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1 TECHNICAL GUIDE TO THE VICTORIAN GAS WHOLESALE MARKET JANUARY 2010

2 Disclaimer This document is made available to you on the following basis: (a) Purpose - This document is provided by the Australian Energy Market Operator Limited (AEMO) to you for information purposes only. You are not permitted to commercialise it or any information contained in it. (b) No Reliance or warranty - This document may be subsequently amended. AEMO does not warrant or represent that the data or information in this document is accurate, reliable, complete or current or that it is suitable for particular purposes. You should verify and check the accuracy, completeness, reliability and suitability of this document for any use to which you intend to put it and seek independent expert advice before using it, or any information contained in it. (c) Limitation of liability - To the extent permitted by law, AEMO and its advisers, consultants and other contributors to this document (or their respective associated companies, businesses, partners, directors, officers or employees) shall not be liable for any errors, omissions, defects or misrepresentations in the information contained in this document, or for any loss or damage suffered by persons who use or rely on such information (including by reason of negligence, negligent misstatement or otherwise). If any law prohibits the exclusion of such liability, AEMO s liability is limited, at AEMO s option, to the re-supply of the information, provided that this limitation is permitted by law and is fair and reasonable All rights reserved.

3 CONTENTS 1 Introduction 2 2 An overview of the Victorian Declared Wholesale Gas Market Background The role of AEMO Victorian gas market coverage The Declared Transmission System Injection and Withdrawal points Supply and Demand in the gas market Daily supply-demand Controllable injections and withdrawals AMDQ transportation rights The National Gas Rules 7 3 Participants in the Gas Market Participants in the market Participants indirectly involved in the market Registration Market consultative forums Gas market consultative forum Retail market consultative forum 11 4 Trading gas imbalances 12 5 Gas market processes 13 6 The Gas Market System Transportation and Market Manager WebExchanger SCADA Market Clearing Engine Metering and Settlements System Market Information Bulletin Board Demand Forecast System 15 7 Authorised Maximum Daily Quantity Authorised MDQ Authorised MDQ transfers AMDQ Credits Obtaining AMDQ Benefits of AMDQ Public Register of Spare Capacity 18 8 Gas scheduling An overview of the gas scheduling process Normal operating conditions Abnormal operating conditions Threats to system security System force majeure events and market suspension Administered price period Cumulative price threshold Gas Schedules Market participant inputs Market Bids Demand forecasts Injection hedge nominations Agency injection hedge nomination Accredited bid constraints AEMO s inputs Demand forecast overrides Supply and demand point constraints End-of-day linepack target Intra-day adjustments for injections or controllable withdrawals Other inputs Scheduling Outputs Pricing schedules Operating Schedules 30 9 The Metering process Metering installations Metering register Metering database Conversion to energy 31

4 CONTENTS CONTINUED 10 The Settlements process Imbalance payments The imbalance payment Concept Calculation of imbalance payments An example of imbalance payments Deviation payments The deviation payment concept Calculations of deviation payments An example of deviation payments AEMO linepack account The linepack account concept Calculations of Linepack account An example of LPA calculations Ancillary payments The ancillary payment concept Calculation of initial ancillary payments Constrained up injection quantity Actual gas injection negative offset Minimum scheduled injection quantity Uplift hedges Examples of calculations of initial ancillary payments Negative initial ancillary payments The AP clawback algorithm The AP flip flop algorithm Uplift payments The uplift payment process AEMO s demand forecast overrides and Market participants effective demand forecasts Calculation of AEMO s adjusted hourly demand forecast overrides Calculations of MPs effective demand forecasts TPO congestion uplift Calculations of market participant s uplift quantity Surprise uplift quantity Congestion uplift quantity Common uplift quantity Uplift payments Allocations of ancillary payments by type of uplift Allocations of uplift payments to market participants 61 Appendix 1: Glossary 63 Appendix 2: References 67 Rules and guides 67 Procedures and Guidelines 67 Other Documents 67 Appendix 3: The gas market system 68 Appendix 4: Determination of Authorised Maximum Interval Quantity (AMIQ) Uplift hedge and authorised maximum interval quantity The uplift hedge process An example of uplift hedge calculation Authorised maximum interval quantity 52

