4 Safely phase out gas distribution networks<\/p>\n
As demand for gas falls, utilisation of gas pipelines will decline. Under the current rules that govern gas distribution networks, declining demand will push up prices for remaining customers, and leave large parts of the network stranded. Without action, gas distribution network companies are at risk of collapse.<\/p>\n
Distribution network regulation was designed for a growing gas market. It must be reformed to accommodate a shrinking gas market.<\/p>\n
Network owners should be required to develop transition plans outlining how they will manage their networks until residential gas is phased out. These plans should outline which parts of the network will still be required, and for how long. This will allow households and businesses to make informed decisions about when to switch their appliances.<\/p>\n
To enable networks to be retired safely, the federal government should coordinate development of national decommissioning standards.<\/p>\n
From now on, new expenditure on gas networks should be limited to winding down the networks or essential maintenance.<\/p>\n
Remaining costs of the gas network should be shared between consumers, industry, and governments in a new grand bargain.<\/p>\n
Consumers should be required to pay to leave the network. Network owners should be allowed to depreciate their assets within their remaining useful life, but only up to a point, with remaining network value written down and the costs shared between networks and governments.<\/p>\n
And network owners should pay for decommissioning via industry levies, held in funds by state governments, and paid to network owners upon decommissioning. To stop network owners passing on costs to consumers, the levies should be excluded from the asset base.<\/p>\n
4.1 How gas pipelines are regulated today<\/p>\n
Gas pipelines deliver gas from where it is produced to where it is needed. Transmission pipelines are long-distance, high-pressure pipelines connecting gas fields to demand centres. Distribution networks are lower-pressure pipes distributing gas to customers in towns and cities.<\/p>\n
There are 16,000km of transmission pipelines and many more kilometres of distribution networks in Australia. This chapter deals with distribution networks only, because they face different challenges than transmission pipelines from declining demand.<\/p>\n
Distribution networks in Australia are privately owned. They are regulated by the Australian Energy Regulator on the east coast and the Economic Regulation Authority on the west coast.<\/p>\n
Most distribution networks in Australia are subject to light-touch regulation; their operators must publish reference tariffs and terms and conditions on a public register, but they are not subject to price regulation and they do not have regulated returns.<\/p>\n
But in cases where the regulator determines that the network owner has market power, it regulates the returns they are able to make and the prices they can charge. For these regulated networks, every five years, the regulator sets an Access Arrangement which determines the regulated asset base (the value of the capital stock on which the owner earns a return), and the allowed rate of return.<\/p>\n
Network owners then determine their tariffs, and the prices they will charge customers, in order to recoup their allowed rate of return based on a given forecast of demand over the period. The cost that consumers pay for gas is the total allowable revenue divided by the forecast consumption of gas (see Box 5).<\/p>\n
This chapter mostly focuses on the eight distribution networks that are regulated in this way, which include all the distribution networks in Sydney, Melbourne, Perth, and Adelaide. There are a further 36 distribution networks not subject to full regulation, which are mostly in small regional towns, but also the city of Brisbane.<\/p>\n
Box 5: How network owners get paid<\/p>\n
For each five-year period, network owners receive either a price cap or a revenue cap, or some hybrid of the two. The choice of cap determines whether they are taking on the risk that actual demand is different from forecast demand. <\/p>\n
\u2013 Price caps set limits on the amount networks can charge customers. Price caps place demand risk on network owners. If demand is lower than forecast, the network owner earns less than forecast. If demand is higher than forecast, the network owner earns more than forecast. <\/p>\n
\u2013 Revenue caps set limits on the amount network owners can earn. Revenue caps place demand risk on customers. If demand is lower than forecast, network owners earn the same revenue, which means customers end up paying more for their gas. If demand is higher than expected, customers pay less. <\/p>\n
\u2013 Hybrid caps use a combination of price and revenue caps, sharing the demand risk between network owners and customers. <\/p>\n
