms of the access arrangement.³¹²

Origin submitted as follows:

• 
  the gas specification in Schedule 3 does not comply with the current Moomba gas specification. Accordingly, parties to the principal gas contracts providing for the delivery of gas from Moomba to Adelaide would not be able to have that gas delivered into the MAPS;
  
• 
  clause 15.2 allows Epic to change the gas specification set out in the access arrangement if uniform Gas Specifications for transmission pipelines are adopted. Were this to happen, users who obtain gas under contracts whose specifications do not comply with the uniform gas specification would not be able to deliver gas into the MAPS;
  
• 
  Epic should have a ‘reasonable endeavours’ obligation to manage non specification gas. In circumstances where all users are delivering non-specification gas into the MAPS, Epic should be obligated, if requested by all users, to accept delivery of that gas, unless to do so would damage the MAPS or downstream equipment;
  
• 
  the access arrangement should set out certain tolerances from the gas specification within which gas will still be accepted by Epic. This would prevent unreasonably frequent curtailments of the supply of gas to customers;
  
• 
  Epic’s liability arising from steps that it takes to deal with the entry of non-specification gas into the MAPS should be defined more narrowly than in clause 15.3(b)(v). Epic should not be released from liability where Epic performs any of the actions in clause 15.3(b)(i) to (iii) negligently, or where Epic has not complied with the procedures in clauses 15.3(b)(ii) and (iii). Where Epic vents or flares gas in circumstances where there were other means of dealing with non-specification gas, Epic should be required to pay for or supply replacement gas;
  
• 
  given that only Epic has equipment that can monitor the specifications of gas being delivered into the MAPS, Epic should be obligated to notify users immediately when non-specification gas is introduced into the MAPS. A user should not be liable to Epic for any loss that Epic would not have suffered had Epic complied with this obligation;
  
• 
  clause 15 should be expressly subject to the Gas Act (South Australia) (the Gas Act), and provide:
  

(a) that the user and Epic will comply with all orders given under the Gas Act;

(b) that neither party will incur any liability under the access arrangement in respect of any act or omission of that party in compliance with a direction under the Gas Act;

• 
  where Epic receives gas complying with the gas specification at the receipt point from all users on a day but then supplies non-specification gas at one or more delivery points, Epic should be required to indemnify all users to which it has delivered the non-specification gas.³¹³
  

In response to Origin’s submission that Epic should indemnify users if it supplies non-specification gas, Epic submitted that clause 15.4 provides sufficient obligation on Epic in respect of this issue.³¹⁴

In response to Santos’ submission, Epic outlined its stance towards the National Gas Specification.³¹⁵ Firstly, Epic submitted that it can not be expected to allow gas to be supplied into the pipeline system that might have a deleterious effect on the physical capacity of the system.³¹⁶ Secondly, Epic does not propose to cut across existing contractual rights. Thirdly, in situations where emergency legislation is enacted, Epic will fully comply with direction.³¹⁷

Commission’s considerations

In relation to Origin’s submissions as to the possible detrimental effects of the introduction of a National Gas Standard, the Commission takes the view that if such a standard is introduced, Epic will have no choice but to comply with it. This may place the access arrangement in conflict with the legislation introducing the National Gas Standard. This is because whilst the access arrangement details the gas specification in Schedule 3, the legislation would require a different specification. To resolve this issue, it is necessary to insert amendment FDA3.8 into the access arrangement.

Accordingly, to avoid any potential conflict between the access arrangement and the Law the Commission requires Epic to adopt the National Gas Standard if it becomes mandatory. If the Standard is voluntary, the Commission requires the access arrangement to contain a provision allowing Epic to adopt it. Accordingly, the Commission requires Epic to comply with amendment FDA3.8.

Amendment FDA3.

For the access arrangement to be approved, the Commission requires that clause 15.2 be amended to include the following provisions:

If at any time during the Term uniform gas specifications for transmission pipelines are required by law, the Service Provider will adopt the uniform gas specifications, and they will apply in lieu of the Gas Specification.

If at any time during the Term voluntary uniform gas specifications for transmission pipelines are introduced into the Australian Gas industry, the Service Provider may adopt the uniform gas specifications, in which case they will apply in lieu of the Gas Specification.

The Commission considers that it is reasonable for Epic to refuse to accept non-specification gas into the pipeline system. Non-specification gas may cause damage both to the pipeline itself, and to the downstream equipment of other users. The Commission considers that Epic should not be obligated to accept non-specification gas into the pipeline system.

The Commission concurs with Origin’s submission that Epic’s exclusion of liability in clause 15.3(b)(v) is too broad. The Commission considers that Epic should not be released from liability to the user where Epic performs any of the actions in clause 15.3(b)(i) to (iii) negligently, or where Epic has not complied with the procedures in clauses 15.3(b)(i) to (iii). Accordingly, the Commission requires Epic to comply with amendment FDA3.9.

