Adam Junid 3170043

4 Nov 2005
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A COMPARISON OF NATURAL GAS INDUSTRY RESTRUCTURING WITH ELECTRICITY

INDUSTRY RESTRUCTURING

Author: Adam Junid

Course: ELEC9201: Electricity Industry Planning & Economics

School: Electrical Engineering & Telecommunications

Date: 19 Oct 2005

Disclaimer:

Approximate calculations and comparisons made in the Appendices, although based on best
historical pricing data, are merely indicative and cannot be used for purely commercial
purposes because they are estimated on a crude, linear basis and do not take into account
other factors such as electricity spot pricing, hedging contracts, large volume and long term gas
supply contracts, Maximum Daily Quantity (MDQ) tariffs, load factors, and precise time and
distance variations.

Abstract:

Australia’s natural gas and electricity industries are presently undergoing significant reform with
the intent of making them more integrated and “efficient”. The first commercial and physical
integration of the electricity network across state boundaries occurred with the final agreement
of Snowy Mountains’ hydroelectric scheme in 1957 (DND 1967, p38), which provided power to
Victoria, NSW and ACT. Sydney received interstate natural gas in 1976 (www.ena.asn.au)

Today, Victoria, NSW, ACT, SA and Queensland have connected their electricity networks and
trade power. Gas pipelines now connect Victoria, NSW, ACT, SA and Tasmania.

This project report outlines the development of the natural gas and electricity industry
restructuring from its inception as envisioned by the Federal Government until today.
Comparisons will then be made between the two industries, highlighting different rates of
restructuring progress and the reasons or constraints causing this.

Name: Adam Junid

Elective: ELEC9201
Report Topic: “A comparison of natural gas industry restructuring with electricity industry restructuring”
 2

Acknowledgements:

I thank my course lecturers Associate Professor Hugh Outhred and Dr Iain McGill for their
efforts and helpful answers to questions and concerns I had on ELEC9201: Electricity Industry
Planning and Economics.

Name: Adam Junid

Elective: ELEC9201
Report Topic: “A comparison of natural gas industry restructuring with electricity industry restructuring”
 3

Acronyms and Abbreviations:

AEMC Australian Energy Market Commission

AER Australian Energy Regulator

AGA Australian Gas Association

ACCC Australian Competition and Consumer Commission

COAG Council of Australian Governments

CNG Compressed natural gas

DBP Dampier-Bunbury Pipeline

DND Department of National Development

EMRF Energy Markets Reform Forum

ETSA Electricity Trust of South Australia

EUAA Energy Users Association of Australia

FRC Full retail contestability

GBE Government Business Enterprise

GFCV Gas and Fuel Corporation of Victoria

GJ Gigajoule

HEC Hydro Electricity Commission (Tasmania)

IC Industry Commission

IEC International Electrotechnical Commission

IPART Independent Pricing and Regulatory Tribunal, New South Wales

LNG Liquefied Natural Gas

MJ Megajoule

MSO Market Systems Operator

MSP Moomba-Sydney Pipeline

NCC National Competition Council

NECA National Electricity Code of Australia

NEM National Electricity Market

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NEMMCO National Electricity Market Management Company

NGMC National Grid Management Council

NWS North West Shelf

ORG Office of the Regulator General, Victoria

PJ Petajoule

PNG Papua New Guinea

PNV PowerNet Victoria

QERU Queensland Electricity Reform Unit

SAGASCO South Australian Gas Company Ltd

SECV State Electricity Commission of Victoria

SECWA State Electricity Commission of Western Australia

SMC Snowy Mountains Council

SMHA Snowy Mountains Hydroelectric Authority

VPX Victorian Power Exchange

WAPET West Australian Petroleum Exploration Pty Ltd

Glossary (Roarty 1998a, 1998b) :

Corporatisation: “Subjecting GBEs to the principles of the corporatisation law. Often

accompanied by a range of other initiatives, including providing greater
management autonomy and clear commercial objectives, performance
monitoring and competitive neutrality.”

Ring-fencing: “The internal separation of business functions within an enterprise for

management and accounting purposes.”

Third-party access: “The process whereby a gas producer or purchaser gains access to
processing, transmission and distribution systems on fair, reasonable and
commercial terms in order to market competing supplies of natural gas.”

Name: Adam Junid

Elective: ELEC9201
Report Topic: “A comparison of natural gas industry restructuring with electricity industry restructuring”
 5

Contents:

Title 1
Abstract 1
Acknowledgements 2
Acronyms and Abbreviations 3
Glossary 4
Contents 5

Executive Summary 6

Chapter 1: Introduction 7
1.1: Scope of report
1.2: What is “restructuring”, and why restructure?
1.3: How is “efficiency” measured, and is privatisation efficient?
1.4: Restructuring to allow customer “contestability”

Chapter 2: Natural Gas Industry restructuring 9

2.1 A brief history
2.2 Gas outlook

Chapter 3: Electricity Industry restructuring 10

3.1 A brief history
3.2 Electricity outlook

Chapter 4: Comparisons 12
4.1 A significant difference in ownership
4.2 Similar restructuring objectives
4.3 Potentially similar pricing approaches
4.4 Restructuring differences due to industry differences

Chapter 5: Conclusion 14
5.1 Summary
5.2 Current challenges
5.3 Future strategies
5.4 Restructuring: efficiency vs energy security and safety

References and Citations 15

Appendices 17

Name: Adam Junid

Elective: ELEC9201
Report Topic: “A comparison of natural gas industry restructuring with electricity industry restructuring”
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Executive Summary

Recent restructuring objectives to increase efficiency in terms of utility headcount and production /
generation allocation has brought about industry corporatisation, regulation to allow third-party
access, and the creation of a pooled, National Electricity Market, now consisting of Victoria, NSW,
SA and Queensland.

The results of the industries’ restructuring have so far being encouraging; there has been a
reduction in both electricity and gas prices (NCC, 2005), a broader and more innovative range of
energy services, reduced short-term public debt due to asset sell-offs, and niche companies are
carving out markets for renewable energy both locally and overseas.

Both gas and electricity industries corporatised and allowed for third-party access at roughly the
same time. Customer contestability progress lagged in the gas industry relative to the electricity
industry, possibly due to physical and technical reasons.

Energy transmission, a natural monopoly business, has long been privatised in the gas industry.
Gas transmission is currently regulated, and the extent of regulation is being reviewed. A lack of
accurate commercial data may delay regulatory decisions. Power transmission in the electricity
industry has remained in single, regulated, public-owned companies, with the exception of Victoria,
where the private transmission operator PowerNet is regulated by legislation.

Other differences between gas and electricity industries that may have an effect on the approaches
and results of restructuring have to do with renewable energy innovation (which is available for
electricity suppliers but not for gas suppliers), differences in transmission contract time periods
(which are much longer for the gas industry) and uniform technical standards (which are more
readily available in the national gas industry than the national electricity industry that has high
voltage level standards varying from state to state).

An unresolved issue for both industries’ restructuring is the extent to which utilities should be
privatised. Metrics to measure efficiency and productivity have been performed and argued
against. States other than Victoria have chosen to keep key utilities in public ownership; the long
term effects of full privatisation still being unclear.