Historically, gas distribution networks in Australia have operated under price caps. So their revenues have changed based on demand: if actual demand falls below forecast demand, the network owner is exposed to the shortfall. <\/p>\n
Recently, the Australian Energy Regulator has started to apply a hybrid approach to varying gas tariffs. It has done this to reduce the incentive under price caps for gas networks to increase their gas volumes. This also transfers some risk to consumers.<\/p>\n
4.2 Under the current rules, when demand declines it creates problems for customers and networks<\/p>\n
This regulatory framework for distribution networks was designed for a growing gas market, and works well when demand increases over time. But it does not work well when demand is declining. Declining demand exposes gas users to the risk of spiralling costs, and network owners to the risk of stranded assets.<\/p>\n
Consumers face the risk of spiralling costs<\/p>\n
Falling gas demand means that the fixed costs of the distribution network fall onto a smaller number of users, pushing up the cost of gas for remaining users. This price increase in turn makes continued gas use less attractive compared to electrification, prompting more gas users to exit the network. This is often referred to as a death spiral.<\/p>\n
Network charges make up about 40 per cent of a customer\u2019s gas bill, so increases in network costs have a material impact on gas bills.<\/p>\n
Modelling by the energy regulator suggests declining demand could push up customer bills by 100 per cent by 2035, and 600 per cent by 2050. Similar analysis commissioned by the Australian Energy Market Commission (AEMC) found that customer bills could rise from about $2,400 in 2025 to $4,600 by 2045, suggesting that the point at which gas bills prompt a death spiral is between $2,700 and $2,900 a year. As customers leave the network, the risk of remaining customers facing spiralling costs is becoming urgent.<\/p>\n
Residential electrification will push up costs for industrial gas users too<\/p>\n
Declining demand from residential customers will have a disproportionate impact on network revenues, because network owners receive disproportionate revenue from residential customers.<\/p>\n
This is in large part because network owners historically charged industrial customers differently from residential ones \u2013 industrial customers historically paid for their connection costs upfront, so their yearly tariffs reflect only ongoing network-wide costs.<\/p>\n
By contrast, residential customers historically did not pay for their connection costs upfront, so their network tariffs reflect the cost of their connection capital (recovered over time), in addition to their share of network-wide ongoing costs. As a result, network owners draw disproportionate revenue from their residential customer base.<\/p>\n
For example, the Jemena network serves about 1.5 million residential customers, 34,000 commercial customers, and just 400 industrial customers. Despite being just 0.03 per cent of the customer base, these 400 industrial customers consume more than half of all gas.<\/p>\n
However, residential and commercial customers pay about 85 per cent of Jemena\u2019s annual revenue. If residential demand declines by 80 per cent by 2045 (AEMO\u2019s base case forecast), Jemena could lose 35 per cent of its gas volumes, but nearly 70 per cent of its revenue.<\/p>\n
That would shift those costs onto the remaining residential, commercial, and industrial customers. This is likely to significantly increase the cost of gas for the remaining industrial customers, to the point of it being unviable. Alternatively, if raising prices for industrial customers would simply drive facilities to close, network owners may choose to weather the losses, and accept that their businesses will decline.<\/p>\n
Network owners face the risk of stranded assets<\/p>\n
As customers electrify and demand for gas declines, network owners may not be able to recoup the full value of their investments. This also creates the risk that network owners fail to invest in maintaining the network for as long as it is needed, or suddenly shut down parts of the network, which in turn harms customers.<\/p>\n
These dynamics reinforce each other \u2013 the death spiral. As demand starts to decline, in order to recoup their costs over a shorter timeframe and from fewer customers, network owners may start increasing the prices they charge customers. This further increases the cost of gas to remaining customers on the gas network, thereby increasing the incentive for customers to switch off gas.<\/p>\n
The customers remaining on the network are likely to be those with the least capacity to pay or to electrify \u2013 that is, renters, low-income households, and industry that does not have the option to electrify.<\/p>\n
An imminent death spiral may prompt a network owner to decommission part of their pipeline network earlier than expected. This is a problem both for the owner (because their assets have become stranded; they do not get to recoup their costs), and for customers who remain on the network (who may face sudden loss of their fuel source).<\/p>\n
