Households to pay full cost for new gas connections as rules change to contain network death spiral

Households across Australia will have to pay up front and in full if they want a new residential gas connection, the Australian Energy Market Commission has determined, in a move to protect consumers from the gas network death spiral that will likely also speed it up.

The final determination, announced on Thursday, responds to a rule change request from Energy Consumers Australia that sought to update cost sharing in line with declining gas demand as consumers increasingly opt to go electric.

Under the old framework, says the AEMC, new customer connection costs were typically added to the gas distributors’ capital base and recovered from all consumers over time, through bills.

But with the outlook for residential and commercial gas becoming “increasingly uncertain,” a new framework was needed.

“The existing approach was designed for growing networks, but it’s no longer fit for purpose in a context where the outlook for gas demand is uncertain and is projected to decline,” AEMC chair Anna Collyer said on Thursday.

“Our final rule ensures those who benefit from new connections pay for them, while protecting existing customers from increased network costs.

“This is about giving customers clear, upfront price signals so they can make informed decisions about their energy choices,” Collyer said.

“Customers will still be able to connect to gas if they choose to, they’ll just pay the true cost of connecting upfront rather than having those costs spread across all gas users.”

The AEMC rule will apply to new retail customers connecting to the main gas distribution networks in the ACT, New South Wales, South Australia and
some Queensland gas distribution networks from October 01, 2026.

In Victoria – where the state Labor government has a legislated plan to get gas out of homes – a similar rule is already in place, following the proposal of a rule change, consultation and then updating of the state’s Gas Distribution Code of Practice, which took effect on January 1, 2025.

The issue over the so-called death spiral for gas networks is a critical one for industry and regulators, because one of the unresolved problems of the push to electrification is who gets to bear the cost of stranded gas pipelines and other infrastructure.

The AEMC’s determination will protect consumers from paying this cost – and particularly those consumers who may find it difficult to leave the gas network.

It is also likely to act as a further disincentive to those households weighing up whether or not to connect to the gas network, at a time when the evidence points to electric appliances being a much cheaper and healthier option.

The AEMC does not put a price on the “true cost” of a new gas network connection, but in Victoria, distribution company AusNet has set a standard fee of $1,960 excluding GST for residential customers requiring the most basic connection.

Meanwhile, a recent Rewiring Australia report, The Electrification Tipping Point, shows that an average fossil-fuelled home could save $4,100 a year by fully electrifying.

“For too long, developers have been imposing higher bills and more emissions on people by building gas-connected homes just because it saved them a bit of money,” said Rewiring Australia CEO Francis Vierboom on Thursday.

“This announcement fixes the economics. We can run our homes on electricity and we hope it marks the end of new gas connections nationwide. When you’re in a hole, stop digging.”

Who pays for getting off gas?

At the other side of the equation, the AEMC is still deciding if consumers wishing to guit gas should pay the full cost of abolishing their network connection, but in October flagged this as the “fairest” approach to mass electrification and avoiding a gas network death spiral.

It is also recommending the establishment of a strict and straightforward framework governing those costs, including standard offers for basic connection removals reflecting “the actual cost” of the service, and state government support for consumers who can’t afford to pay it.

The AEMC does not appear to have a price in mind at this stage, but says it will seek to settle on a “standard offer” for basic connection removals that are simple and straightforward, reflecting “the actual cost of removing their connection (typically involving capping pipes and making the site safe).”

The AEMC says it will also seek clarity around what costs can be included in removing a customer’s gas connection, and the different service levels for complex situations, such as multi-unit buildings or where traffic control may be needed.

The AEMC is seeking feedback on the draft determination and proposed rules until December 11, 2025. A final decision is expected early next year and, if adopted, the new framework would be phased in from 2027.

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