To increase staff-count efficiency, public utilities in both private and public sectors have chosen to
hire short term contract staff for maintenance, construction and even operations. In 1989, the
electricity industry employed 90,000 people, not including Queensland’s power service to remote
aboriginal communities that are tendered and subcontracted out entirely (Johnson and Rix et al.
1991, p158).

The increased deployment of personnel into new short-term contracting roles would appear to
mitigate concerns that increased privatisation would increase unemployment. On the other hand,
individual job security and long-term accountability will be a significant factor that restructuring
decision makers will need to consider.

The public-regulated NEM has been able to withstand major current faults and recover in minutes
(UNSW 2005), but the 1998 private (http://www.ourcivilisation.com/decline/gasbang.htm) gas plant
explosion in Longford disrupted Victoria’s gas supply for two weeks (Roarty 1998b). Thus, related
to the restructuring and privatisation issue is the extent to which privatised companies can be
effectively audited and controlled by regulatory agencies to meet nationwide safety requirements.

Name: Adam Junid

Elective: ELEC9201
Report Topic: “A comparison of natural gas industry restructuring with electricity industry restructuring”
 7

1.0 Introduction

Ever since the first town gas supply to Sydney by AGL in 1841 and the first electric streetlighting at
Tamworth in 1888 (www.ena.asn.au), utilities had tended to be state-controlled; run to serve state
interests as top priority.

In 1967, the Department of National Development called for orderly development of supply and
distribution of energy across state boundaries (DND 1967, p43). This was followed in 1972 by the
establishment of a Pipeline Authority under the visionary late Minister for Minerals and Energy, Rex
Connor (Bambrick 1979, pp22-24). Connor advocated piping gas from Western Australia’s NWS
to Moomba and Sydney. Instead, the state government, putting state interests first, successfully
pursued an LNG export project for the NWS and eventually piped NWS gas to Perth instead
(Saddler 1981, pp103-104).

The Federal Government has since made significant efforts to coordinate energy industry
development and restructuring on a national level.

1.1 Scope of report

This report describes restructuring of the natural gas and electricity industries within Australia and
makes salient comparisons. Since the major restructuring that occurred between 1990 and 1996
drew initial inspiration from Section 46 of the Trade Practices Act 1974, particular focus will be on
industry history and events occurring from 1974 onwards.

1.2 What is “restructuring”, and why restructure?

“Restructuring” in the energy industry can be described as “re-arranging company structures and
responsibilities” to achieve certain objectives desirable for the people and nation.

These objectives include efficiency, lower energy prices, wide choice of energy suppliers, and
increased range and lower cost of services (Roarty 1998a, p7, Roarty 1998b, p12-13).

Restructuring re-arrangements for a utility company may include:

(i) corporatisation, which involves vertical separation of government owned utilities into
commercially autonomous, “ring-fenced” operations (Roarty 1998b, p5, p12)

(ii) fair third-party access for natural monopoly components such as transmission and
distribution systems (Roarty 1998b, pp12-13) to allow customer “contestability”

(iii) privatisation (Tagaza 1998, p72)

While it is not clear how long a time period the public must wait to see the benefits of restructuring
(Johnson and Rix et al. 1991, p130), arrangements (i) and (ii) above have been broadly agreed
upon by the NSW government (NSWLCH, 1997) industry leaders (Croft 1995, p1) and Consultants
(Spelman 1995, p1). Arrangement (iii) above though supported by Tagaza (1998, p72), has been
seriously questioned, because privatisation in itself will not achieve efficiency unless accompanied
by accountability (Johnson and Rix et al. 1991, p149, intelligent regulation (Johnson and Rix et al.
1991, p141) and reasonable competition (Leay 1995, p2).

Name: Adam Junid

Elective: ELEC9201
Report Topic: “A comparison of natural gas industry restructuring with electricity industry restructuring”
 8

1.3 How is “efficiency” measured, and is privatisation efficient?

The Industry Commission (IC) Draft Report (1990) claimed to have measured efficiencies in terms
of Total Factor Productivity (TFP). Based on their report, the IC recommended privatisation as a
“cure-all” (Johnson and Rix et al. 1991, p129). Johnson and Rix et al. (1991, p133) have shown
the IC Draft Report to have “highly questionable theory and poor data” because privatisation may
make a company less accountable, does not take into account Community Service Obligations
(CSOs), does not consistently account for contract staff labour and does not account for changes
in types of technologies employed over time. Johnson and Rix et al. prefer using partial
productivity measures that show what technology choices and investments should be made in
future years. Partial productivity measures do not indicate whether the private sector would make
those choices better than the public sector (Johnson and Rix 1991, p132).

Other than TFP and partial productivity, a metric often cited as an efficiency measurement is GWh
produced per staff head, or its analogy, GJ produced (or sold) per staff head.

Most utilities in Victoria, post-privatisation, have had staff reduction and thus have increased GWh
produced per staff head. Based on this metric’s data and not withstanding power disruptions
(Tagaza 1998, p98), privatisation has indeed made the utilities more efficient in terms of total
labour cost (Tagaza 1998, p100). On the other hand, this metric may also may be influenced by
the overcapacity made available by the NEM (Tagaza 1998, p86).

Privatisation in itself does not always result in effective competition (Johnson & Rix et al. 1991,
p141). It is instructive to note that the short-term cash injections provided by asset sell-offs
typically increase shareholder value irrespective of whether the seller is a public or private
company (Hughes 2005b).

1.4 How realistic is true customer “contestability” for natural monopolies?

Natural monopolies, such as the transmission business for gas and electricity, require very large
amounts of capital and assets and normally would be more efficiently served by a regulated
monopoly. Johnson and Rix et al. (1991, p138-139) and Rosenthal (1988, p213) agree that true
customer contestability is unrealistic in this instance.

1.5 Restructuring: efficiency vs energy security and safety

Another issue that has not been examined often with respect to industry restructuring is energy
security. Would an electricity transmission and gas distribution network expand with more
reliability and be less susceptible to faults or terrorist attacks under vertically integrated companies,
ring-fenced corporate GBEs, or regulated private companies?

The NEM in the past has been able to withstand major current faults & recover in minutes, but the
1998 gas plant explosion in Longford disrupted Victoria’s gas supply for two weeks (Roarty 1998b).
To mitigate such risks, regulatory agencies may need to enforce more safety audits
(http://www.ourcivilisation.com/decline/gasbang.htm), and state-wide safety designs such as
increased block-valve isolation, looping lines, and more hazardous area and Safety Integrity Level
(SIL) studies in future and existing gas projects.

Name: Adam Junid

Elective: ELEC9201
Report Topic: “A comparison of natural gas industry restructuring with electricity industry restructuring”
 9

2.0 Natural Gas Industry Restructuring

2.1 A brief history

A brief chronology of gas industry restructuring follows. For a more comprehensive overview,
please see Appendix (1).

1973: Pipeline Authority Act passed (Bambrick 1979, p24, p175)

1995: Natural gas export earnings approximately $1.4 billion per year (Badham et al. 1996, p17).
COAG establishes Gas Reform Taskforce to prepare a National Third Party Access Code
for Natural Gas Pipeline Systems, also known as the National Access Code (Roarty
1998b). East Australia Pipelines offers access to third parties.

