In the recent Update to the Regulatory Framework for Embedded Networks, the Australian Energy Market Commission (AEMC) looked at potential changes to the way ‘embedded gas networks’ are regulated.[1]

In this article we look at the current state of regulation for embedded gas networks across the eastern and south-eastern jurisdictions (Queensland, New South Wales, Australian Capital Territory, Australia, South Australia, Tasmania and Victoria). We look at the different rules that apply to natural gas distribution in those states and territories including gas safety obligations.

Note, as the focus here is on the regulation of gas distribution we do not look at a range of other laws and regulations that may apply, such as those relating to gas-fitting, employment health and safety and access to ombudsman/tribunals.

  1. What is an embedded gas network?

Embedded electricity networks are defined across the National Electricity Market jurisdictions through the National Electricity Rules and the Electricity Network Service Provider Registration Exemption Guideline. Embedded gas networks are not defined in any legislation, whether nationally or in individual states of territories. Consequently, it is difficult to pinpoint exactly what is meant when talking about an ‘embedded gas network’. A recent report for the Australian Energy Market Commission (AEMC) defined them it in the following way:

An embedded gas network is a pipe or system of pipes to which gas is supplied from gas mains and used to reticulate gas within a site. The gas delivered to the site may be used by the owner or controller of the site, or that person may on-sell some or all of the gas to others located on the site (such as tenants) or may on-supply to other sites.[2]

Framed in this way an embedded gas network, just like an embedded electricity network, might be operated under a licence/authority, an exemption, or unregulated depending on the jurisdiction in question.

  1. Regulating the supply and distribution of gas

As with the supply of electricity, there are two broad dimensions to the regulation of natural gas in Australia:[3]

  • Regulation of the physical infrastructure used to distribute and measure the gas;
  • Regulation of the sale or supply of gas on that physical infrastructure.

As with electricity, the second aspect, the sale or supply of gas, is regulated across the National Energy Customer Framework (Queensland, ACT, NSW, Tasmania and SA) through the National Energy Retail Law, the National Energy Retail Rules and special state/territory-based departures or ‘derogations’ from that framework. In addition to retail authorisation that framework allows certain sellers of electricity or gas to be exempt from authorisation (exempt sellers). This framework is being updated through the new authorisation and registration requirements proposed in the Update to the Regulatory Framework for Embedded Networks. We will discuss the regulation of selling in embedded gas networks in a forthcoming article.

Victoria has its own framework for gas supply under the Gas Industry Act 2001 and its associated regulations and orders.

With respect to the regulation of gas distribution, the key rules that apply across states are set out in the National Gas Law (NGL) and National Gas Rules (NGR). The NGL and NGR set out the obligations of ‘service providers’ who are required to register with the Australian Energy Market Operator (AEMO).

Many embedded gas networks are not regulated by the NGL and NGR as they do not contain a ‘pipeline’ as defined in those instruments. . This is because an embedded gas network usually involves:

A pipe or system of pipes that is downstream of a point on a pipeline from which a person takes natural gas for consumption purposes.[4]

In addition to registration requirements under the NGL and NGR, there are additional requirements that apply to distribution via embedded gas networks, which differ by jurisdiction.  We set these out in the sections that follow.

  1. Embedded Gas Networks in Queensland

According to the Gas Supply Act 2003 (the Queensland Act), it is not unlawful to operate without a distribution authority if “the pipeline is completely within a lot, or contiguous lots, owned by the same person” (s282).

This means that embedded gas networks which meet the above definition can operate without a distribution authority in Queensland and are exempt from many requirements under that Act and its associated regulations.

Note, however, that some obligations under the Queensland Act and its associated regulations still apply within an embedded gas network. For example, in many cases provisions relating to ‘On-Suppliers’ in the Queensland Act will apply, including the right of the customer (‘receiver’) to pursue an individual metering option (s222) and provisions relating to compensation for installation damage (s223).

In addition, some provisions in the Petroleum and Gas (Production and Safety) Act 2004 and associated regulations apply to Queensland embedded gas networks. In many cases, the operator of an embedded gas network is required to adopt, maintain and implement a safety management system (see sections 673 and 674).

  1. Embedded Gas Networks in NSW

The key legislation for embedded gas networks in New South Wales (NSW) is the Gas Supply Act 1996 (the NSW Act) and its associated regulations. The requirements in Part Two, Division One of the NSW Act specify that the requirement to hold a reticulator authorisation does not apply where:

  • The embedded gas network consists in a pipe or system of pipes used to convey or control gas downstream of the outlet of the gas meter at which gas is supplied from a distribution pipeline; or
  • The embedded gas network consists in a gas pipe wholly situated on land owned by the person who owns or controls the gas pipe or equipment.

