Gas Transmission and Capacity Pricing Workshop - Introduction 11 April 2013.

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Presentation transcript:

Gas Transmission and Capacity Pricing Workshop - Introduction 11 April 2013

Agenda Introduction o Steve Bielby, GIC CE and GTIP Sponsor o Ian Wilson, GIC Senior Technical Adviser Update on PEA thinking o Graham Scott, PEA Chair o Lew Evans, PEA Adviser Discussion o PEA members and attendees to discuss options for improvement Gas Industry Co2

REMINDER OF WHAT WE SET OUT TO DO Gas Industry Co3

Origins of GTIP Concerns (end-users, shippers, TSOs, regulators) that perhaps: Competition is reduced when a pipeline is constrained Capacity is not available to highest value use Capacity is not being fully utilised Investment will not occur when it is needed 4 GTIP launched with industry mandate to: ensure gas transmission assets are used efficiently establish the need for gas transmission investment develop an effective pathway for efficient investment

Objectives for the industry include governance arrangements that promote efficient and competitive gas markets through voluntary or regulated industry arrangements Specific objectives (Gas Act s43ZN) for GIC include: o Ensuring gas is delivered to existing and new customers in a safe efficient and reliable manner o Providing access to essential infrastructure o Minimising barriers to competition o Maintaining or enhancing incentives for investment o Properly and efficiently managing security of supply risks GIC powers to recommend regulations (Gas Act s43F) include: o Prescribing reasonable terms and conditions for access Gas Industry Co5 Legal framework of GTIP

Governance of GTIP Gas Industry Co6

Projects relevant to today’s discussion Gas Industry Co7

Timeline GTIP

CHANGING BACKDROP Gas Industry Co9

Everyone has a better understanding of the issues o Vector’s Capacity Determination process describes physical and commercial capacity o Supply and Demand Outlook issued and consulted on o Preliminary advice from PEA issued and consulted on New Otahuhu and Southdown contracts o Firm capacity reduced / some capacity tradable / some capacity interruptible Demand for firm capacity now less than supply o Less firm capacity dedicated to power stations o Demand soft, so all request for firm capacity in current year met Bulletin board market for transmission capacity introduced GIC has formally requested Vector to improve transparency Gas Industry Co10 Note on changed environment…

Gas Industry Co

PRELIMINARY ADVICE FROM PEA TO GIC, JULY 2012 Gas Industry Co12

PEA’s preliminary advice to GIC ChapterContent 1Introduction and background 2Economics of pipeline access 3Lessons from other jurisdictions 4Problem definition 5Straw man proposal 6Next steps and issues to be resolved App AInternational comparison Review of Transmission Access and Capacity Pricing Advice from the Panel of Expert Advisers July 2012 Gas Industry Co13

Essentially the PEA’s Straw Man proposed: Vector: Water down grandfather right (s5.3) If demand > supply, auction un-grandfathered capacity (s5.3) Make interruptible arrangements more transparent (s5.3) Rebalance tariffs: CRF ↑ TPF ↓ (s5.4) Confirm bulletin board and tradability of power station capacity (s5.5) Introduce a nominations regime (s5.6) Gas Industry Co14

INDUSTRY SUBMISSIONS ON PRELIMINARY ADVICE FROM PEA TO GIC, JULY 2012 Gas Industry Co15

Main themes of submissions on PEA’s preliminary advice Gas Industry Co16 PEA failed to set-out a ‘vision’ for the future Dissatisfaction with the problem definition including a suggestion by Market Reform (Larry Ruff) that the fundamental problem is the point-to-point capacity definition and that a ‘Market Carriage’ type regime may be preferable Support for greater transparency PEA did not consider all the options in particular, the option of extending the MPOC regime to Vector pipelines should have been considered

REVISED TERMS OF REFERENCE Gas Industry Co17

Gas Industry Co18 PEA’s response to submissions and further work

Gas Industry Co19

Gas Industry Co20 CharacteristicComparisonConcerns MauiVector 2. Minimum costs (including transaction costs) of governing and operating efficient transport arrangements High cost of operating two different access regimes 3. Maximum efficient use of physical capacity, particularly at times of capacity scarcity Inadequate mechanisms for allocating scarce capacity to its highest value use 4. Competition in related markets not distorted Competition in gas trading affected by grandfathering 5. Efficient Investment in related markets facilitated Inability to secure long term transport rights or assess risks of interruption may discourage investment Review problem definition

Gas Industry Co21 CharacteristicComparisonConcerns MauiVector 6. Investment in pipelines facilitated Absence of short-term price signals (Economic regulation settings may not be optimal) 7. IndependenceTSO’s favouring affiliates 8. Operational and commercial transparency Lack of transparency of holding and use of capacity 9. Able to evolve in a timely fashion - Review problem definition

Revision to Problem Definition Access arrangements do not provide for:  efficient allocation of scarce capacity, both physical and commercial (ie as defined by contracts/codes);  price signals to facilitate efficient investment; or  transparency on physical state of the pipelines and contractual arrangements for use of the pipelines. Also:  grandfathering of capacity may reduce competition to supply downstream users;  unnecessary costs may arise from different Maui and Vector access arrangements;  end users do not secure long term capacity rights on the Maui pipeline; and  vertical integration demands special care that arrangements cannot favour affiliate businesses. Gas Industry Co22 original revised  the capacity product definition allows grandfathering, which inhibits the efficient primary allocation of transmission capacity;  there is no price signal for scarce capacity, either in the short- or long-run;  there is low uptake and opacity of interruptible capacity arrangements;  the effectiveness of the secondary market is still unclear but it is thinly traded and non-transparent;  there is a lack of transparency regarding the determination of the amount of commercial capacity; and  there is uncertainty about whether the regulatory incentives are adequate to encourage new pipeline capacity to be built when it is efficient to do so.

Revision to Purpose Statement The purpose of the Transmission Access and Capacity Pricing project is to ensure that transmission pipeline access arrangements are dynamically efficient. In particular, the arrangements should:  transparently provide for the efficient utilisation of physical transmission pipeline capacity;  enable and facilitate efficient investment;  be harmonised across both transmission systems, to the extent it is efficient; and  offer transport services that, to the extent that is efficient, meet the needs of users. Gas Industry Co23 The purpose is to ensure Vector’s arrangements for transmission access and capacity pricing allocate capacity efficiently and effectively signal the need for investment in additional capacity. original revised

Possible Work Programme Gas Industry Co24