To be called the Australian Energy Market Operator (AEMO), the organisation would replace at least four separate market and planning bodies with a single body, reducing duplication across states and energy forms. But what will this mean for the pipeline industry?
AEMO will replace the National Energy Market Management Company (NEMMCO), Victorian Energy Network Corporation (VENCorp), the Gas Market Company (GMC) and the Retail Energy Market Company (REMCo). AEMO will also have responsibility for the gas Bulletin Board (BB), the Short Term Trading Market (STTM) and the Gas Statement of Opportunities (GSOO).
AEMO will take its place with the Australian Energy Market Commission (AEMC) and the Australian Energy Regulator (AER) with a purpose of achieving an efficient and equitable single energy market in Australia, excluding Western Australia and the Northern Territory.
The establishment of AEMO is being overseen by the AEMO Implementation Steering Committee (ISC), a body comprising senior Commonwealth and
State/Territory officials and the CEOs of the existing market operators. Although it is intended that 40 per cent of AEMO membership be industry participants, APIA is concerned that there is no industry representation on the ISC and ultimately, no industry participation in the final decision making process in establishing AEMO. To this end, APIA will be participating in a working group that will establish AEMO governance procedures.
AEMO is due to commence operation on 1 July 2009 and there remain many details to be resolved. Industry was given its first look at the legislative framework in August this year and established that several areas needed work. In particular, the information gathering powers being proposed for AEMO were wide ranging and intrusive. The document, available from the Ministerial Council of Energy website, proposes that AEMO should have similar powers as the AER, which is inappropriate. Considerable time and effort has been taken to determine the consolidated regulatory structure of the AER, AEMC and AEMO. It is important to maintain appropriate governance standards and transparency between these organisations so that Industry has trust and confidence in the regulatory mechanism. The AER is, amongst other things, responsible for the policing of abuse of market power while the AEMO will oversee the operations of the electricity and gas markets. These are quite different tasks and so the controls and rules surrounding the activities must contain the appropriate ring-fencing and application of confidentialities.
In establishing a single energy market operator, the stated aim is to “˜strengthen the national character of energy market governance.’ The implication is to ensure consistency in the governance of the energy market across Australia and the approach taken thus far by Government certainly appears to be focussed on streamlining processes and maximising consistency between electricity and gas regulation. It is important to note that the electricity and gas markets are fundamentally different. The electricity market instantaneously matches supply and demand, and is centrally planned. The gas market is based primarily on long term, bilateral contracts. These fundamental differences require different regulatory approaches.
For the gas industry, this issue is further exacerbated by bringing together the existing state-based operators. There are different issues in each state and, in particular, the Victorian market is substantially different from the markets operating in other eastern states. The gas industry is working diligently to reduce the impacts of these measures on Pipeliners. For example, in developing the STTM, the Government is seeking to establish a national market environment modelled on the Victorian market, because the market realities of other jurisdictions are quite different from Victoria’s.
The first half of 2009 will be very active. The draft AEMO legislation will be released for public consultation, and the final AEMO legislation must be in place before the end of June. The constitution and membership arrangements for AEMO still need to be developed. Details of the GSOO and the STTM will be finalised. APIA is working closely with Government, with representatives on the GMLG, the STTM development group, the GSOO working group and other committees, to ensure AEMO can facilitate and assist energy markets without imposing significant new regulatory burdens on industry.
The federal Government’s own adviser Professor Ross Garnaut, in his Climate Change Review, declared “The majority of Australia’s gas transmission pipelines are not regulated. Pipeline developers and owners, who can contract directly with shippers, use pricing structures that have avoided such a requirement. This contrasts starkly with the electricity market …This is an example of a network infrastructure market working efficiently without government intervention.”
Common regulatory terms
AEMC – Australian Energy Market Commission
AEMO – Australian Energy Market Operator
AER – Australian Energy Regulator
BB – Bulletin Board
CoAG – Council of Australian Governments
GMLG – Gas Market Leaders Group
GSOO – Gas Statement of Opportunities
ISC – Implementation Steering Committee
NEMMCO – National Energy Market Management Company
REMCo – Retail Energy Market Company
STTM – Short Term Trading Market
VENCorp – Victorian Energy Network Corporation
The AEMO legislative framework can be found on the Ministerial Council of Energy website: www.mce.gov.au