1996: NSW Gas Supply Act passed (NSWLCH, 1997). Integral Energy starts packaging solar
and hydro services for customers. Nationwide proven gas approximately 1.3 BCM
(Badham 1996, p16)

1997: Natural Gas Pipeline Access Agreement 1997 (the National Access Code) approved by
COAG. The Code calls for removal of restrictions to retail contestability by 2002-4.

1998: WA passes Gas Pipelines Access Act, giving effect to the National Access Code.
Tasmania announces Duke Energy as preferred developer of Natural Gas in the state.
Ikon, Kinetic, Energy21 begin offering electricity to customers (Tagaza 1996, p107).

2000: EAPL starts applying for regulatory coverage revocation (regulatory waiver) for the
Moomba-Sydney Pipeline (MSP),

2001: Duke’s Eastern Gas Pipeline (EGP) gets regulatory waiver.

2003: Regulatory coverage revocation granted on relatively short length of MSP. Productivity
Commission to review Gas Access Regime
(http://www.treasurer.gov.au/tsr/content/pressreleases/2003/051.asp)

2004: MCE to agree on a gas market development plan arising from Consultancy studies.

2.2 Gas outlook

Australia’s gas industry has plenty of investment opportunities. Saddler (1981, p176, p182) and
Johnson and Rix et al. (1991, p3, p22) have argued that state governments, in their haste to
generate tax income, were not getting a good long term return on their privatised gas development
projects run by multinationals, and a suggested approach would be for the Federal Government to
become a ‘player’ by forming a national oil and gas company with public equity and specific
responsibilities to the people and nation. Formation of such a company would make it a potent
multinational of choice due Australia’s diverse and educated workforce and generous gas
reserves. Impediments to such a formation would have to be studied in more detail, its risks
mitigated, and formation steps and long term strategies carefully planned for. However, industry
events and restructuring since 1977 shows that the Federal Government is being more a referee
and rent collector in the industry than a player with public interests and equity. More work is
underway to coordinate gas industry exploration and transmission operators nationwide under the
Australian Energy Market Commission (AEMC) and Australian Energy Regulator (AER).

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Report Topic: “A comparison of natural gas industry restructuring with electricity industry restructuring”
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3.0 Electricity Industry Restructuring

3.1 A brief history

A brief chronology of electricity industry restructuring follows. For a more comprehensive

overview, please see Appendix 1.

1974: Trade Practices Act is passed with Section 46 intending to encourage competition &
prevent monopolistic trade practice. Section 46 of the act reflects the Sherman Act 1890, &
Australian Industries Preservation Act 1906.

1984: Victorian Electricity Study commissions inquiry into integrating Victoria/NSW/SA power
systems (Encel & Conner,1988, pp184-185)

1990: Labour Party/COAG directs Industry Commission (IC) to conduct inquiry into energy market
efficiency. IC recommends restructuring, i.e. corporatisation, non-discriminatory access,
energy network extension. The 1991 IC Report also assumed that privatisation confers
certain efficiency advantages (Tagaza 1998, p28)

1991: ECNSW restructured and renamed Pacific Power

1992: Victoria sells 51% of 1000MW Loy Yang B for $1billion to Edison Mission segments
(Tagaza1998, p30, p42).

1993: SECV split into generation, transmission, distribution segments (Tagaza1998, p28)

1994: Victorian wholesale electricity market (VicPool) under VPX commences (Tagaza 1998, p28,
p44). Queensland sells largest power station, 750MW Gladstone, to Comalco (Rio Tinto
and Northern States Power JV) for $0.75 billion (Tagaza 1998, p50)

1995: Victoria privatises all 5 distribution companies. WA splits its utility into separate gas and
electricity corporations. SA's utility split into generation, transmission, distribution
segments. ACTEW, NT, Tasmania utilities corporatised (Tagaza, 1998, p28)

Competition Policy Reform Act by federal government provides incentives for state utility
restructuring. One catch is that, after corporatisation, utilities will be subject to corporate
law and taxes under the federal gov't (Tagaza 1998, p37)

1996: NEMMCO and NECA formed (Rann, 1998)

1997: Trial NEM operational. Edison Mission buys remaining 49% of Loy Yang B (Tagaza,1998,
p30). Queensland wholesale electricity market operational (Tagaza 1998, p28)

1998: Official starting date for NEM (Rann, 1998)

2005: AER and AEMC operation commences (Martin and Baldwin et al. 2005, p1-2)

2006: Federal Governments seeking State commitments to transfer regulatory functions to

Australian Energy Regulator (AER) and Australian Energy Market Commission (AEMC)
(Martin and Baldwin et al. 2005, p1-2)

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Report Topic: “A comparison of natural gas industry restructuring with electricity industry restructuring”
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4.0 Comparisons

A technical limitation of electricity is that it cannot be stored in large amounts practically.

Innovations such as hydrogen conversion (economist.com 2005, CEIC 2005, PHM 2005) may
overcome this in future, but for the meantime this characteristic difference lends itself to particular
industry characteristics and restructuring approaches.

4.1 A significant difference in ownership

Most of Australia’s gas industry is in private ownership due to a lack of a national oil and gas
company as mentioned earlier. Pipelines that initially had public equity (Bambridge 1979, p205)
are now fully privatised. This contrasts with the electricity industry assets that were seeded by
state government funds and remained publicly owned until with the recent privatisation we have
seen in Victoria and to a lesser extent in other states.

4.2 Similar restructuring objectives

Other than the above difference of public and private ownership, the following gas and electricity
restructuring objectives (and to a lesser extent, results) have been similar, irrespective of whether
the utility be private or publicly owned:

(i) Industry regulators have tended to legislate restructuring of vertically integrated

companies into fully corporatised, ring-fenced companies

(ii) Restructuring legislation ensures third-party access availability is offered by each

transmission company

(iii) Restructuring has provided end-users a choice of gas and electricity retailers

(iv) Restructuring has resulted in retailers competing to offer expanded and combined gas-
electricity services (Tagaza 1998, p107)

Vertically integrated gas and electricity companies ring-fenced themselves at roughly the same
time (1994-1998). Customer contestability in the gas industry lagged the electricity industry
somewhat (see Appendix 2). The reasons for this are not clear, but in practice, longer times are
needed for laying and pressure-testing new reticulation pipework compared to distribution wiring
for electricity.

4.3 Potentially similar pricing approaches

Both electrons and gas molecules need a transmission network to travel to their loads. Pricing in
each industry tends to depend on proximities to production or generation sources. The Voltage
Value Function (VVF) concept described by Outhred (2005, p6) may be applied analogously to gas
network pricing, where gas pressures could be treated analogously to voltage levels.

4.4 Restructuring differences due to industry differences

Electricity has the advantage of being generatable from renewable energy such as solar, wind and
hydro sources. The electricity industry restructuring has resulted in electricity suppliers innovating
by offering “green energy” from renewable resources and has spurred these suppliers to explore
overseas markets (Tagaza 1998 p105). A similar result is not possible for the gas industry due to
the nature of natural gas being a non-renewable hydrocarbon.