In relation to Origin’s submission that Epic should be required to exercise ‘reasonable endeavours’ in respect of non-specification gas, the Commission considers that if Epic complies with proposed amendment FDA3.9 there will be no need for such a provision. The Commission concurs with Origin’s general proposition, but considers that the optimal outcome can be achieved through a clause dealing with Epic’s liability for its actions in relation to non-specification gas.

The Commission considers that clause 15.3(d) should also exclude circumstances where Epic has used its power to vent or flare gas negligently or unreasonably. The decision to vent or flare gas is a serious one, and if Epic wishes to reserve such a power for itself, it must be prepared to take responsibility for circumstances where the power is exercised inappropriately. This is also dealt with in proposed amendment FDA3.9.

Amendment FDA3.

For the access arrangement to be approved, the Commission requires that Epic amend clause 15.3(d) by adding the following provision:

Provided that the service provider will not be indemnified to the extent that such losses, costs, damages and expenses result from its own negligence or default in complying with its obligations under the Agreement.
The Commission accepts Origin’s submission that Epic should be required to notify users as soon as it becomes aware that non-specification gas has been introduced into the pipeline system. This appears to be a reasonable measure to improve safety and ensure the integrity of the pipeline system. Accordingly, the Commission requires Epic to comply with amendment FDA3.10.

Although it is reasonable to require the service provider to notify users as soon as non-specification gas is introduced into the pipeline system, failure of the service provider to comply with this requirement should not relieve a user of liability under clauses 15.3 (c) and (d). Irrespective of the requirement to notify users, the onus of ensuring that the pipeline system is not damaged by the introduction of non-specification gas should remain on users.

Amendment FDA3.

For the access arrangement to be approved, the Commission requires Epic to insert the following provision into clause 15.3(b)(i) of the access arrangement:

and will, as soon as it becomes aware that a User has introduced Non-Specification Gas into the Pipeline System, post a notice on the EBB notifying all Users of that fact.
In relation to Origin’s submissions regarding directions made under the Gas Act altering gas quality, the Commission considers that it is not strictly necessary to insert a provision into the access arrangement to the effect that each party will comply with directions given under the Gas Act. This is because such directions are likely to be binding on the parties, irrespective of the wording of clause 15. Furthermore, it is unnecessary to insert a provision into the access arrangement that relieves each party from liability incurred as a result of compliance with a direction given under the Gas Act. This is provided under the force majeure provisions in clause 34.1(a)(i).

In relation to Origin’s submission that Epic should indemnify users if it supplies non-specification gas, the Commission considers that clause 15.4 does not provide a sufficient obligation with respect to this issue. Clause 15.3(d) explicitly requires users to indemnify Epic in circumstances where users introduce non-specification gas into the pipeline system. The Commission considers that it is fair for the same obligations to be placed on Epic in the event that Epic is responsible for supplying non-specification gas. Such a circumstance might arise if Epic were to undertake works on the pipeline that involve hydraulic testing and water were to enter the system. Accordingly, the Commission requires Epic to comply with amendment FDA3.11.

Amendment FDA3.

For the access arrangement to be approved, the Commission requires Epic to insert the following provision into clause 15 of the access arrangement:

Where the Service Provider receives gas complying with the Gas Specification at the Receipt Point from all Users on a day but then supplies Non-Specification Gas at one or more Delivery Points, the Service Provider will indemnify the User from and against all losses, costs, damages or expenses that the Service Provider may suffer or incur as a result of the Non-Specification Gas entering the Pipeline System.
In relation to this amendment, and others which adjust the liability and indemnity of parties to the access arrangement, Epic has commented that they shift the balance of risk between the parties unacceptably in favour of the user. Epic submitted that all such provisions need to be viewed in the context of the entire agreement and the circumstances that lead to the inclusion of each provision in the access arrangement.³¹⁸

The Commission considers that it is reasonable to amend the liability and indemnity clauses. In the access arrangement proposed by Epic, these clauses tend to place excessive risk on users, and it is appropriate to shift the balance of risk towards the service provider.

In its Draft Decision, the Commission required Epic to amend clause 15 in accordance with proposed amendment A3.13. In response to the first requirement of proposed amendment A3.13, Epic amended clause 15.3(b)(ii) to read:

will, if it issues an OFO, communicate that fact as soon as practicable to the person supplying such Non-Specification Gas to the user (if known) and request that such person terminate the supply of such Non-Specification Gas as soon as possible.

The Commission considers that this amendment is acceptable. In response to the second requirement of proposed amendment A3.13, Epic inserted clause 15.2 (b) into the access arrangement, which provides:

The Service Provider will consult with the User to minimise the adverse impact of any changes under clause 15.2(a) to the extent reasonable and prudent.

The Commission considers that this amendment is acceptable.