Is Public Safety Impacted by the Multiple Regulatory Regimes for Gas Pipelines and Networks?

Abstract

Gas pipelines and networks are subject to multiple regulatory governance arrangements. One regime is economic regulation which is designed to ensure fair access to gas markets and emulate the price pressures of competition in a sector dominated by a few companies. Another regime is technical regulation which is designed to ensure pipeline system integrity is sufficient for the purposes of public safety, environmental protection and physical security of supply. As was highlighted in analysis of the San Bruno pipeline failure, these two regulatory regimes have substantially different orientations towards expenditure on things such as maintenance and inspection which ultimately impact public safety. Drawing on more than 50 interviews, document review and case studies of specific price determinations, we have investigated the extent to which these two regulatory regimes as enacted in Australia may conflict, and particularly whether economic regulation influences long-term public safety outcomes. We also draw on a comparison with how similar regulatory requirements are enacted in the United Kingdom (UK). Analysis shows that the overall orientation towards risk varies between the two regimes. The technical regulatory regime is a typical goal-setting style of risk governance with an overarching requirement that ‘reasonably practicable’ measures are put in place to minimize risk to the public. In contrast, the incentive-based economic regulatory regime requires that expenditure should be ‘efficient’ to warrant inclusion in the determination of acceptable charges to customers. How safety is considered within this remains an open question. Best practice in performance-based safety regimes such as those used in the UK and Australia require that regulators adopt an attitude towards companies based on the principle of ‘trust but verify’ as, generally speaking, all parties aim for the common goal of no accidents. Equally, in jurisdictions that favor prescriptive safety requirements such as the United States (US) the common goal remains. In contrast, stakeholders in the economic regulatory regime have significantly diverse interests; companies seek to maximize their individual financial returns and regulators seek to exert downward price pressures. We argue that these differences in the two regulatory regimes are significant for the management of public safety risk and conclude that minimizing risk to the public from a major pipeline failure would be better served by the economic regulatory regime’s separate consideration of safety-related from other expenditure and informed by the technical regulator’s view of safety.