Name: Adam Junid

Elective: ELEC9201
Report Topic: “A comparison of natural gas industry restructuring with electricity industry restructuring”
 13

Control of gas flow in pipelines is possible using throttle and block valves, but a similar control
mechanism is not available for an electrical transmission grid. As a result, most transmission grids
tend to be operated by a single, natural monopoly, whereas particular pipelines can be
conveniently operated by private parties. Post-restructuring regulation (DITR, 2005) of these
private pipeline owners has resulted in lower tariffs, which the owners have argued, may not allow
them to invest in and expand the pipeline network as rapidly as they would desire (NCC, 2005).
The electricity industry by large does not have this complaint due to the transmission networks
being operated by single, regulated, natural monopolies.

In terms of pricing per unit energy, city-gate gas costs less than wholesale electricity by factors of 3
to 15 (see Appendix (4) for calculation). Transport tariffs for gas per unit energy are also lower; by
factors of 34 to 162 (see Appendix (3) for calculation). However, the energy throughput per unit
time of high compression pipelines can be as high as 108 times that of typical high voltage power
transport tariffs per generator. As a result, daily gas pipeline transport revenue can be 18-42 times
greater than revenue received from a typical generator (see Appendix (3) for calculation). On the
other hand, pipelines have a design lifespan of 20-30 years1, may operate at a lower load factors
during maintenance pigging, and require extra land for blowdown stacks for safety requirements.
Electricity transmission lines do not have these design and operation constraints. As a result of the
pipelines’ particular maintenance requirements and shorter lifespans, many pipeline operators
have requested revocation from pricing regulation to allow for higher charges needed to operate
the pipeline (NCC, 2005).

One factor that is making regulation of the gas transmission industry a time consuming process is
that regulators may not have good commercial data on pipeline operation and maintenance costs,
i.e. they are performing “regulation by legislation”, not “regulation by ownership” (Johnson and Rix
et al. 1991, p108). In contrast, electricity transmission grids in most states are still government
owned. The privatised Victorian grid is regulated by a government who has had experience in grid
operation, and has thus learnt what to ask and look for (Hughes 2005a). In contrast, regulators
enforcing the Gas Access Code may not have reliable data available to them should compliance
and performance audits be performed (Johnson and Rix 1991, p105-128). This is further
complicated by the fact that many gas transmission contracts are long term (20 – 30 years or
more), and precise commercial agreements between the pipeline owner and client are often kept
confidential.

Lastly, although gas pipelines may require more industry maintenance (and thus more careful
“restructuring”) than power transmission, expanding and connecting pipelines involve less technical
effort from regulators. This is due to gas pipeline design and construction broadly following
standards set by Standards Australia (AS), and wider operational gas pressure ranges relative to
transmission line “electrical pressure”2. In contrast, although material standards in the electricity
industry may be partly specified by AS, high voltage transmission levels still differ from state to
state, and interconnection involves agreement on what voltage levels to operate at. Transmission
voltage levels affect the sizing and specifications of cables, switchgear and transformers, which in
turn affect cost. To make inter-state transmission line expansion and connection more convenient
and efficient, the AEMC and AER plan to encourage technical restructuring towards common
voltage standards on a federal basis.

1. Pipelines located in drier climates of Australia would tend to have lower corrosion rates.

2. This is a natural result of gas molecules being “burnable” irrespective of delivery pressure, whereas electrons must be transmitted at narrowly specified
voltages to be useful and to avoid equipment damage. The power transmission industry has no operation analogy for pipeline line-pack buffering and
adjustable pressure regulators located at end-users. As a result, gas pipeline pressure has a much wider range, percentage wise, relative to “electrical
pressure” in transmission lines.

Name: Adam Junid

Elective: ELEC9201
Report Topic: “A comparison of natural gas industry restructuring with electricity industry restructuring”
 14

5.0 Conclusion and Summary

The natural gas and electricity industries are important components of the Australian economy
(Johnson and Rix et al. 1991, p156-157). Recent restructuring objectives to increase efficiency in
terms of utility headcount and production / generation allocation has brought about industry
corporatisation, regulation to allow third-party-access, and the creation of a pooled, National
Electricity Market, now consisting of Victoria, NSW, SA and Queensland.

The results of the industries’ restructuring have so far being encouraging; there has been a
reduction in both electricity and gas prices (NCC, 2005), a broader and more innovative range of
energy services, reduced short-term public debt due to asset sell-offs, and niche companies are
carving out markets for renewable energy both locally and overseas.

5.1 Key arguments and unresolved issues

Both gas and electricity industries corporatised at roughly the same time to allow for greater
accountability to federal tax auditors and to allow for third party access regulation. Customer
contestability progress lagged in the gas industry relative to the electricity industry, possibly due to
physical and technical reasons.

Energy transmission, a natural monopoly business, has long been privatised in the gas industry
and is currently regulated, although the extent of regulation is being reviewed and a lack of
accurate commercial data may delay regulatory decisions. Power transmission in the electricity
industry has remained in single, regulated, public-owned companies, with the exception of Victoria,
where the private transmission operator PowerNet is regulated by legislation.

Other differences between gas and electricity industries that may have an effect on the approaches
and results of restructuring have to do with renewable energy innovation (which is available for
electricity suppliers but not for gas suppliers), differences in transmission contract time periods
(which are much longer for the gas industry), and uniform technical standards (which are more
readily available in the national gas industry than the national electricity industry that has high
voltage level standards varying from state to state).

An unresolved issue for both industries’ restructuring is the extent to which utilities should be
privatised. Metrics to measure efficiency and productivity have been performed and argued
against. States other than Victoria have chosen to keep key utilities in public ownership; the long
term effects of full privatisation still being unclear. To increase staff-count efficiency, public utilities
in both private and public sectors have chosen to hire short term contract staff for maintenance,
construction and even operations. In 1989, the electricity industry employed 90,000 people, not
including Queensland’s power service to remote aboriginal communities that are tendered and
subcontracted out entirely (Johnson and Rix et al. 1991, p158).

The increased deployment of personnel into new short-term contracting roles would appear to
mitigate concerns that increased privatisation would increase unemployment. On the other hand,
individual job security and long-term accountability will be a significant factor that restructuring
decision makers will need to consider.

The public-regulated NEM in has been able to withstand major current faults and recover in
minutes (UNSW 2005) , but the 1998 private (http://www.ourcivilisation.com/decline/gasbang.htm)
gas plant explosion in Longford disrupted Victoria’s gas supply for two weeks (Roarty 1998b).
Thus, another unresolved issue is the extent to which regulatory agencies need to enforce more
HAZOP audits (IEC 2005) and state-wide safety designs such as increased block-valve isolation,
looping lines, and Safety Integrity Level (SIL) studies in future and existing gas projects.

