1. An action-based way forward
Vector and MDL

2. Governance Developed in response to PEA request Proposal only
Should be subject to full consultation
Subject to positive business case
Subject to relevant Board approvals

3. PEA: useful progress Uncertain vision of ideal NZ gas market
Instead, touchstones for assessing evolutionary options:
Dynamic efficiency, minimum cost, efficient use of capacity, support upstream and downstream markets, investment facilitated, independence, transparent, evolvable
PEA can now deliver a framework for development by the industry

4. This slide expresses evolution well…
But,
how to converge ?

5. Without knowing ideal arrangements…
How do we get this…
Not say this ?
Maui regime
Maui regime
Evolved Maui
Evolved Maui
Ideal arrangements
Evolved Vector
Evolved Vector
Vector regime
Vector regime

6. We need at least a mid-term vision
PEA believes long-term vision inappropriate as evolution of supply and demand too uncertain
We believe a mid-term vision is clear and useful, being a combination of:
Long term capacity arrangements to give certainty
Interruptible contracts to manage shortfall
And, the best time to implement congestion management is before congestion bites

7. Time for industry action?
The principal mechanism for improving the gas market is evolutionary change to VTC and MPOC
To ensure evolutionary alignment, Vector and Maui must work together
PEA work to date provides the framework for this

8. Incentives are aligned
GIC / PEA
Vector / MDL
Efficient capacity allocation 
Allocative efficiency
Dynamic efficiency
Efficient new investment
Efficient capacity allocation 
Allocative efficiency
Dynamic efficiency
No unnecessary investment

9. Long-term capacity allocations
Are financial, not physical
But inform SO’s real-time operations
Allocation is an issue of equity not efficiency
If tradable at the margin to reach highest value use
And no incentives for strategic withholding by incumbents
Priority on enabling trading of allocated contracts
Over all time scales
And removing any incentives for withholding
Initial auction of contracts desirable (for fairness) but not essential (for efficiency)

10. Introducing degrees of firmness

12. Suggested way forward (1 of 2)
Industry has mandate, understanding and incentives
Maui introduces AQ allocation regime
Consider variable-firmness non-AQs
(Two zones in the AQ system)
Vector expands IA regime
Consider variable-firmness IAs
Consider number of zones

13. Suggested way forward (2 of 2)
Industry introduces market for trading capacity contracts
Long and short term
Maui and Vector tariff structures evolved:
Allocate costs to capacity contract holders
Integrate market rentals
Vector introduces short term allocation regime
Vector addresses grand-parenting
Phase-out over transition period

14. GIC / PEA to initiate and facilitate
Wind up PEA with recommendation to GIC:
GIC issue notice of expectation to industry to evolve in accordance with PEA’s touchstones
GIC support industry self-evolution
MPOC and VTC change requests
Supporting regulation if and as necessary
Backstop threat of full regulation if industry does not deliver