Note, while there is no requirement in the NSW Act and associated regulations for the owner or operator of such an embedded network to lodge and implement safety and operating plans, safety obligations may apply under Part 5, Division 2 of the Gas and Electricity (Consumer Safety) Act 2017 No 15

  1. Embedded Gas Networks in South Australia

Under section 19 of the Gas Act 1997 (the South Australia Act), a person is only permitted to operate a distribution system where they hold a licence to do so. That licence itself applies a range of obligations to distributor. However, under clause 7(1) of the Gas Regulations 2012, this requirement does not apply to an ‘inset distribution system’ which is defined as:

a distribution system that serves only a group of premises or parts of premises in the same ownership or subject to the same community plan or strata plan under the Community Titles Act 1996 or Strata Titles Act 1988

Depending on the circumstances, safety obligations may apply to an embedded gas network in South Australia and there is a requirement to develop and implement a safety management plan for all licenced distributors. If operating under a distribution licence exemption, the owner or operator may be required to have a safety management plan if required to do so by the Technical Regulator (s55A).

  1. Embedded Gas Networks in the ACT

Under the Utilities Act 2000 (the ACT Act), a licence for gas distribution is not required under section 21(1) of the ACT Act where the embedded gas network is not a pipeline under the National Gas Law. However, if an embedded gas network meets the definition of a ‘discrete district network’, the operator of that network requires an operating certificate from the Technical Regulator. A discrete district network includes:

infrastructure that is not connected to a network and is used for 1 or more of the following: (c) Providing reticulated gas, to more than 1 building or premises.

Note also that provisions under the Gas Safety Act 2000 might also apply to a embedded gas network, depending on its configuration, such as the requirement in section 15 for the owner of premises on which there is a consumer piping system to take reasonable steps to ensure that the system is (a), in good condition and repair and (b), safe to use.

  1. Embedded Gas Networks in Tasmania

Tasmania has recently enacted new gas legislation in the form of the Gas Industry Act 2019, the Gas Safety Act 2019 and associated regulations. Under section 20 of the Gas Industry Act 2019, an individual must not carry out a ‘gas activity’ without a licence. However, note that in some cases the operation of an embedded gas network will not count as a gas activity. [5]

The Gas Industry Act 2019 does allow for the Tasmanian Government to determine that certain provisions of the Act do not apply to certain entities or types of gas infrastructure.[6]

In the past, a similar power under the former legislation has been used to exempt some gas distributors from licensing requirements.[7]

In addition, other obligations may apply to an embedded gas network under the following:

  • Tasmanian Gas Distribution Code;
  • Tasmanian Gas Retail Code
  • Gas Customer Transfer and Reconciliation Codes.

The new Gas Safety Act 2019 applies safety obligations on operators of embedded gas networks in many cases. [8] Licensees under the Gas Industry Act 2019 will need to prepare and submit a Gas Safety Case demonstrating how the embedded network will be operated safely. [9]

  1. Embedded Gas Networks in Victoria

Gas distribution is only permitted in Victoria via a embedded gas network where an entity holds a distribution licence or is exempt from the requirement to do so.[10] Currently there is no ‘General Exemption Order’ (GEO) in place for embedded gas networks as there is for embedded electricity networks. This means that only ‘specific exemptions’ can be granted for particular entities by the Victorian Government. In its fact sheet on embedded gas networks, the Victorian Government has stated:

Generally, exemptions for the supply and sale of gas are considered only in relation to large or related-business transactions, and not where there are residential or small business customers involved.[11]

Under the Gas Safety Act 1997 a distribution licence holder must comply with a range of safety obligations including the obligation to develop and implement a Gas Safety Case (section 37). Depending on the circumstances it could also be a condition of any specific exemption that the operator of an embedded gas network comply with such obligations.

  1. Conclusion

There is no uniform set of laws, regulations or rules that govern the distribution of gas in embedded gas networks in Australia or the safety obligations that apply in them; it depends on the obligations established in a particular state of territory. In many cases embedded gas networks must only be operated under a distribution authority or licence. The rules that apply to a particular embedded network depend entirely on the physical configuration and ownership of that particular network in that jurisdiction.

[1] For an overview of gas arrangements see  https://www.aemc.gov.au/sites/default/files/2019-06/Embedded%20gas%20networks%20-%20overview.PDF.

[2] Paragraph 2.1 of the report linked to above.

[3] Liquid Petroleum Gas (LPG) is separately regulated and not considered in this article.

[4] See section 2 of the NGL.

[5] Depending on whether the set of pipelines is “(ii) not extending to, or connected to pipes in, some other place in separate occupation” (section 2).

[6] See section 17.

[7] See Gas (Distribution System) Order 2001.

[8] Though note this does not apply to  “a system of pipes and equipment (i) installed in a place for the conveyance and use of gas from a pressurised vessel situated in that place; an (ii) not extending to, or connected to, pipes in some other place in separate occupation.”

[9] See section 23, Gas Safety Act 2019.

[10] See Gas Industry Act 2001, section 22.

[11] See https://www.energy.vic.gov.au/gas/gas-distributors/embedded-gas-networks.

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