Consumers will not be left holding the bill for stranded gas network assets, and gas companies will no longer be able to claw back money spent in the name of “demand growth” under a package of regulatory reforms being proposed by the energy market rule maker.
The Australian Energy Market Commission (AEMC) is proposing a number of rule changes to guide gas companies through the looming network death spiral – and protect consumers from its fallout – as households and businesses quit gas for cheaper, cleaner renewables-backed electricity.
In a Directions Paper published on Thursday, the AEMC says the current set of rules governing gas distribution networks were designed to serve consumers and industry against a backdrop of stable or growing demand – but this dynamic has “started to shift.”
The emerging dynamic, says the AEMC, is one of “shared demand-related risk” that, if not carefully managed by policymakers, service providers and the regulator, could potentially trigger a disorderly energy transition.
The chief risk for gas consumers – which has been the focus of multiple rule change requests from Energy Consumers Australia (ECA) and the Justice and Equity Centre (JEC) – is rising and volatile gas prices.
Of particular concern is the diminishing group of customers – including those that face financial, technical or other barriers to going electric – left to foot the bill for running a largely abandoned gas network.
The key risk for the gas service providers, meanwhile, is that they are unable to fully recover the money they have “prudently and efficiently” (the AEMC’s words) invested in the network, resulting in some or all of these assets being at risk of stranding.
The risk of stranding may then also affect the gas companies’ ability to provide a safe and reliable service to remaining customers and to decommission the network. And so the cycle goes.
“Our proposed package ensures that the cost of these ‘stranded’ assets are not transferred to consumers, consistent with what would occur in a competitive market, where firms also face the risk of stranding due to competition, consumer choices, technological or policy changes,” the AEMC report says.
Rather, updated regulations would support efficient recovery of past network investment through “a modest and manageable increase spread across a large customer base today,” while also ensuring gas companies are facing facts on where their industry is headed.
To this end, the AEMC proposes tightening the use of capital cost recovery tools, to ensure networks can maintain their assets to the safe and reliable levels, while also ensuring consumers only pay for assets that they are expected to continue using.
The market rule maker also wants to the new rules to minimise the risk of “unnecessary and inefficient expenditure” by gas companies, including through “removing references to demand growth, tightening justification requirements, and strengthening accountability for expenditure choices.”
Tariff design will also get a makeover, the paper says, to better reflect consumer impacts across a range of different scenarios.
“Gas networks have served Australian households and businesses well for decades. But the rules were written for a world of growing demand – covering everything from how network costs are recovered to how new expenditure is justified and tariffs are set,” AEMC chair Anna Collyer said on Thursday.
“That world is changing and without updating the framework, the consumers who rely most on gas and have the fewest alternatives could end up bearing the heaviest burden.
“A modest and manageable increase spread across a large customer base today is far preferable to a sharp and unavoidable increase concentrated on a small group of remaining consumers in the future, many of whom will have no realistic option to leave the gas network,” Collyer says.
“We are proposing to act now precisely because waiting makes the problem harder to solve and the costs harder to bear. This is about facilitating an orderly transition.”
At the same time, the AEMC is also keen to stress that regulations, alone, will not solve all of the problems presented by the gas network death spiral. Governments will need to play a role.
“There will be a role for governments in supporting gas consumers and service providers through the energy transition, including through clearer jurisdictional policy signals, addressing service obligations, supporting consumers and planning for potential network decommissioning, where appropriate,” the paper says.
In a statement on Thursday, JEC said the AEMC proposal makes good progress, but calls for stronger measures to ensure the reforms are in place in good time to manage the consumer gas exodus.
“We initiated this reform process because implementing robust and fair measures to deal with redundant gas assets and ensuring a managed transition for gas networks is an urgent issue – it isn’t something that can be left to deal with in 2040,” said energy and water justice director Douglas McCloskey.
“Governments have a critical role to play and it’s great to see the AEMC highlighting this, but fit for purpose rules are also urgently needed,” McCloskey adds.
“More needs to be done to ensure consumers – particularly vulnerable consumers – aren’t burdened with unfair costs over the next decade, and then still left carrying the costs of stranded and redundant gas assets.”
The ECA, too, welcomes the AEMC’s push for governments to play a more prominent role.
“We need coordinated action from governments to develop a clear roadmap for electrification and plan for how the costs of stranded gas networks will be fairly allocated, rather than consumers bearing the overwhelming share of costs and risks,” ECA chief Brendan French said on Thursday.
“We hope the AEMC’s final report goes further than their draft in encouraging governments to do this.
“Australians should be paying a fair share for their energy and not one cent more.”
Elsewhere, however, the ECA says that some of the AEMC’s proposed reforms fall short.
“The proposed direction on capital cost recovery … fails to prioritise households and small businesses and would accelerate cost recovery for gas network investors,” French says.
“This may result in, in the AEMC’s own words, costs ‘being brought forward and today’s gas consumers facing higher prices.’ This is an alarming direction at a time when cost of living pressures and concerns about energy bills are high and global conflicts again threaten to sharply increase gas prices.
“Consumers cannot continue to be the default funders of the energy transition – investors need to share this burden as well,” French says.
The Directions Paper is part of a broader package of gas reforms being considered by the Commission, including changes to gas connections, disconnections and abolishments.
The Commission will consider all feedback before publishing a Draft Determination and Draft Rule, expected in August 2026. Public submissions are due before April 30, 2026.
Visit the project page for the Directions Paper and supporting materials.