There are three examples of gas distribution networks closing in Australia due to declining demand:<\/p>\n
In 2023, the Esperance Gas Distribution Company decommissioned the natural gas network in Esperance, WA, affecting 400 homes and businesses. The closure was initially announced with 6 months\u2019 notice, but the closure date was deferred by a further 12 months. The WA government provided $10.5 million in support to affected gas customers, about $26,000 per customer.<\/p>\n
In August 2025, Solstice Energy announced it would decommission the compressed natural gas network serving 10 regional Victorian towns by the end of 2026, affecting 1,100 customers. The Victorian government provided special exemptions and discounts to affected customers through the existing Solar Homes and Victorian Home Energy Upgrades programs.<\/p>\n
In January 2026, ATCO Australia announced it would decommission the LPG network in Albany, WA, starting in late 2026, affecting 8,000 homes and businesses. In May, ATCO announced it was delaying the start of the closure by six months at the request of the WA government. The WA government provided $10.8 million in support, about $1,350 per customer.<\/p>\n
4.3 How to regulate gas networks in decline<\/p>\n
The regulation of gas distribution networks needs to be rewritten for a declining market. To manage declining demand, the policy and regulatory regime should do four things: define who must do what to retire the gas distribution network; identify which parts of the network will be needed for how long; limit expenditure to only what is necessary while the network still exists; and fairly allocate the remaining costs of the network, including decommissioning.<\/p>\n
Much of the responsibility for gas network phase out sits with state governments. But a consistent approach across states will be smoother and fairer. Both levels of government will need to coordinate closely through the Energy and Climate Change Ministerial Council (the ECMC) to get this done.<\/p>\n
4.4 Define who must do what to retire the gas network<\/p>\n
The concept of decommissioning a gas distribution network is not defined in the National Gas Law, or anywhere else.<\/p>\n
ECMC should develop national standards for decommissioning the gas distribution network which outline: <\/p>\n
Which equipment can be left in the ground under which circumstances<\/p>\n
Site remediation requirements<\/p>\n
Customer safety standard<\/p>\n
Clear responsibilities on gas networks, versus other parties<\/p>\n
Governments should also estimate the costs. Decommissioning the distribution network will be a huge task \u2013 permanently capping millions of gas connections, removing hundreds of thousands of kilometres of gas pipelines (or filling them in with cement), and undertaking remediation works.<\/p>\n
Progressively retiring sections of the network will require operators to maintain pressurisation in the remaining network, potentially requiring new investment. The ECMC should commission a study to estimate the reasonable costs of decommissioning each distribution network, and periodically update the study.<\/p>\n
The ECMC should also reform rules that currently prevent network owners from decommissioning their networks. Currently, customers in most jurisdictions have a right to connect to the gas network and network owners have no rights to disconnect a customer except under strict conditions such as non-payment or safety. Therefore, network owners are prevented from disconnecting customers due to the decommissioning of the network for commercial reasons. These rules will need to change to allow networks to operate safely and owners to stay solvent throughout the progressive decommissioning of the network.<\/p>\n
4.5 Identify how long each part of the network will be needed<\/p>\n
Currently, the uncertainty over gas demand means neither network owners nor regulators can identify which parts of the network could be decommissioned on what timeline, and which parts will need continued investment to remain operational while they are still needed.<\/p>\n
Under the current model of declining but uncertain demand, networks will probably still cease to operate, but it will be on an unpredictable timeline which will be expensive. Governments should reduce this uncertainty in two ways.<\/p>\n
First, as we argued in Chapter 2, governments should set phase-out dates for residential gas use. This would remove substantial uncertainty over the timing of the phase-out of the gas distribution network (it would not remove it entirely, because parts of the network would be retired earlier).<\/p>\n