5 SECTION 1 Introduction Victorian businesses and households have relied on natural gas as a major source of energy since it was first rolled out in the state in the late 1960s. Growing needs have led to more sophisticated requirements. In particular, clearer supply and demand signals have been required to enable the energy sector to operate more efficiently, and in March 1999 a wholesale gas market was introduced. This has facilitated gas trading within Victoria. There are now more than 2 million Victorian natural gas customers and annual demand for natural gas (excluding that from gas fired generators) exceeds 200 petajoules (PJ). Annual residential use of natural gas, driven by winter heating and hot water needs, exceeds 90 PJ, by far the highest in the country. In addition, annual demand from gas fired generation has exceeded 30 PJ and is expected to grow considerably, in line with efforts to reduce the carbon emissions from electricity production. The energy sector has continued to evolve, requiring a review of the operation of the market. This detailed study revealed the need for updates to be made and, in February 2007, a new wholesale market commenced operation. This guide explains the workings of the current wholesale gas market providing a technical overview for participants and others interested in gaining a stronger understanding of its operation. In this document: chapter 2 provides an overview of the gas market, gas transportation rights governance through consultative committees and the National Gas Rules; chapter 3 explains the roles of participants in the market and the inter-relationships; chapter 4 explains how gas is traded in the market; chapter 5 provides an overview of the key gas market processes; chapter 6 provides an overview of the gas market systems; chapter 7 explains the concept of authorised maximum daily quantity (AMDQ) and the physical and financial benefits they provide; chapter 8 provides an overview of the gas scheduling process, and the roles and obligations of AEMO and Market Participants (MPs) in relation to this process; chapter 9 provides an overview of the metering process; chapter 10 provides an overview of the gas settlement process; chapters 11 to 16 explain the calculations of the various market payments; and The appendices include the glossary of terms, reference documents, and more detailed process diagrams. This guide is not intended to be a substitute for published procedures and functional specifications. See Appendix 2 for a listing of reference documents. NOTE The contents in this guide are grouped under three different levels of technical complexity. Level 1 Level 2 Level 3 chapters 2 to 6 provide background information to the Victorian declared wholesale gas market. chapters 7 to 10 provide an overview of the key processes in the gas market. chapters 11 to 16 explain wholesale gas market payments using numerical examples. The target audience are gas traders and those interested in more technical details. 2

6 SECTION 2 An overview of the Victorian Wholesale Gas Market This chapter provides a high level overview of the gas market and explains: where it applies; the characteristics of gas injections and withdrawals; how transportation rights are provided; and governance through the market consultative committees and the National Gas Rules. 2.1 Background The wholesale gas market started in March 1999 and was designed to: manage gas supply, demand and linepack of the Victorian Declared Transmission System (DTS) (previously known as the Principle Transmission System (PTS)); allow market participants to easily buy and sell gas; and set a daily gas price (ex post) for all trades. The gas market was reviewed in 2001 then again in 2003/4 through an extensive consultation process with participants operating in the gas market at those times. The 2003/4 review, also known as the Pricing and Balancing Review (PBR), aimed to: provide more efficient and transparent pricing signals; improve market interaction and responses to pricing signals; provide adequate incentives or flexibilities for demand side response; and facilitate investments in pipeline infrastructure. The PBR considered a 3 stage development of the market. It recommended the following changes in the first stage which have been implemented in the current wholesale gas market: gas day start time of 6am AEST (moved forward from 9am in the previous market); ex-ante pricing for each schedule providing pricing certainty (previously daily ex-post daily pricing); five schedules during the gas day at 6am, 10am, 2pm, 6pm, 10pm and ad hoc schedules if required rebidding (of prices and quantities) and updates of demand forecasts for schedules after the first schedule at 6am; deviation payments to be paid by MPs who either under-inject or over-withdraw than their scheduled quantities in each scheduling interval; imbalance payments at the market price to be made to or by MPs for the differences between their scheduled injections and withdrawals; and new methods for calculating Ancillary Payments and Uplift costs for better targeted allocations of market costs to the MPs responsible for causing them. 2.2 The role of AEMO The Australian Energy Market Operator (AEMO) commenced operations on 1 July 2009 and delivers an array of gas and electricity market, operational, development and planning functions. AEMO incorporates the functions previously carried out by six former energy entities, including management of the National Electricity Market (NEM) and the retail and wholesale gas markets of eastern and southern Australia. AEMO also oversees system security of the NEM electricity grid and the Victorian gas transmission network (Declared Transmission System). New responsibilities under AEMO include national transmission planning for gas and electricity and the operation of a Short Term Trading Market for gas (initially in the New South Wales and South Australian hubs). AEMO has the following roles with respect to the Victorian wholesale gas market: operate the DTS and operate and administer the gas market in accordance with the Gas Industry Act and the National Gas Rules (NGR); establish and update system security guidelines for the DTS in accordance to which AEMO is required to operate the DTS in a way to minimise the threats to system security; monitor trading activity in the market; and identify and report significant price variations in the market. LINK Available from the AEMO website at For more details about AEMO s gas market roles and responsibilities see the National Gas Rules on the Australian Energy Market Commission s website: For more details on the system security guidelines see the document System Security Procedures Gas Market Operations > Scheduling Information 3

