The AEMC's draft recommendations are part of a broader project initiated by Commonwealth, State and Territory energy ministers (Energy Ministers) to incorporate hydrogen and renewable gases into the national gas and energy retail regulatory frameworks.

Background to the draft recommendations

The Energy Ministers agreed on 20 August 2021 to bring biomethane, hydrogen blends and other renewable methane gas blends within the scope of the national gas regulatory framework.

As part of the reforms, the Energy Ministers have instructed jurisdictional officials, the AEMC and the Australian Energy Market Operator (AEMO) to identify the required amendments to the National Gas Law (NGL) and NGR, and the National Energy Retail Law (NERL) and NERR, and market procedures.

The AEMC has been tasked with developing amendments to the NGR and NERR to capture 'covered gases'. The definition of a 'covered gas' is yet to be finalised, but it is proposed to include natural gas, hydrogen, biomethane, synthetic methane, and gas blends. The NGL is proposed to apply to all covered gases, whereas the NERL is proposed to apply to natural gas and natural gas equivalents, and any prescribed covered gases (which may vary between jurisdiction).

The AEMC released its draft report on 31 March 2022, which includes 25 draft recommendations relating to the NGR and NERR to facilitate low-level hydrogen-natural gas blends and renewable gases.

The AEMC's key recommendations

The key recommended changes to the NGR and NERR proposed by the AEMC are set out below.

• Extend the pipeline economic regulatory framework. The AEMC aims to facilitate the efficient connection of suppliers of covered gases by requiring connections be consistent with the safe and reliable supply of gas to end-users, and imposing reporting and disclosure obligations. The amendments will also require pipeline service providers to publish the type of gas they are licenced to transport, amend the arbitration principles to require an arbitrator to consider regulatory obligations, and amend the scheme pipeline price and revenue rules to treat government grants and concessional finance as capital contributions.
• Extend the market transparency mechanisms. The AEMC proposes to extend the five market transparency mechanisms under the NGR to incorporate covered gases. The mechanisms are the Gas Statement of Opportunities, Victorian Gas Planning Report, Natiural Gas Services Bulletin Board, AER gas price reporting, and the non-pipeline infrastructure access reporting requirements.
• Streamline arrangements for the STTM. The recommendations propose to create a single, new facility category for injection into the STTM from distribution-connected injection facilities (to replace the existing STTM production facility and STTM storage facility categories). They also aim to reduce reporting obligations, allow for facility aggregation, streamline the process for establishing new custody transfer points and allow distributors to agree an alternative gas quality specification at a custody transfer point.
• Allow new services and commodities within retail gas markets. The AEMC aims to change market registration provisions to include retail market participants with facilities that use natural gas equivalents.
• New requirements to inform consumers about natural gas equivalents. This proposal requires distributors to notify retailers and AEMO, and retailers to notify small customers, prior to the transition of a pipeline to carry natural gas equivalents. It also requires retailers to amend model terms and conditions for standard contracts to specify whether gas sold includes natural gas equivalents.
• Retain new draft regulatory sandbox rules. The AEMC formed the view that the new draft regulatory sandbox framework, currently before the South Australian Parliament, will not be used for the trial supply of natural gas equivalents or other gas products to a customer in a pipeline (referred to as 'change of product trials'). The AEMC recommended the proposed draft sandbox rules be retained in their current form.

Other proposed changes

Concurrent and related to the draft report, on 31 March 2022 the AEMC also released a draft determination related to a preferable draft rule requested by the Victorian Minister for Energy, Environment and Climate Change. The draft rule will enable distribution connected production and storage facilities to register and directly participate in the Victorian Declared Wholesale Gas Market, and be treated on an equivalent basis to the existing transmission connected facilities. Distribution connected facilities may include, hydrogen, biomethane and renewable gas facilities. Proponents seeking to inject hydrogen and renewable gas into gas distribution networks in Victoria should monitor this proposed rule change.

As noted above, two other reviews are being undertaken concurrently with the AEMC's review in accordance with the Energy Ministers' instructions:

• by jurisdictional officials to develop amendments to the NGL and National Energy Retail Law (and related regulations), and
• by the AEMO to develop amendments to AEMO procedures and other AEMO instruments.

A draft report by AEMO was also released on 31 March 2022, which proposes limited changes to AEMO procedures. The implementation of any changes to AEMO procedures will only take effect once the changes to the NGL have been agreed by the Energy Ministers.

A consultation paper was published by jurisdictional officials on 31 March 2022 outlining the consultation process to date and the refined approach to extending the NGL, NERL and Regulations. The draft amendments to the NGL and NERL were released on 6 April 2022, and are set to be agreed by the middle of this year, with the NGR and the NERR to be finalised shortly after their agreement. We note also that one of the purposes of the AEMC's review into the NGR and NERR was to inform jurisdictional officials about any consequential changes required to the associated legislation. The AEMC draft report identifies areas of the NGL and NERL (and related regulations) that AEMC considers require amendment, for the jurisdictional officers' review (see Appendix D).

The draft report is subject to a short period of consultation. Written submissions must be provided by 19 May 2022. The AEMC expects to publish a final report on 8 September 2022, and provide final draft rules to the Energy Ministers for approval by 14 November 2022.