Second, governments should ask the Australian Energy Market Operator (AEMO) to develop detailed central gas demand scenarios to inform network planning. The pace of decommissioning depends on the rate and location of demand decline. The current regulatory model, of each individual network owner developing their own demand projection and submitting it to the energy regulator for approval, no longer makes sense because, in a declining market, forecasts of demand will need to be consistent across the various policy mechanisms which depend on gas demand.<\/p>\n
The Gas Statement of Opportunities (GSOO), the Integrated System Plan (ISP), the triggers for AEMO\u2019s gas supply powers, and the requirements of the gas reservation will all depend on a forecast of gas demand. Clearly, network owners should not be investing in infrastructure to meet gas demand that won\u2019t be there. Similarly, the reservation should not be seeking to deliver gas to meet demand for parts of the gas networks that are being decommissioned. These disparate gas demand forecasts should now be integrated.<\/p>\n
AEMO\u2019s annual demand forecast in the GSOO should be expanded into a common set of 25-year demand scenarios to be used across the gas market. Individual networks will have different demand forecasts based on their customer base and jurisdictional policy. But these network demand forecasts should be consistent with the common demand forecast, not determined independently by the network owners themselves. At a minimum, the Australian Energy Regulator (AER) should be able to use the new AEMO scenarios to assess the credibility of network demand forecasts.<\/p>\n
AEMO\u2019s demand scenarios should break down supply volumes of natural gas, biomethane, and hydrogen, and the locations of that supply. It is likely there will be locations where gas network closures can be deferred, or where there will be continued demand for distribution networks beyond 2050 to transport renewable gas. In those cases, network owners should be able to continue those services.<\/p>\n
But these are likely to be small parts of the network, and those projections of pipeline requirements should be based on forecast volumes of renewable gases arriving in the right place at the right time \u2013 not wishful thinking from profit-seeking monopoly businesses.<\/p>\n
AEMO\u2019s scenarios for gas demand and the supply of renewable gases will reduce uncertainty around the pace and location of declining demand for the gas distribution network. Network owners should then be required to develop transition plans which outline: <\/p>\n
Localised demand forecasts for their network that are consistent with AEMO\u2019s system-wide common demand forecast. <\/p>\n
Which parts of their network will be needed for how long; how they will maintain the network for as long as it is needed.<\/p>\n
How they will decommission the network by the phase-out date.<\/p>\n
The transition plans would sit on top of the five-yearly Access Arrangement to provide a longer-term view of the economic lifetime of each part of the network. Each of the eight regulated distribution networks in Australia would then have between three and four Access Arrangement periods left before full decommissioning, depending on their phase-out dates.<\/p>\n
These transition plans would allow network owners to identify in advance when parts of the network will be decommissioned. And if network owners can decide to disconnect customers, customers will need new protections.<\/p>\n
Network owners should be required to give customers at least five years\u2019 notice of disconnection, and they should publish planned decommissioning dates for all customers. This would minimise the risk of customers investing in new gas appliances only to have the network decommissioned.<\/p>\n
Even with five years\u2019 notice, some households connected to the gas network will face unaffordable costs to electrify their appliances, and potentially upgrade the wiring of their homes. Governments will need to provide financial support to low-income households that cannot afford the upfront cost of electrification. Proper planning and timelines communicated in advance will reduce the need for government financing, which is another reason governments should take control of the gas phase-out, to minimise the cost.<\/p>\n
4.6 Limit expenditure to only what is required<\/p>\n
Expenditure between now and gas network phase-out should be limited to what is absolutely required to safely operate the network for as long as it is needed, and then to decommission it. This will require expenditure rules that govern Access Arrangements to be materially tightened.<\/p>\n
Gas network owners continue to ask for, and receive permission for, substantial investment in networks. In the current Access Arrangement period, network owners have spent $3.3 billion in capital expenditure and $3.5 billion in operating expenditure on their networks. In the most recent decision, in May 2025, the energy regulator approved nearly $700 million in capex and $1.1 billion in opex for Jemena.<\/p>\n
