1. RBP Access Arrangement Auction Workshop Brisbane 17 May 2012

2. APA Group Presentation  2 Current state of play APTPPL proposed moving from a First Come First Served (FCFS) Queue to an NPV- ranked auction for spare and developable capacity AER has rejected APTPPL’s proposed approach on a number of grounds –Requires reversion to two FCFS Queues (Spare Capacity and Developable Capacity). APTPPL must file a Revised Proposal by 25 May 2012 Purpose of today’s workshop: –To work through various auction designs to define the best option –To identify issues to be addressed in APTPPL’s Revised Proposal Goal is for APTPPL to submit a revised proposal that is acceptable to both the AER and shippers

3. APA Group Presentation  3 NERA Report APTPPL engaged economics firm NERA to advise on auction processes and structures This report was not considered by the AER in reaching its draft decision –This report is on the AER’s web site Ann Whitfield from NERA will discuss this report and its findings –[review Ann Whitfield’s presentation here]

4. APA Group Presentation  4 Worked example Assume a pipeline with 100 units of available capacity  100 units of capacity  Adam (50 x $10) $500 Bob (30 x $8) $240 Chris (25 x $9) $225 Derek (15 x $10) $150 Fred (10 x $10) $100 Edith (15 x $9) $135 Ginger (10 x $9) $90  Quantity   ---------- Price ----------  A capacity auction is held in which seven bids are received. Each bidder defines its own capacity needs and the price it is willing to pay for that capacity. Area = Bid Value

5. APA Group Presentation  5 Total value ranking approach:  100 units of capacity  Step 1: Arrange bids in descending revenue order. Ginger (10 x $9) $90 7 Adam (50 x $10) $500 1 Bob (30 x $8) $240 2 Chris (25 x $9) $225 3 Derek (15 x $10) $150 4 Edith (15 x $9) $135 5 Fred (10 x $10) $100 6

6. APA Group Presentation  6 Ranking approach:  100 units of capacity  Step 2: Assign capacity in that order. 25 Ginger (10 x $9) $90 7 Adam (50 x $10) $500 1 Bob (30 x $8) $240 2 Chris (25 x $9) $225 3 Derek (15 x $10) $150 4 Edith (15 x $9) $135 5 Fred (10 x $10) $100 6 20 units available capacity Step 3: Stop assigning capacity as soon as the “next largest” cannot be served. Utilisation 80% Revenue $740

7. APA Group Presentation  7 Advanced Ranking 1:  100 units of capacity  Step 2: Assign capacity in that order. 25 Ginger (10 x $9) $90 7 Adam (50 x $10) $500 1 Bob (30 x $8) $240 2 Chris (25 x $9) $225 3 Edith (15 x $9) $135 5 Fred (10 x $10) $100 6 20 units available capacity Step 3: Skip any bids that are too big to serve in full. Utilisation 95% Revenue $890 Step 4: Repeat until no more full bids can be served. Derek (15 x $10) $150 4 5 units available capacity

8. APA Group Presentation  8 Advanced Ranking 2:  100 units of capacity  Step 2: Assign capacity in that order. 25 Ginger (10 x $9) $90 7 Adam (50 x $10) $500 1 Bob (30 x $8) $240 2 Edith (15 x $9) $135 5 Fred (10 x $10) $100 6 20 units available capacity Step 3: Offer partial capacity to any bids that are too big to serve in full. Utilisation 100% Revenue $920 Workshop: 1) Status of Chris’ bid. 2) Status of unserved request: Interruptible? Priority? Derek (15 x $10) $150 4 Chris (25 x $9) $225 3 5 units unserved capacity

9. APA Group Presentation  9 Marginal value ranking approach:  100 units of capacity  Step 1: Arrange bids in descending price order. Ginger (10 x $9) $90 2 Adam (50 x $10) $500 1 Bob (30 x $8) $240 3 Chris (25 x $9) $225 2 Derek (15 x $10) $150 1 Edith (15 x $9) $135 2 Fred (10 x $10) $100 1

10. APA Group Presentation  10 Marginal value ranking approach:  100 units of capacity  Step 2: Assign capacity in that order. Ginger (10 x $9) $90 2 Adam (50 x $10) $500 1 Bob (30 x $8) $240 3 Chris (25 x $9) $225 2 Derek (15 x $10) $150 1 Edith (15 x $9) $135 2 Fred (10 x $10) $100 1 Step 3: Same issues as above apply as soon as the “next largest” cannot be served. Not clear how a tie would be decided. The auction would deliver the same value if we accepted Edith and Ginger’s bids instead of Chris’. Utilisation 100% Revenue $975

11. APA Group Presentation  11 Optimisation approach:  100 units of capacity  Adam (50 x $10) $500 Bob (30 x $8) $240 Chris (25 x $9) $225 Derek (15 x $10) $150 Fred (10 x $10) $100 Edith (15 x $9) $135 Ginger (10 x $9) $90  Quantity   ---------- Price ----------  Step 1: No need to rank bids in any particular order.

12. APA Group Presentation  12 Optimisation approach:  100 units of capacity  Adam (50 x $10) $500 Bob (30 x $8) $240 Chris (25 x $9) $225 Derek (15 x $10) $150 Fred (10 x $10) $100 Edith (15 x $9) $135 Ginger (10 x $9) $90 Step 2-∞: Use an optimisation engine to determine the optimal combination of bids delivering the maximum NPV: Utilisation 95% Revenue $890 5 units available capacity

13. APA Group Presentation  13 Optimisation approach:  100 units of capacity  Adam (50 x $10) $500 Bob (30 x $8) $240 Chris (25 x $9) $225 Derek (15 x $10) $150 Fred (10 x $10) $100 Edith (15 x $9) $135 Ginger (10 x $9) $90 Step 2-∞: Use an optimisation engine to determine the optimal combination of bids delivering the maximum NPV: Utilisation 100% Revenue $930

14. APA Group Presentation  14 Optimisation approach:  100 units of capacity  Adam (50 x $10) $500 Bob (30 x $8) $240 Chris (25 x $9) $225 Derek (15 x $10) $150 Fred (10 x $10) $100 Edith (15 x $9) $135 Ginger (10 x $9) $90 Step 2-∞: Use an optimisation engine to determine the optimal combination of bids delivering the maximum NPV: Utilisation 100% Revenue $940 Note that total revenue is higher, but Adam, the highest value bidder on the day, would miss out under this approach

15. APA Group Presentation  15 Optimisation approach:  100 units of capacity  Adam (50 x $10) $500 Bob (30 x $8) $240 Chris (25 x $9) $225 Derek (15 x $10) $150 Fred (10 x $10) $100 Edith (15 x $9) $135 Ginger (10 x $9) $90 Step 2-∞: Use an optimisation engine to determine the optimal combination of bids delivering the maximum NPV: Q: How do we solve a tie? The auction would deliver the same value if we accepted Edith and Ginger’s bids instead of Chris’. Utilisation 100% Revenue $975 Lucky for Adam, that was not the optimal solution. But Bob, the second highest value bidder, misses out because there is another combination that generates a higher total revenue.

16. APA Group Presentation  16 Open forum Open floor discussion

17. APA Group Presentation  17 Delivering Australia’s Energy www.apa.com.au