In particular, Dill is concerned about the potential regulation of DEI’s new Tasmanian pipeline, the first pipeline to bring natural gas to Tasmania. “We fully expected to run that pipeline as an unregulated pipeline,” said Dill. “But I wouldn’t be surprised if someone challenged that.”
If challenged, DEI would be obliged to prove its pipeline is not a monopoly, or face tariff controls. But Dill is unsure if DEI could successfully defend its right to operate the pipeline as an unregulated asset under the current regulatory environment. “The Australian Competition and Consumer Commission (ACCC) is being heavy handed in its interpretation of its gas code,” she said.
“Is [Tasmania] a monopolistic pipeline? Absolutely. But the ACCC has to look at competition in a broader sense. It is the only pipeline, but the ACCC should consider the other energy sources is it competing with.” Dill told RiskNews.
Regulating the Tasmania pipeline would have a devastating effect on DEI’s tariffs. “The ACCC’s tariff calculations are flawed,” Dill said. “It looks at the whole lifetime of the project, it doesn’t take into account the early up-front investment, the slow start-up. There is an assertion by the ACCC that we are making more than satisfactory revenues on the pipeline, but I assure you that is not the case.”
She added, “As such, we will not invest in any more pipeline assets until the regulatory environment changes.” Pressed for a time-scale, she said that two years was possible, but optimistic.
One industry insider at the conference claimed DEI’s lack of pipeline investment instead stems from the investigation by the Ferc into Duke Energy’s alleged round-trip trades in the United States. “They’re pulling in the reins,” he said.
But Dill denies this. “The pipeline investment would have competed fiercely for capital with other Duke businesses,” she says. “That capital will now likely go to international operations in Latin America or Europe, or possibly into power generation in Australia. We have good opportunities for ‘greenfield’ projects here – the regulatory system for power is not as onerous as that for pipelines.”
DEI’s plight is well understood in Australian energy circles. According to Jennifer Patterson, energy trading manager at Edison Mission Energy, there is a real fear of regulatory risk in Australian energy markets, exacerbated by regulatory overlap between the states and a non-co-ordinated approach to market design. Patterson quoted a recent comment by Australian minister for resources, Ian MacFarlane, saying “If we’ve got 13 energy regulators in Australia at the moment, then we’ve got 11 or 12 too many.” Patterson concluded this uncertainty was affecting liquidity in energy trading markets.
“Regulatory fear is creating a lot of uncertainty,” she told Australia Risk 2002, “and that fear does impact the financial markets.” Dill concludes: “The government is not proactive. Australia will find itself in a position where it does not have the infrastructure it needs to support its planned growth.
The week on Risk.net, July 7-13, 2018Receive this by email