But currently there is no clear framework for discerning what capital investments and operating expenditure are required to safely operate the network for as long as it is needed, versus capital investments that will not be needed under declining demand.<\/p>\n
For instance, in Jemena\u2019s Access Arrangement, the regulator rejected $50 million in capex that Jemena requested to replace gas meters, on the basis that replacing the meters may not be required under declining demand. But the regulator also rejected $79 million in proposed capex to fund the connection of biomethane facilities to the Jemena network.<\/p>\n
The AEMC has proposed to address this in several ways. The proposed rules would require network owners to: <\/p>\n
Consider how long-term demand trends should affect expenditure proposals (not just the current five-year Access Arrangement). <\/p>\n
Justify new capex based on forecast future (not current) demand.<\/p>\n
Stop spending money on advertising pipeline gas to new customers (which is currently allowed).<\/p>\n
These proposed changes are a start but do not go far enough. They do not consider the possibility of decommissioning gas networks, either in part or in full, and they do not require new expenditure to be consistent with a path towards decommissioning.<\/p>\n
To start with, network owners should stop growing their regulated capital base by connecting new customers to the gas network.<\/p>\n
At a minimum, customers that do connect to the network should pay the full costs of doing so. Since 1 January 2025 in Victoria, and starting on 1 October 2026 in NSW, Queensland, South Australia, and the ACT, newly-connecting gas customers will need to pay cost-reflective connection charges upfront. These changes will remove connections capex from the regulated asset base, which account for about a third of all capex.<\/p>\n
WA has no such rule. In its Access Arrangement for 2025 to 2029, ATCO (which owns the distribution network serving 800,000 customers from Perth to Mandurah) is expecting to connect 82,000 new households to the gas grid. If that happens, the costs of disconnecting those customers will be paid for by all WA gas customers. Increasing the asset base 25 years before it must be decommissioned simply makes the decommissioning and depreciation problem worse.<\/p>\n
Proposals for new expenditure should be justified against network transition plans. And the energy regulator should approve only new spending required to decommission networks, or safely operate them until then. This should apply to all eight regulated distribution networks.<\/p>\n
4.7 Allocate costs fairly without causing a death spiral<\/p>\n
There are three kinds of costs associated with a declining gas network to allocate: gas exit costs (to leave the network), network costs (to operate and maintain the network), and decommissioning costs (to retire the network). In what follows, we propose a \u2018grand bargain\u2019 between consumers, industry, and taxpayers to shoulder the costs of network phase-out across these three buckets.<\/p>\n
A cross-cutting challenge in determining the allocation of costs across parties is that owners of regulated distribution networks can pass any costs back onto consumers by including costs in their regulated asset base. But some share of costs should be borne by network owners and their shareholders. To achieve this, any costs that governments decide should be borne by network owners will need to be excluded from the regulated asset base. This will require a change to the National Gas Law.<\/p>\n
There is no easy way to allocate these costs and our proposal will have many critics. But ignoring the problem will not make it go away. It\u2019s time to discuss who should pay.<\/p>\n
Customers and network owners should share the cost of exiting the gas network<\/p>\n
Customers choosing to leave the gas network typically have two options \u2013 disconnection (a temporary removal of the gas service) or abolishment (permanent removal of the gas meter). Costs vary by network, but temporary disconnection is much cheaper than permanent abolishment.<\/p>\n
In Victoria, in 2023, the Australian Energy Regulator capped abolishment fees at $220, to remove the incentive for customers to opt for the cheaper but less safe disconnection option which leaves live but unused assets in place. But with the cost to the network owner of gas abolishment sitting at about $1,200, the rest of the cost was socialised across all remaining gas users in the network.<\/p>\n
The Jemena gas network in NSW adopted a similar approach, with customers paying $250 for abolishment and the remaining $1,200 in costs being recouped from remaining gas customers. Network owners in SA, WA, Queensland, and the ACT typically charge cost-reflective abolishment fees of about $1,000.<\/p>\n
Socialising the costs of gas disconnection is inequitable \u2013 households that can afford to electrify are subsidised to do so by those households that cannot. In its 2023 decision to cap Victorian abolishment fees, the AER acknowledged that socialising disconnection fees was an \u2018interim measure\u2019 designed to address public safety concerns about live but unused gas pipelines, and that further work was needed to develop a \u2018more sustainable solution\u2019.<\/p>\n