Name: Adam Junid

Elective: ELEC9201
Report Topic: “A comparison of natural gas industry restructuring with electricity industry restructuring”
 15

References and Citations

Badham et al. 1996, Sustainable Energy Economist.com online edition, Aug 11th
Policy for Australia (Green Paper), 2005, Solid Sunshine, viewed on 19 Oct
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h.cfm?qr=solid+sunshine&area=5>
Bambrick, S. 1979, Australian Minerals
and Energy Policy, Australian National Encel, S. and Conner, N. 1988,
University Press, Canberra. Alternatives in Energy Policy & the Use of
Scenarios, ‘National Energy Research,
Bunyon, R.M. 1995, The need to ensure Development and Demonstration
that a viable market is put in place, ESAA Program, Dept of Primary Industries and
Conference on Managing the New Energy, Canberra.
Electricity Market, Institute of International
Research Group, Sydney. Energy Networks Association 2005,
viewed 9 Oct 2005,
CEEM 2005, NEMMCO data showing <http://www.ena.asn.au/webc/factsandfig
network recovery during 900MW fault on ures/?0,0,a001,250>
13 Feb 2004, Assessing the adequacy of <http://www.ena.asn.au/webc/factsandfig
electricity industry restructuring + lessons ures/?0,0,a001,239>
for market design, Energy security: short-
term, Centre for Energy and Gell, M. 2001, Moomba to Sydney
Environmental Markets, The University of Pipeline System Application for
New South Wales, lecture by MacGill, I. Revocation of Coverage, EMRF
on 10 Oct 2005. submission letter to NCC, downloaded
from NCC website on 9 Oct 2005,
CEIC 2005, New Battery Gets Further http://www.ncc.gov.au/
Funding, School of Chemical Engineering
and Industrial Chemistry, The University Hughes, A. 2005a, Energy regulator loses
of New South Wales, website viewed on power in court, The Australian Financial
27 Oct 2005, Review, 19 Sep 2005, p7.
<http://www.ceic.unsw.edu.au/news/msk_
batteries.asp> Hughes, A. 2005b, AGL under pressure
for deals, The Australian Financial
Croft, D. 1995, The New Transmission Review, 19 Sep 2005, p72.
Order, The New Agenda for Electricity,
Institute of International Research Group, IEC 2005, IEC 61882 (Hazard and
Brisbane. operability studies (HAZOP) – Application
Guide, viewed on 19 Oct 2005,
Department of National Development, <http://webstore.ansi.org/ansidocstore/pr
1967, Energy in Australia, A.J. Arthur, oduct.asp?sku=IEC+61882+Ed.+1.0+b%
Canberra. 3A2001>

Department of Industry, Tourism and Leay, P.B. 1995, Contrasting Revolutions

Resources (DITR) webpage on Gas in Market Structure, The New Agenda for
Access Regime, viewed 17 Oct 2005, Electricity, Institute of International
<http://www.isr.gov.au/content/itrinternet/ Research Conference, Brisbane.
cmscontent.cfm?ObjectID=396B73E4-
6CF3-49B0-B6D384EB006BAECC>

Name: Adam Junid

Elective: ELEC9201
Report Topic: “A comparison of natural gas industry restructuring with electricity industry restructuring”
 16

Martin, G and Baldwin et al. 1995, In the <http://www.aph.gov.au/library/pubs/rp/19

news and ESAA Perspective, Energy 97-98/98rp14.htm>
Supply Magazine, August 2005
<http://www.esaa.com.au> Roarty, M. 1998b, Natural Gas: Energy
for the New Millennium, Parliamentary
National Competition Council (NCC), Library Research Paper 5, Parliament of
Application for revocation of parts of the Australia.
Moomba to Sydney pipeline system, Draft <http://www.aph.gov.au/library/pubs/rp/19
Recommendation, 2001, downloaded 98-99/99rp05.htm>
from NCC website on 9 Oct 2005,
<http://www.ncc.gov.au/activity.asp> Rann, A. 1998, Electricity Industry
Restructuring – A Chronology,
National Competition Council (NCC) Parliamentary Library Background Paper
2005, webpage on Gas Code Revocation 21, Parliament of Australia.
and Coverage, viewed 17 Oct 2005, <http://www.aph.gov.au/library/pubs/bp/1
<http://www.ncc.gov.au/activity.asp> 997-98/98bp21.htm>

NSW Legislative Council Hansard Johnson, M. and Rix, S. 1991, Powering

(NSWLCH), 1997, Gas Restructuring the Future: The Electricity Industry and
Amendment (Customer Contracts) Bill. Australia’s energy future, Pluto Press
<http://www.parliament.nsw.gov.au/prod/ Australia in association with the Public
parlment/hansart.nsf/V3Key/LC19970626 Sector Research Centre, UNSW.
048>
PH 2005, The vanadium battery — a
Outhred, H. 2005, Managing Availability, technical development saga. Powerhouse
Quality and Security in a Restructured Museum website, viewed on 27 Oct 2005,
Electricity Industry with Reference to the <http://www.powerhousemuseum.com/au
Australian National Electricity Market, 39th stralia_innovates/view/develop.html>
Hawaii International Conference on
System Sciences Saddler, H. 1981, Energy in Australia:
politics and economics, George Allen &
Reichel, A. 2002, Application for Unwin Australia, Sydney.
Revocation of Coverage of Parts of the
Moomba to Sydney Pipeline, EUAA Spelman, M. 1995, ‘Creating an
submission letter to NCC, downloaded Integrated Utility’, The new Agenda for
from NCC website on 9 Oct 2005, Electricity.
<http://www.ncc.gov.au/activity.asp>
Tagaza, E. 1998, Electricity in Australia,
Roarty, M. 1998a, Electricity Industry Financial Times Energy, London.
Restructuring: The State of Play,
Parliamentary Library Research Paper W.D. Scott & Co Pty Ltd et al. 1980,
14, Parliament of Australia, viewed on 9 Prospectus for Australian Energy
Oct 2005 Management, W.D. Scott & Co, Sydney.

Name: Adam Junid

Elective: ELEC9201
Report Topic: “A comparison of natural gas industry restructuring with electricity industry restructuring”
 17

Appendices:

1) Chronology Comparison

2) Contestability Development

3) Transport Tariff Comparison

4) Comparative Facts and a Price Comparison

5) Powerpoint Slide Brief

Name: Adam Junid

Elective: ELEC9201
Report Topic: “A comparison of natural gas industry restructuring with electricity industry restructuring”
Chronology Comparison of NG industry restructuring with Electrical industry restructuring
(Salient milestones in blue texJoint NG - electricity milestone in light green background)