7 SECTION 2 An overview of the Victorian Wholesale Gas Market 2.3 Victorian gas market coverage The gas market applies to the Declared Transmission System (DTS) shown in Figure 2.1. The DTS comprises of pipelines extending from Longford in the east of Victoria, across to Portland in the south west, central Victoria and north to Albury/Wodonga and Culcairn in New South Wales The Declared Transmission System The Declared Transmission System (DTS) is a relatively complex network of transmission pipelines including the: The DTS is interconnected to the: Eastern Gas Pipeline (EGP) via VicHub (from Longford to Sydney - Horsley Park and Wollongong; The Minerva to Iona pipeline (SEA Gas adjunct); BassGas Pipeline (Lang Lang Gas Plant to Pakenham); Carisbrook to Horsham Pipeline; and The Culcairn to Wagga to Young pipeline (NSW system) The DTS is indirectly connected to the SEA Gas pipeline (Iona to Adelaide pipeline) via the Iona UGS facility. The Tasmanian Gas Pipeline (from Longford to Bell Bay) is connected to the EGP near Longford. Longford to Melbourne pipeline (Longford- Dandenong-Wollert); South West Pipeline (Brooklyn-Geelong-Iona); Brooklyn-Lara Pipeline; Wollert to Albury-Wodonga pipeline; Interconnect to NSW (to Culcairn); and Western Transmission System (WTS) from Iona to Portland (integrated into the DTS in 2003). FIGURE 2.1 MAP OF THE DECLARED TRANSMISSION SYSTEM NEW SOUTH WALES LNG DCG DECLARED TRANSMISSION SYSTEM OTHER TRANSMISSION PIPELINES INJECTION POINT CITY GATE COMPRESSION STATION LIQUIFIED NATURAL GAS STORAGE DANDENONG CITY GATE Australian Pipeline Trust Culcairn VICTORIA Echuca Koonoomoo Albury Wodonga Kyabram Springhurst CS Gas Pipelines Victoria Bendigo NSW Interconnect Carisbrook SEA Gas Pipeline Ballarat Wollert CS Eastern Gas Pipeline Western Brooklyn CS Transmission System Geelong South West Pipeline SEA Gas UGS Iona LNG DCG Gooding CS Bass Gas Lurgi Pipeline Longford Pipeline VicHub Longford Bass Straight Fields Casino, Minerva, Geographe and Thylacine Fields Yolla Tasmanian Gas Pipeline 4

