The AER is looking to grant Jemena a pass on ring-fencing.

The Australian Energy Regulator (AER) has issued a draft decision to exempt Jemena Pipeline Businesses from specific ring-fencing obligations under the National Gas Law (NGL).

The decision relates to the Phillip Creek Compressor Station (PCCS) in the Northern Territory, a facility supporting the Northern Gas Pipeline (NGP).

The exemptions would allow shared marketing staff between the PCCS and other Jemena-operated pipelines, citing cost savings and limited public benefit from strict compliance. 

Jemena had earlier applied for exemptions stems from ring-fencing laws that mandate the separation of marketing activities between pipeline operations and related businesses to prevent competitive advantages arising from shared ownership.

Jemena argued that the PCCS's unique role - processing gas to meet varying regional specifications - justifies the exemptions. 

The NGP, operational since 2019, connects the Northern Territory and Queensland gas markets. Its support facility, the PCCS, was developed to comply with contractual access principles binding Jemena to pricing and service obligations. 

In its review, the AER found the costs of compliance with the ring-fencing rules to be disproportionately high compared to the minimal public benefits achieved.

Jemena estimated annual compliance costs at over $730,000, primarily due to the need to hire specialised marketing staff for the PCCS.  Additionally, Jemena highlighted operational inefficiencies and staffing challenges linked to compliance. 

The AER noted that none of Jemena’s existing pipeline customers use the PCCS, reducing concerns about anti-competitive behaviour. Furthermore, existing legal frameworks, including the Access Principles, were seen as adequate to mitigate risks of market distortion.

While the draft decision aligns with cost-saving imperatives, it raises questions about setting precedents for regulatory exemptions.

Critics argue that granting such waivers risks undermining the purpose of ring-fencing laws designed to ensure a level playing field.

Despite the AER’s conditions to monitor changes in market dynamics, reliance on self-reporting by Jemena may pose enforcement challenges. 

The AER has invited stakeholder submissions on the draft decision by 6 February 2025, with a final determination expected by 6 March 2025. 

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