In April 2026, the AEMC issued a new rule requiring customers leaving the gas network to pay cost-reflective charges, instead of the costs being socialised across gas users, and empowering the AER to approve the costs that networks charge for this service. To address the safety concerns of customers choosing the cheaper disconnection, the rule requires safety regulators to impose safety standards, and network owners to implement them.<\/p>\n
The effect of the AEMC ruling is to shift abolishment costs onto the customers choosing to leave the gas network, and to increase the price that customers in NSW and Victoria will pay by about $1,000. This creates a significant financial barrier to electrification that many households will be unable to afford.<\/p>\n
A better solution would be to keep abolishment fees capped but prevent the remaining costs from being socialised onto remaining gas users. This could be achieved by amending the rules on Access Arrangements to prevent network owners from including abolishment fees in their asset base for the calculation of regulated returns.<\/p>\n
This model would essentially share the cost of leaving the gas network between households choosing to leave, and network owners, rather than other gas consumers. A 50:50 split between the exiting customer and the network owner would be a reasonable approach. Requiring network owners to pay a portion of the abolishment costs also creates an incentive for them to deliver abolishments at least cost.<\/p>\n
Customers that are removed from the gas network by their distributor as part of network-driven decommissioning should not be charged for abolishment.<\/p>\n
Network costs should be depreciated based on retirement deadlines \u2013 up to the death spiral point<\/p>\n
Remaining costs of the network itself would typically be recouped through tariffs over the lifetime of the asset. However, to respond to the risk that their assets will become stranded, network owners have started to ask for, and receive permission from, the energy regulator to more quickly recoup the cost of their network, known as \u2018accelerated depreciation\u2019.<\/p>\n
Gas pipeline networks are long-lived assets, and their owners expect to recoup costs over the useful life of the asset, up to 80 years. If demand is forecast to drop, the economic life (how long an asset is commercially viable) of a pipeline may be less than its technical life (how long it could feasibly operate for). Accelerated depreciation aligns an asset\u2019s returns with its economic life, rather than its technical life.<\/p>\n
In the most recent Access Arrangements, network owners requested a collective $913 million of accelerated depreciation, of which $533 million was approved.<\/p>\n
Accelerated depreciation increases the costs that customers must pay in the short- to medium-term. By reducing the stranded-asset risk, it also shifts cost and demand risk off network owners and onto consumers. Some consumer advocates oppose the use of accelerated depreciation on the basis that it increases bills for gas consumers in the short-term.<\/p>\n
But that is the point \u2013 to bring forward the date when network owners can recoup their investments. The National Gas Law entitles network owners to a reasonable opportunity to recoup their efficient costs.<\/p>\n
If demand is declining and asset lives are shortening, depreciation schedules should to an extent reflect that.<\/p>\n
And if governments impose phase-out dates for residential gas and interim five-year decommissioning plans \u2013 as we argue they should \u2013 there is a strong argument for network owners to be granted some accelerated depreciation to reflect these shorter asset lifetimes.<\/p>\n
But accelerated depreciation alone cannot solve the problem of stranded-asset risk indefinitely because, as demand decline accelerates and depreciation increases, it pushes up bills and sparks the death spiral. Modelling commissioned by Energy Consumers Australia found that accelerated depreciation could increase bills: <\/p>\n
In the Jemena network in NSW by $130 over the 2026-to-2030 period and only reduce the regulated asset base by about 10 per cent in 2055; <\/p>\n
In the Multinet network in SA by $170 over the 2027-to-2031 period, and only reduce the regulated asset base by about 2.8 per cent by 2031.<\/p>\n
If accelerated depreciation pushes gas bills above the death spiral point, it will spark a chaotic decline in the gas networks that harms both consumers and network owners. It is in the interests of both that accelerated depreciation be used only within limits. In our view: some accelerated depreciation is justified on the basis that demand is declining and network owners should be given a reasonable opportunity to recoup their investments, and redundancy provisions are necessary on the basis that accelerated depreciation alone would drive an expensive, inequitable, and chaotic decline of the gas distribution network.<\/p>\n
