ACCC final determination on market and system operations rules to benefit Victorian energy industry

The Australian Competition and Consumer Commission has issued a Final Determination granting authorisation* for 10 years to the Victorian Energy Networks Corporation, Victoria's independent gas and electricity systems operator, for the Market and System Operations Rules. The MSOR govern the operation of Victoria's gas transmission system, and provide for a spot market to trade gas.

"The ACCC accepts that, on balance, the MSOR have benefited the Victorian gas industry since the market commenced operation in 1999, and will continue to do so", ACCC Chairman, Professor Allan Fels, said today.

The Final Determination was released following a public process that involved extensive consultation with interested parties.

In its Final Determination, the ACCC found that the MSOR, as a fundamental component of Victoria's market carriage system, has led to several public benefits, and that these are likely to continue. The MSOR's main benefit flows from their provision for a spot market that allows gas to be traded in a transparent manner. The spot market operates with minimal intervention by VENCorp, and gives open access to parties wishing to buy or sell gas.

The ACCC also believes the MSOR provide the basis for competition among retailers.

While the Final Determination expressed some concerns over issues such as the representation of end-user interests in Victoria, and the current mechanisms in the MSOR for setting the price of gas, it found that overall the MSOR, and market carriage generally, confer a net public benefit. Accordingly, the Final Determination grants authorisation for a 10-year period.

This period of authorisation avoids conflict with a Victorian statutory review of VENCorp that will occur by 2007. The authorisation period also reflects the ACCC's view that market carriage has operated effectively to date, and should be permitted to continue.

BACKGROUND

*Authorisation provides immunity from legal action for conduct that might otherwise breach the Trade Practices Act 1974. The ACCC can grant such immunity only where it is satisfied that the detriment flowing from the anti-competitive conduct in question is outweighed by accompanying public benefit. Applications for authorisation are considered on a case by case basis. The onus is on the applicant to demonstrate that there is a public benefit arising from the conduct, and that the public benefit outweighs any public detriment.

Section 91B of the Act provides for a person to whom an authorisation is granted to apply for a revocation of that authorisation. Section 91B also provides for the ACCC to revoke an authorisation. If there was a material change in circumstances after the statutory review, the ACCC may revoke authorisation. The applicant would then need to make a fresh application for authorisation.

The MSOR are a set of rules governing gas transmission in Victoria. They are enacted by Victorian legislation and are administered by VENCorp, a Victorian statutory authority.

The MSOR provide for a market carriage model of gas transmission with an independent systems operator, VENCorp. Under this system, Victoria's transmission network is operated by VENCorp rather than the pipeline owner, GasNet Australia (Operations) Pty Ltd. Prices are set and imbalances cleared using a spot market. Any party who registers with VENCorp and pays market fees may buy or sell gas on the spot market.

Prior to the commencement of spot trading, the Victorian government applied to the ACCC for authorisation of the MSOR. The ACCC granted authorisation on 19 August 1998 until 1 January 2003. On 17 May 2002 VENCorp applied for a further authorisation to take effect from 1 January 2003 and continue for 10 years.

The ACCC released a Draft Determination proposing to grant authorisation subject to two conditions of authorisation on 16 October 2002. A predetermination conference was held in Melbourne on 21 November 2002. On 11 December 2002, the ACCC granted interim authorisation to the MSOR until the authorisation process is finalised.

The Final Determination proposes to place a condition on authorisation relating to the liability of market participants in situations where those market participants are unable to comply with their obligations under the MSOR.