YEAR ELECTRICITY INDUSTRY NATURAL GAS INDUSTRY

1837 AGL founded to supply Sydney

1841 AGL provides town gas public lighting (ESAA webpage)
1856 Melbourne Gas & Coke Co provides public gas lighting (ESAA webpage)
1857 Hobart Town Gas Co provides public gas lighting (ESAA webpage)
1861 SA Gas Co formed (ESAA webpage)
1863 First electric light on public display at Sydney Observatory (ESAA webpage)
1864 Brisbane Gas Co formed (ESAA webpage)
1885 Perth Gas & Fremantle Gas & Coke Co supply gas (ESAA webpage)
1888 Electric streetlighting installed at Tamworth, NSW (ESAA webpage)
1894 Melbourne Power Station operational; streetlights installed in Melbourne (ESAA webpage)
1900 Natural Gas found at about 1.1km depth by drilling an artesian in Roma, Queensland (ESAA webpage)
1904 Pyrmont Power Station supplies Sydney (ESAA webpage) (Corbett, 1976)
1919 SECV formed (DND, 1967)
1923 Northern Territory last state to receive electricity (ESAA webpage)
1929 HEC Tasmania established (DND, 1967)
1937 SECQ formed;
Swedish consulting engineers report favorably on Snowy's pwr-producing potential (p38, DND, 1967)
1945 EANSW formed to regulate & coordinate development of power network; SECWA formed (DND, 1967)
Total national power generation & consumption: 6.9MW (0.007GW) (DND, 1958)
1946 ETSA formed (DND, 1967)
1948 Victoria adopts uniform retail tariff (Coleman, 1995)
1949 Snowy Mountains scheme enacted (Johnson & Rix, 1990)
1950 ECNSW formed to generate power (Johnson & Rix, 1950; DND, 1967)
1955 Total national power generation & consumption: 13.9MW (0.014GW) (DND, 1958)
1957 Snowy Mountains commercial agreements finalised (p38, DND, 1967)
1958 State Electricity Commission of Victoria (SECV) monopoly status protected by SECV Act 1959 PM Menzies sells national shares of gov't owned oil refiner & marketer COR to BP (Saddler, 1981)
(Rosenthal, 1988) "Petroleum reserves must be considered as non-existent at this stage.. Australia has no known reserves
of natural gas" (DND, 1958)
1961 Natural Gas piped to Old Roma Power Station (ESAA webpage)
First commercial oil field discovered at Moonie, Surat Basin, Queensland (DND, 1967)
1965 Gov't policy to oblige refineries to take expensive Moonie oil, proportional to their market share.
(Saddler, 1981)
Esso/BHP discover gas in Gippsland Basin, Victoria; resulting in virtual monopoly over this Basin.
(Roarty, 1998)
1966 Cooper Basin - Adelaide 768 km pipeline constructed (Corbett, 1976)
1967 Dept of Nat Development calls for orderly development of supply & distribution across State boundaries (DND, 1967)
1969 Roma-Brisbane Natural Gas pipeline commences operation (ESAA webpage)
Brisbane, Melbourne, Adelaide supplied with Natural Gas (ESAA webpage)
Esso/BHP Gippsland Basin supply to Gas & Fuel Corp of Victoria (GFCV) commences (Roarty, 1999)
1971 NG supplied to Perth (Saddler, 1981)
OPEC oil price rise, 1971-1973.
1972 Pipeline Authority overseen by Rex Connor, Minister for Minerals & Energy (Bambrick, 1979),
under the Dept of Minerals & Energy (Corbett, 1976)
1973 1st energy crisis, 1973-74 Pipeline Authority Act passed; one intent was to have "uniform prices of NG throughout the grid".
(Bambrick 1979, p24, p175)
1974 Trade Practices Act passed, with Section 46 intending to encourage competition & prevent monopolistic trade practice. Section 46 reflects the Sherman Act 1890, & Australian Industries Preservation Act 1906.
1975 Sydney supplied with Natural Gas (ESAA webpage)
1976 Transcontinental GNWS-Sydney pipeline envisaged by Connor (Bambrick, 1979)
Proven gas reserves 29300 PJ, or 1.1 BCM (Griffith, 1979)
Gas consumed 230 PJ (Griffith, 1979)
1977 Gov't approves GNWS LNG plant proposal. Proposal is unpopular with NSW/Victoria/Queensland/AGL
(Saddler 1981, p103-104)
1978 NSW gov't plans to amalgamate elec. supply authorities to "bring about cost savings" (EANSW, 1978)
NSW Gov't Energy Management Program set up to freeze total gov't energy consumption for 5 yrs (Encel & Conner 1988, p183)
1979 PM Fraser suggests private power stations in Victoria to supply anticipated plant demand
(Rosenthal 1988, p199)
2nd energy crisis, 1979-80
1980 "Australian industry will look increasingly to natural gas as a substitute for oil" (WD Scott & Co, 1980)
One barrier to responsive gas pricing is its typical 20-30yr long-term contracts (WD Scott & Co, 1980)
1982 NSW opposition energy spokesman Ted Pickering promises future private NSW power stns (Rosenthal, 1988)
Eraring power stn, NSW sold for $1.65 billion & becomes 1st privately-owned power station (Rosenthal, 1988).
Eraring operations remain under ECNSW (Johnson & Rix, 1991)
New gov't in Victoria attempts to make SECV more accountable to gov't, e.g. community consultations on plans.
(Johnson & Rix, 1991)
1984 Victora commissions inquiry to integrate Vic/NSW/SA pwr systems (Encel & Conner 1988, p184-185)
1989 NSW State Owned Corp'ns Act 1989: corporatised entities to have key financial targets & IRR (J & Rix '91)
1990 ALP/COAG directs IC to conduct inquiry into energy market efficiency (Tagaza 1998, p28) Moomba-Sydney line up for sale (http://www.appea.com.au/edusite/html/industry.html)
SECV reports a 50% increase in productivity btw 1985 & 1989 (SECV Ann Rpt 1990, in J & Rix, 1991)

1991 IC recommends restructuring, i.e. corporatisation, non-discriminatory access, energy network extension. The 1991 IC Report also assumed that privatisation confers certain efficiency advantages
(IC Draft Report on Energy Generation & Distribution in Johnson & Rix, 1991). Most states appeared to drag feet (Tagaza, 1998)
Development of NEM commences to realise a transparent wholesale & spot market
NGMC established to coordinate interstate grid regulation & allow benefits of competition
Basslink study submitted
ECNSW restructured & renamed Pacific Power

1992 Independent Committee on Inquiry into National Competition Policy established, chaired by Prof Hilmer
Victoria sells 51% of 1000MW Loy Yang B for $1billion to Edison Mission (Tagaza, p42)

1993 Hilmer report released to COAG.

SECV split into generation, transmission, distribution segments (Tagaza 1998, 28)

1994 Victorian wholesale electricity market (VicPool) under VPX commences (Tagaza 1998, p40) COAG agreement to remove legislative barriers to free & fair trade in gas;
Public consultation of Queensland's Eastlink commences AGL completes MSP purchase (http://www.appea.com.au/edusite/html/industry.html)
Q'land sells largest stn, 750MW Gladstone, to Comalco (RioTinto/Northern States JV), $0.75 bn COAG agreement for a nationally consistent 3rd-party access regime for electricity & gas
(Tagaza 1998, p50)

1995 Victoria privatises all 5 distribution companies (Tagaza 1998, p28) EAPL offers access to 3rd parties
WA splits its utility into separate gas & electricity corporations (Tagaza 1998, p28) 1995-1996 natural gas export earnings approx $1.4 billion (Badham et al. 1996, p17)
SA's utility split into generation, transmission, distribution segments (Tagaza 1998, p28) Proven gas reserves approx 1 BCM (Badham, 1995)
NSW Labor Gov't breaks up Pacific Power
Transgrid given authority to develop & operate interim electricity market in NSW
ACTEW, NT, Tasmania utilities corporatised (Tagaza, 1998)
Competition Policy Reform Act by federal gov't provides incentives for state utility restructuring. One catch is that, after corporatisation, utilities will be subject to corporate law & taxes under the federal gov't (Tagaza, 1998)

