Demand management options on the Vector pipeline system

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Presentation transcript:

Demand management options on the Vector pipeline system Presentation to PEA James Mellsop Director Wellington 21 February 2013

Introduction Maui has formal, transparent demand interruptibility mechanism Albeit non-market based As noted by PEA, interruptibility on Vector system is less formal and transparent Illustrated by 11 August 2011 experience Revised Contact contract may provide sufficient interruptibility for the short/medium term, but Not transparent Not market-based Effectiveness may expire

Demand management options Formalise approach and increase transparency Two (complementary) approaches TSO buys right from (firm) shippers to interrupt; and/or TSO issues interruptible contracts

Buy-back of firm capacity (1) TSO purchases right to buy back a specified quantity of reserved capacity (i.e., right to interrupt) during a specified number of days within a specified period, at an agreed price “Call option” Bought by auction or another price discovery process This is the formality and transparency Bought by TSO in, e.g., the month ahead and/or week ahead as required (i.e., when a constraint is anticipated) No changes to VTC required, but ‘buy-back’ side deal needs to be written

Buy-back of firm capacity (2) Compensation to shipper could be Paid only if right is exercised (i.e., shipper is interrupted) Strike price – could be proxy for VOLL Paid regardless of whether right is exercised Premium - effectively a reduced CRF Some combination

Interruptible contracts (1) Rights defined as per reserved capacity contracts except that TSO has a right to interrupt up to specified quantity of reserved capacity during a specified number of days within a specified period Price is struck differently Sold by TSO a year ahead as required (i.e., to the extent of the level of security required) Sold by auction or another price discovery process

Interruptible contracts (2) No changes to VTC required, but interruptible contract needs to be written Effectively same pricing options for interruptible contracts as for interruptibility rights Lower CRF Paid only if right is exercised (i.e., shipper is interrupted) Some combination

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