Accelerated depreciation should therefore be permitted as a tool to manage stranding risk up to the point where it would push gas bills unacceptably high.<\/p>\n
Then, if there are limits on accelerated depreciation, regulators should require network owners to write off parts of the network to remove them from the regulated asset base. The cost of redundant assets should be shared between network owners and state governments. Targeted redundancy measures act as an effective cap on gas bills by capping the size of the regulated asset base relative to the customer base.<\/p>\n
State government should negotiate cost agreements with network owners in their states to share the cost of redundant assets. Some level of cost-sharing is both necessary and justified. It is necessary because if network owners were faced with the write-down of the vast bulk of their networks, the risk of financial collapse becomes acute.<\/p>\n
It is justified because some of the network redundancy is driven by government policy. Costs of network redundancy borne by network owners will need to be removed from the regulated asset base.<\/p>\n
Governments should pay network owners for decommissioning, but should recoup those costs from the sector<\/p>\n
There are six possible parties to pay for network decommissioning costs \u2013 and all have downsides: forcing gas consumers to pay is unviable because it would quickly push bills above the death spiral point, and unfair because it would shift costs onto consumers who cannot electrify; forcing gas network owners to pay the entire cost risks sending them bankrupt, leaving both the cost and responsibility for decommissioning the network on government; forcing gas producers to pay would reflect that they have profited from this infrastructure historically but, since they do not own it, they don\u2019t have responsibility for its decommissioning; forcing electricity consumers to pay is unfair because many electricity consumers have never been gas consumers, and it risks pushing up power bills materially; forcing electricity network owners to pay is also unfair because it transfers costs from gas network owners to electricity network owners; and forcing the government to pay is the easy way out, but essentially amounts to a subsidy for gas network owners to avoid remediation and decommissioning costs.<\/p>\n
We propose a cost-sharing arrangement between industry and taxpayers through a set of state-based funds to reimburse network owners for their efficient decommissioning costs, paid for by hypothecated levies on the gas and electricity sectors: state governments should establish funds to pay the costs of decommissioning the network in their respective states; money for the funds should come from a four-way cost-sharing arrangement between state governments, gas network owners (as the beneficiaries of the gas network), electricity network owners (as beneficiaries of electrification), and gas producers (as beneficiaries of the gas economy); funds should be raised from industry hypothecated levies or taxes; the rules governing Access Arrangements and electricity network determinations should be amended to explicitly clarify that levies paid by network owners to finance decommissioning cannot be included in the building block approach to revenue determinations, and therefore cannot be passed on to consumers; and if, based on the current fiscal environment, governments prefer a three-way cost-sharing arrangement with industry, they can choose to raise the entire amount from industry.<\/p>\n
The size of the funds (and therefore the levies) should be based on the federal government\u2019s estimate of the cost of network decommissioning. Network owners themselves should do the decommissioning, because it will happen in waves over the next 25 years, and because network owners are best-placed to manage progressive shut-downs safely.<\/p>\n
Given costs will be incurred over the next 25-30 years, the levy can be modest. For example, raising $10 billion over 30 years would not be an unreasonable impost spread across the gas and electricity sectors.<\/p>\n
And to ensure that gas network owners have an incentive to complete the decommissioning safely, state governments should require decommissioning bonds for each part of the network to be decommissioned under the transition plans. Over the next five years, network owners should be required to deposit bonds with their state governments \u2013 to be repaid upon successfully decommissioning each part of the network.<\/p>\n
Box 6: What if the distribution network owners hand back their licences?<\/p>\n
One risk of declining gas demand and a phase-out of gas distribution networks is that if the networks become unprofitable, network owners may suddenly close their businesses, hand back their licences, and avoid expensive decommissioning costs. This would leave customers without access to gas, and governments with a hefty decommissioning bill. <\/p>\n