1996 NEMMCO & NECA formed NSW Gas Supply Act 1996 requires suppliers to ring-fence gas transportation from its gas retailing.
Q'land Liberal Pty scraps Eastlink ("environ'tal concerns"); chooses Westlink via coal reserves (Tagaza '98) Integral Energy starts packaging solar/hydro services (Tagaza, 1998).
Separation of Transgrid from Pacific Power Proven gas reserves approx 1.3 BCM (Badham, 1996)
Corporatisation of Transgrid

1997 NGMC transfers responsibilities to NEMMCO NG Pipeline Access Agreement 1997 (The "Code"): removal of restrictions to retail contestability by 2002-4;
Trial NEM operational Reps from all state gov'ts, sign the agreement; which also covers licensing & 3rd party access
SA-NSW Riverlink proposal submitted to NEMMCO. NGPAC formed to enforce pipeline 3rd party access "Code".
Edison Mission buys remaining 49% of Loy Yang B (Tagaza, 1998) Total Gas Consumption 817.8 PJ (Roarty, 1999)
Queensland wholesale electricity market operational (Tagaza, 1998) GFCV broken into transmission, distribution & retailing components Ikon, Kinetic, Energy21 (Roarty, 1999)
Victoria saves $700million per year on interest charges due to reduced debt (Tagaza, 1998) Integral Energy starts packaging gas supply services (Tagaza, 1998)
Total national power installed/consumed: 44GW/17GW (Tagaza, 1998) DBP sold to Epic for $2.3bn ((http://www.appea.com.au/edusite/html/industry.html)
ACCC "frowns upon" inter-state cross-ownership of generation assets, requires NEMMCO to monitor anti-competitive behavior, calls for price floor removal, questions NEMMCO's power to buy electricity to cover peaks.
(Tagaza, 1998)

1998 Official starting date for NEM;
SA gov't initially supports Riverlink, then abandons it due to report submitted by Optima Energy to NEMMCO;
NSW Auditor General recommends electricity industry privatisation.
NSW Premier, Treasurer & Vic's utilities concerned about NSW privatisation delay. (Tagaza, 1998)
United Power, Vic 1st power co to be listed on ASX (Tagaza, 1998)
Entenergy announces it plans to sell Citipower (Tagaza, 1998)
Gas Reform Implementation Group develops framework & legislation to enforce the "Code"
Tasmania announces Duke Energy as preferred developer of NG in the state
Gas Pipelines Access (WA) enacted to give effect to the "Code" in WA.
Longford Plant explosion in Victoria disrupts gas supply for 2 weeks.
AGL buys Victoria's Solaris Power (Tagaza, 1998)
Ikon, Kinetic, Energy21 begin offering electricity to customers (Tagaza, 1998)

2000 Separation of Eraring Energy from Pacific Power APT takes over AGL's pipelines (7500km)
ACCC takes over from Ipart for pricing regulation (Tagaza, 1998) EAPL applies for regulatory coverage revocation for the Moomba-Sydney line
2001 Queensland to join NEM (Rann, 1997) Duke's Eastern Gas Pipeline has regulatory coverage revoked.
NEMCCO Frequency Control Ancilliary Services (FCAS) commences

2002 Tasmania to join NEM (Rann, 1997) Port Campbell - Adelaide 680km pipeline commences construction (Origin Energy & TXU)
ACCC takes over access regulation from states (Tagaza, 1998)

2003 Ministerial Council on Energy report to COAG to accelerate a reliable, secure & competitive gas market.
MCE Report to COAG on Reform of Energy Markets
Regulatory coverage partially revoked on small length of Moomba-Sydney line owned by EAPL.
NSW Productivity Commission to review Gas Access Regime
2004 NEM Boundary Issues: Theoretical Support Framework Report prepared by Charles River Associates Port Campbell - Adelaide 680km (SEA) pipeline commences operation
NEM Boundary Issues: Modelling Report prepared by Charles River Associates MCE to agree on a gas market development plan arising from Consultancy studies.
SA legislation establishes AEMC MCE's Expanded Gas Program proposed

2005 PM Taskforce recommends "lighter touch" regulation to encourage more infra investment Country Energy & Inland Energy merge
(ESAA ESM, Aug 2005)
AER & AEMC operation commences

2006 Federal Govt seeking State commitments to transfer regulatory functions to Australian Energy Regulator (AER) & Australian Energy Market Commission (AEMC) (ESAA ESM, Aug 2005)
Contestability Development (Roarty 1998b, Rann 1998, http://www.isr.gov.au)
YEAR ELECTRICITY INDUSTRY
1994 Vic: >40 GWh/yr (144 TJ/yr) contestable
1995 Vic: >4 GWhr/yr (14.4 TJ/yr) contestable
1996 NSW: >40 GWh/yr (144 TJ/yr) contestable
Vic: >750 MWh/yr (2.7 TJ/yr)contestable
1997 NSW: >750 MWh/yr (2.7 TJ/yr)contestable
WA: >87.6 GWh/yr (315 TJ/yr) contestable
ACT: >20GWh/yr (72 TJ/yr) contestable
1998 NSW, Vic, ACT: >160MHh/yr (0.6 TJ/yr) contestable
Queensland: >40 GWh/yr (144 TJ/yr) contestable
SA: >4 GWhr/yr (14.4 TJ/yr) contestable
1999 SA: >750 MWh/yr (2.7 TJ/yr)contestable
WA: >43.8 GWh/yr (157.5 TJ/yr) contestable
NSW: all customers contestable
2000 SA: >160 MWh/yr (0.6 TJ/yr)contestable
WA: all customers contestable
2001 Queensland, Vic: all customers contestable
2002 SA: all customers contestable
2003
2004
NATURAL GAS INDUSTRY
NSW: >500 TJ/yr (138.9 GWh/yr) contestable
NSW: >100 TJ/yr (27.8 GWh/yr) contestable
WA: >500 TJ/yr (138.9 GWh/yr) contestable
NSW: >10 TJ/yr (2.8 GWh/yr) contestable
WA: >250 TJ/yr (69.5 GWh/yr) contestable
SA: >100 TJ/yr (27.8 GWh/yr) contestable
ACT,NSW: >1 TJ/yr (0.3 GWh/yr) contestable
Vic: >500 TJ/yr (138.9 GWh/yr) contestable
SA: >10 TJ/yr (2.8 GWh/yr) contestable
ACT,NSW: all customers contestable
SA: >1 TJ/yr (0.3 GWh/yr) contestable
Vic: >5 TJ/yr (1.4 GWh/yr) contestable
Queensland,WA: >100 TJ/yr (27.8 GWh/yr) contestable
SA, Vic, Queensland: all customers contestable
WA: >1 TJ/yr (0.3 GWh/yr) contestable
Full Retail Contestability (FRC) for NSW, Victoria, ACT
Perth area may be contestable
FRC for SA, WA
Transport tariff comparisons (http://www.countryenergy.com.au/internet/cewebpub.nsf/Content/dld_elec+network+pricing, http://www.ncc.gov.au/activity.asp, Reichel 2002, Gell 2001)
Basis: 1. 1 GJ = 0.277 MWh
2 Distance to transport energy scales linearly with Distance

