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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. Contact Us James Mellsop Director NERA—Auckland +64 9 928 3290
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