There are two ways to mitigate this risk: establish financial incentives for decommissioning (through bonds) and establish trailing liabilities on network owners to ensure they cannot avoid financial and operational responsibilities by handing back their licence. <\/p>\n
The owners of the major gas distribution networks in Australia all own many other assets in Australia, including the electricity networks. AusNet owns part of the Victorian gas network and also part of the Victorian electricity network. Jemena owns part of the NSW gas network and part of the Victoria electricity network. CK Infrastructure Holdings owns the SA gas network, part of the Brisbane and Victorian gas networks, part of the Victorian electricity network, and the entire SA electricity network. ATCO, which owns the WA gas distribution network, owns $27 billion of assets across Australia and the rest of the world. <\/p>\n
The fact that all the gas networks are owned by the same companies as the electricity networks gives government a clear opportunity to establish trailing liabilities and ensure that taxpayers are not left with the clean-up bill.<\/p>\n
4.8 Unregulated distribution networks should have the same decommissioning regulations<\/p>\n
The majority of Australian gas customers are connected to regulated distribution networks. But many people are connected to one of the 28 unregulated networks which are not required to submit Access Arrangements that regulate their prices and returns.<\/p>\n
These unregulated networks are mostly in regional cities such as Mildura in Victoria (900 customers), Alice Springs in the NT (1,100 customers), and Kalgoorlie in WA (7,500 customers).<\/p>\n
Unregulated networks face the same risk of a death spiral as regulated ones, but regulators do not have the same tools available to manage their decline because the owners of unregulated networks are able to simply decide to shut down their networks. This means that thousands of regional Australians (and Brisbanites) are uniquely exposed to chaotic and expensive network closures.<\/p>\n
To ensure an orderly transition for these regional communities, the owners of unregulated distribution networks should have the same decommissioning framework as regulated ones \u2013 they should be required to develop transition plans to progressively decommission the network and give customers five years\u2019 notice of closure.<\/p>\n
Recommendation 3<\/p>\n
Reform the regulation and planning of gas distribution networks to enable and encourage the safe and progressive decommissioning of the networks as households electrify: <\/p>\n
\u2013 Develop consistent national standards for decommissioning gas distribution networks, with clear roles and responsibilities and requirements for safety and site remediation.
\u2013 Repeal rules that require regulated networks to connect new customers to the network and that prevent networks from disconnecting customers.
\u2013 Introduce new 25-year common gas demand forecast scenarios to be used as the basis of all gas system planning. Require networks to reconcile their own network demand forecasts with the common forecast.
\u2013 Require gas networks to develop transition plans outlining how they intend to progressively retire their networks by the phase-out date.
\u2013 Restrict new expenditure by gas networks to only what is required to safely operate the network until phase-out.
\u2013 Allow networks to use accelerated depreciation only insofar as it does not increase gas bills.
\u2013 Progressively reduce the size of the regulated asset base by writing down redundant parts of the networks. Share this cost between networks and state governments.
\u2013 Levy charges on gas and electricity networks and gas producers to fund the cost of decommissioning. Reform network regulations to prevent networks passing through the remainder of the cost to gas and electricity consumers.<\/p>\n","protected":false},"excerpt":{"rendered":"4 Safely phase out gas distribution networks As demand for gas falls, utilisation of gas pipelines will decline.…\n","protected":false},"author":2,"featured_media":706169,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[64,63,44],"class_list":["post-706168","post","type-post","status-publish","format-standard","has-post-thumbnail","category-australia","tag-au","tag-australia","tag-news"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/706168","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=706168"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/706168\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/706169"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=706168"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=706168"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=706168"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}