Application Martin No: gr9902 Jones Contents

Commission’s considerations

In proposed amendment A3.20 of the Draft Decision, the Commission required Epic to adopt the revisions to clauses 24 and 25 that were set out in Epic’s access arrangement of 2 March 2000. These revisions involved the method of providing notice of curtailments and OFOs and have been adopted by Epic.

Proposed amendment A3.20 also required Epic to amend clause 41.1(c) to the effect that if the EBB was inoperative, than each notice that is given must be given by telephone and in writing rather than just one of the two. In the revised access arrangement of 29 June 2001, clause 41.1(c) specifies that such notices must be provided in writing. However, clause 41.1(a) provides that notices may be communicated by other means, which would allow the service provider to give notices over the telephone. The Commission considers that this is sufficient to satisfy the Commission’s concerns and no further amendment is necessary.

In the Draft Decision the Commission indicated that the one hour time period for users to comply with a curtailment notice issued under clause 24.1 was of particular concern. However, the Commission decided to approve this provision as the pipeline is operating at full capacity and Epic had agreed to revise the provisions relating to the method of giving curtailment notices.

In the revised access arrangement the service provider is able to specify less than one hour for users to comply with a curtailment notice issued under clause 24.1. The Commission considers that this is unreasonable given the difficulties users indicated they would have in complying with a one hour time period. The Commission also believes that it is unnecessary because clause 24.5 allows the service provider to curtail services immediately in emergencies. Consequently, the Commission requires that Epic amend this clause in accordance with Amendment FDA3.25.

The Commission considers that clauses 24.5 and 25, by providing the circumstances in which curtailment and OFO orders can be made, sufficiently constrain the service provider’s discretion. For example, users can only be curtailed under clause 24.5 in circumstances that present a threat to life, health or property of any person and the integrity of the pipeline system or to meet the requirements of a the license, Government agency or any law. Under clause 25.1 Epic can only issue an OFO where a user is in breach of its obligations and that breach could affect the provision of services to another user. It is also relevant that if there is a dispute regarding the issue of an OFO or curtailment notice it can be resolved by an independent expert under clause 37.

Clause 24.1, however, conveys a very wide discretion on Epic. Under that clause the service provider may curtail services on any day where capacity is insufficient to meet scheduled quantities for any reason. IT and FT services are both subject to curtailment and Epic is not obligated to indemnify users for loss suffered due to curtailments unless it is negligent or breaches its obligations under the agreement. Further, any indemnity that is owed is limited to direct losses by clause 35. Therefore there appears to be very little limitation on the service provider’s ability to curtail services.

The Commission considers that this it is unreasonable for the service provider to have such a substantial degree of discretion. Epic has agreed to amend clause 24.6 so that Epic must indemnify users for direct losses if it curtails users under clause 24.1. In conjunction with FDA3.1, the Commission considers that this is an appropriate compromise as it allows Epic to retain the discretion to curtail if necessary but also provides a financial disincentive for doing so, which should prevent Epic from curtailing unnecessarily. This is reflected in amendment FDA 3.25.

The Commission considers that it would be unreasonable for the service provider to curtail users without providing information regarding the cause of the curtailment. This is particularly the case given that the issue of curtailment notices and OFOs can be arbitrated under clause 37. It is necessary for users to have the relevant information so that they can assess whether they should notify a dispute under clause 37. The access arrangement should be amended to provide that the service provider must provide information reasonably requested as to the cause of curtailments. This is reflected in amendment FDA 3.25.

The Commission believes that there is some merit in Origin’s suggestion that default charges should be allocated to non-defaulting members given that Epic has justified default charges on the basis that its purpose is to provide a deterrent to users. However, given that curtailments and OFOs are new provisions it is difficult to anticipate how they will operate. Therefore, the Commission approves the provision in its current form, but will review it at the time of the scheduled review of the access arrangement when it will be in a better position to determine the magnitude of the default charges.

The Commission is of the view that any obligation to notify Energy SA of gas shortfalls is a matter most appropriately dealt with by that regulator and any relevant legislation rather than this access arrangement.

The Commission notes that clause 25.6 specifies that the service provider will not be indemnified under that clause as a result of its own negligence or default. The Commission considers that it is reasonable for a user to indemnify the service provider for loss suffered as a result of the user complying with an OFO and for loss of profits as a result of taking action under clause 25. This is because it is only permissible for the service provider to issue an OFO where the user has breached its obligations under the agreement, and therefore if the user does not breach its agreement it will not be liable. It is not necessary to limit the users obligation to indemnity further, as suggested by Origin.

The Commission requires the following amendments to clauses 24.

Amendment FDA3.

For the access arrangement to be approved, the Commission requires Epic to:

• 
  Amend clause 24.3(a) by deleting after the word ‘greater’ the words ‘or less’.
  
• 
  Amend clause 24.6 as follows:
  

The Service Provider will only be liable for any losses, costs, damages or expenses that the User may suffer or incur as a result of:

(a) any curtailment, interruption or discontinuation invoked by the Service Provider under clause 24.1;

(b) the User complying or failing to comply with a curtailment notice invoked by the Service Provider which was issued negligently or in breach of the Service Providers obligations under the Agreement;

(c) any curtailment, interruption or discontinuation invoked by the Service Provider under clause 24.5 where the Service Provider has been negligent or has failed to comply with its obligations under the Agreement.

• 
  Add to clause 24.2 the following clause:
  

The Service Provider will, on reasonable request by a User, provide such information as is reasonably required to justify the issue of a curtailment notice.