YEAR ELECTRICITY INDUSTRY NATURAL GAS INDUSTRY

1996 Sydney-Moomba: $ 0.72 / GJ per 2026 km

i.e. $ 2.60 / MWh per 2026 km
$ 0.0004 / GJ per 1 km
$ 0.0013 / MWh per 1 km
Note: at 470 TJ/day, transport revenue is $ 338,400.00 per day
( 108 times elec energy flowrate) $ 123,516,000.00 per year
30 x BRKH)
42 x BRLD)
2002 Sydney-Moomba (regulated) $ 0.43 / GJ per 2026 km
i.e. $ 1.55 / MWh per 2026 km
$ 0.0002 / GJ per 1 km
$ 0.0008 / MWh per 1 km
Note: at 470 TJ/day, transport revenue is $ 202,100.00 per day
( 130190 MWh/day) $ 73,766,500.00 per year
18 x BRKH)
2005 Broken Hill BRKH022A - Transgrid: $ 0.01 / kWh per 1000 km 25 x BRLD)
$ 9.55 / MWh per 1000 km
$ 0.01 / MWh per 1 km
$ 34.49 / GJ per 1000 km
i.e. 48 x gasrate (unreg, distance indep)
80 x gasrate (reg, distance indep)
$ 0.03 / GJ per 1 km
i.e. 97 x gas rate (unregulated)
162 x gas rate (regulated)
Note: at 50 MW, transport rev is $ 11,463.60 per day
( 4.33 TJ/day) $ 4,184,214.00 per year

Calculation for lower tariff generator at same plant:

Broken Hill BRLD022A - Transgrid: $ 0.01 / kWh per 1000 km
$ 6.72 / MWh per 1000 km
$ 0.01 / MWh per 1 km
$ 24.25 / GJ per 1000 km
i.e. 34 x gasrate (unreg, distance indep)
56 x gasrate (reg, distance indep)
$ 0.02 / GJ per 1 km
i.e. 68 x gas rate (unregulated)
114 x gas rate (regulated)
Note: at 50 MW, transport rev is $ 8,060.40 per day
( 4.33 TJ/day) $ 2,942,046.00 per year
COMPARATIVE FACTS ABOUT NG & ELECTRICITY & THEIR MARKETS 6-Oct-05
(http://www.westernpower.com.au/home/products_services/smartpower/smartpower_rates.html, NCC 2001, Badham 1996, Roarty 1998, Tagaza 1998,
http://www.nemmco.com.au/data/avg_price/averageprice_main.shtm )

Notes: 1 GJ = 0.277 MWh

= 0.000277 GWh

i 1391480144 GJ = 385440 GWh (44GW) electrical generation capacity in 1997 (Tagaza, 1998)
ii 1130400000 GJ = 313121 GWh energy used for conversion into electricity in 1995-1996 (Tagaza, 1998)
iii 610108303 GJ = 169000 GWh actual electricity generated (post fuel conversion) in 1997 (Tagaza, 1998)
iv 537906137 GJ = 149000 GWh actual electricity consumed in 1997 (Tagaza, 1998) ( 17 GW equiv)
v 817800000 GJ = 226531 GWh gas consumed in 1997 (Roarty, 1998)
vi 83489 GJ = 23126 GWh approx. gas powered generation in 1997 (Tagaza, 1998)
vii Energy for elec gen : gas cons. = 1.38 (ii / v)
viii Actual elec gen : gas cons. = 0.75 (iii / v)
ix Elec cons : gas cons. = 0.66 (iv / v)
x % gas used for elec gen. = 10.2% (vi / v)
xi Ave gen. load factor = 0.44 (iii / i) (equiv to Pwr gen : pwr installed)
xii Pwr cons : pwr installed = 0.39 (iv / i)
xiii 1139430000 GJ = 29985 million cubic m gas produced in 1995-1996 (Tagaza, 1998)
= 315622 GWh of gas produced in 1995-1996
xiv 49400000000 GJ = 1300000 million cubic m proven gas reserves 1995 (Badham, 1996) ( 46.67 Tcf)
i.e. 43 years supply at 1995 production level
xv 98800000000 GJ = 2600000 million cubic m proven + probable gas reserves 1995 (Badham, 1996)
i.e. 87 years supply at 1995 production level

xvi NATURAL GAS ELECTRICITY

2001 Perth wellhead gas $ 1.90 /GJ or $ 6.86 /MWh WHOLESALE
2001 Perth city gate price $ 2.90 /GJ or $ 10.47 /MWh 1998-1999 Ave annual price SA $ 156.02 /MWh
('gasrate') i.e. 15 x gasrate
2001-2002 Ave annual price SA $ 31.61 /MWh
i.e. 3 x gasrate
RETAIL
2005 Western Power (WA) peak rate $ 20.22 /kWh
$ 20,220.00 /MWh
i.e. 1,931 x gasrate
2005 Western Power (WA) offpeak rate $ 6.56 /kWh
$ 6,560.00 /MWh
i.e. 627 x gasrate
 A comparison of natural gas
industry restructuring with
electricity industry restructuring
ELEC9201: Electricity Industry Planning and
Economics
17 Oct 2005
Adam Junid
Student ID 3170043
 Restructuring
• What is it?
– Re-arranging company structures and
responsibilities to achieve desired outcomes.
– Inherent in countries seeking progress,
innovation and public benefits.
– Driven by need for efficiency, choice,
accountability and long-term competitiveness.
– Corporatisation, fair 3rd party access,
privatisation in some instances
 Natural gas industry restructuring
• Some milestones
– 1973 Pipeline Authority Act
– 1991 IC Draft Report on Energy Industry
– 1992 AGL sells upstream interests
– 1994 AGL group purchases MSP
– 1997 National Gas Pipeline Access Act
– 1997 Epic purchases DBP (approx $2.3 bn)
– 2005 AER & AEMC commence
– 2005 AGL plans to sell retail interests *
(* Sydney Morning Herald, 1 Nov 2005)
Electricity industry restructuring
• Some milestones
– 1974 Trade Practices Act, Section 46
– 1991 IC Draft Report on Energy Industry
– 1991 ECNSW renamed Pacific Power
– 1992 Victoria sells Loy Yang B ($1 bn)
– 1993 SECV split
– 1994 Vicpool commences
– 1995 Victoria sells electricity assets
– 1996 NEMMCO & NECA formed
– 1998 Official NEM starts
– 2005 AER & AEMC operation commences
 Comparisons
• Similarities
– Ring-fencing (1993-1997)
– 3rd-party access
– End-user choice
– Combined gas-electricity services
– Transmission tariff regulation
 Comparisons
• Differences
– Gas transmission industry fully privatised
– Gas customer contestability lagged electricity
– Requests for pipeline regulation waivers
– Difficulty in gas tariff agreement & auditing
– Innovation seen in electricity privatisation
– Creation of niche renewable energy services
– Different transmission voltage levels
 Summary
• Conclusion
– More generation capacity
– Lower tariffs for gas & power
– Retailers offering combined services
– Innovation with renewables
– Most transmission grids remained public
– Gas contestability lagged electricity
– Pipeline regulation needs more data
 Issues to work on
• Directions of restructuring
– Uniform national standards for MV/HV
– The extent of privatisation; job security
– Accountability in both sectors
– Uniform metrics & indicators
– National Gas and Electricity Market
coordination and regulation by AEMC & AER