ACCC issues gas determinations

The Australian Competition and Consumer Commission today conditionally authorised the Victorian Market and System Operations Rules (MSOR), subject to certain amendments being made.

The MSOR sets out procedures for the operation of Victorian wholesale spot sales of gas. It catalogues the obligations and responsibilities of VENCorp and participants in relation to gas scheduling and technical standards such as metering, information disclosure requirements and so on.

'The Commission believes that the MSOR will initiate and accelerate the benefits of competition reform in gas,' ACCC Chairman, Professor Allan Fels, said today. 'This is because the total package of Victorian reforms, which include the access arrangements, have potential benefits in better use of infrastructure and capital than allowed for under the current arrangements.'

Benefits are expected through:

• the promotion of economic efficiency from structural reform, and the introduction of wholesale competition via the development of spot sales
• an increase in customers' choice after unbundling of gas supply from distribution and transmission
• general benefits to the Victorian economy via improved network services and
• even though the MSOR does not directly incorporate the retail sector, the 'market carriage' model will facilitate retail competition and pass through the benefits of reform and competition. It may also provide some conditions necessary for upstream competition.

The caveat to realising these benefits is that implementation of the MSOR, as currently drafted, may result in the public benefit being partially or fully offset by anti-competitive detriment. A number of problems, identified by interested parties and the ACCC, detract from the MSOR and reduce the likelihood that the full benefits of gas reform will be realised.

The concerns are:

• possible market distortions arising from design features of the MSOR - single zone daily pricing necessitating the need for ancillary and uplift payments, the price cap and the force majeure provisions
• insufficient accountability and transparency in the present arrangements and
• potential for anti-competitive behaviour arising from the information disclosure provisions of the MSOR, given a market with a limited number of players.

The ACCC made the authorisation conditional on certain amendments to the MSOR. Authorisation is granted until 1 January 2003.

The ACCC also issued its determination granting conditional authorisation for a generic service performance contract for the exclusive provision of certain services by Gas Services Business Pty Ltd to newly formed gas companies in Victoria.

After considering all the arguments, the ACCC is satisfied that the public benefits of the contract outweigh the anti-competitive detriments for some services only. These include services which, in the transitional period, are required to maintain system security, customer service or to meet information technology requirements. The ACCC believes that, since potentially competitive suppliers already exist for some services which are not integral to system security, customer service or information technology requirements, it would unnecessarily restrict competition in the supply of those services to authorise their exclusive provision in the contract.

Copies of the Determinations will be available on the ACCC's Internet Home Page (http://www.accc.gov.au) under 'gas' or directly from the ACCC by contacting Jan Batho, ACCC Canberra on (02) 6243 1295.