8 SECTION 2 An overview of the Victorian Wholesale Gas Market Injection and Withdrawal points The market has the following gas injection points: Longford located at Longford and connected to the Gippsland gas fields in Bass Strait; VicHub located at Longford, connected to the Gippsland gas fields and supplies gas to and from the EGP; BassGas located at Pakenham supplied by a pipeline from the Lang Lang gas plant; LNG (liquefied natural gas) facility injects gas from the storage/processing plant at Dandenong; Iona injects gas from the Iona gas processing plant at the Iona Underground Gas Storage (UGS) facility; Otway adjacent to the Iona injection pointy - gas sourced from the Otway plant; SEA Gas adjacent to the injection point gas sourced from the Minerva plant; Culcairn on the NSW-Vic interconnect gas injections from the EAPL (NSW) system. VicHub, Iona and Culcairn injection points operate as bi-directional connection points to enable gas to be imported to or exported from the DTS. BassGas, SEA Gas generally act as injection points but can withdraw gas for operational or emergency back-up purposes. There are over 120 withdrawal points in the DTS which allows gas to flow from the DTS to the Victorian distribution networks, some large direct transmission customers, into Iona UGS, or interstate to NSW and South Australia. The inside-cover of this document shows the main pipelines of the DTS and the location of each injection point. Refer to the Victorian Annual Planning Report on the AEMO website for more details. 2.4 Supply and Demand in the gas market Gas transported through the DTS is: supplied to residential, business and industrial customers; used to fuel gas fired power generators (GPG) connected to the DTS (there are currently 5 plants); exported to NSW and South Australia (SA) through the interconnected pipelines; and withdrawn into underground storage UGS at Iona or LNG, if and when required Daily supply-demand At the daily level, gas demand is typically up to 100TJ or so higher on weekdays than on weekends due to reduced loads from the industrial and commercial sectors. Figure 2.2 depicts the daily gas withdrawals (demand) from the DTS during 2007, including the record daily gas withdrawal of 1,280 TJ in July Gas withdrawals over a gas day typically peak in the morning (7-8am) and evening (6-7pm); and are lowest overnight. This peaking is very clear on winter days as shown in Figure 2.2. In contrast, injections are relatively flat over the gas day but are subject to rescheduling. The pressurised gas stored in the pipeline is referred to as linepack. The change in linepack through the gas day is equal to the cumulative difference between injections and withdrawals. As shown in Figure 2.3, linepack is typically high at the beginning of the gas day (ideally close to the daily linepack target ) and is lowest around 10pm in the evening Controllable injections and withdrawals On any given gas day, MPs trade in the gas market based on the imbalances in the gas withdrawn by their respective customer loads and the gas injected into the DTS by each of them. MPs have the ability to control the quantity of gas injections so injections are controllable. However, it is not possible to control the quantity of gas used by the vast majority of end-use customers. There are two categories of withdrawals controllable withdrawals refer to the quantities of gas which MPs bid to withdraw at various prices up to a maximum price bid. In the current gas market, interstate exports and gas withdrawn into the UGS are controllable. uncontrollable withdrawals refer to the quantities of gas which the customers of MPs will withdraw regardless of the market price. This applies to almost all customers in the residential, commercial and industrial sectors and it should be noted that, uncontrollable withdrawals also include demand from gas fired power generators. Annual demand on the DTS is around 220 to 230 PJ depending on gas fired generation levels. Demand is lower in summer and higher in winter due to the increased demand for gas heating. 5

9 SECTION 2 An overview of the Victorian Wholesale Gas Market FIGURE 2.2 DAILY MARKET GAS WITHDRAWALS 1400 GAS POWER GENERATION (GPG) UNCONTROLLABLE (EXCL GPG) CONTROLLABLE TJ /01/07 01/02/07 01/03/07 01/04/07 01/05/07 01/06/07 01/07/07 01/08/07 01/09/07 01/10/07 01/11/07 01/12/07 01/01/08 01/02/08 01/03/08 01/04/08 01/05/08 01/06/08 01/07/08 01/08/08 01/09/08 01/10/08 01/11/08 01/12/08 FIGURE 2.3 INJECTIONS, WITHDRAWALS AND SYSTEM LINEPACK INJECTION/WITHDRAWAL TJ LINEPACK TJ HOURLY WITHDRAWAL HOURLY INJECTION HOURLY LINEPACK 0 0 6:00AM 10:00AM 2:00PM 6:00PM 10:00PM 2:00AM EASTERN STANDARD TIME 6

10 SECTION 2 An overview of the Victorian Wholesale Gas Market 2.5 AMDQ transportation rights The Vic Market has transportation rights which come in the form of authorised MDQ and AMDQ Credits and which are collectively termed AMDQ. These have evolved in the market as follows: AEMO and the transmission pipeline owner have entered into a Service Envelope Agreement (SEA) which determines, amongst other things, transportation capacity of the DTS, including that associated with new pipelines or augmentations, and the obligations of each party in relation to the delivery of the agreed capacity; At the commencement of the market, AEMO allocated the initial DTS transportation capacity to individual large (tariff D) customers in the form of authorised MDQ and the balance collectively to the small customer load (tariff V -residential and small to medium sized commercial/industrial customers); MPs contract for new or additional capacity with APA- GasNet in respect to AMDQ Credits for other pipelines supplying gas (other than for the initial allocation for the Longford to Melbourne pipeline); AEMO allocates AMDQ credit certificates to MPs as directed by the APA-GasNet; MPs who hold authorised MDQ and/or AMDQ credit certificates are entitled to physical (injection and withdrawal) and financial (hedge) benefits. MPs and/or tariff D customers may trade authorised MDQ. 2.6 The National Gas Rules The National Gas Rules govern access to natural gas pipeline services and broader elements of natural gas markets. An amended version of the Rules, taking into account the commencement of AEMO, was passed in the South Australian Parliament and came into effect on 1 July The Rules carry the force of law and are made under the National Gas Law. As applied in Victoria, the Rules set out the processes relating to the operation of the Victorian wholesale and retail gas market, along with the responsibilities and obligations of Market Participants. The purpose of the Rules is to: facilitate an efficient, competitive and reliable gas market; regulate the operation and administration of the gas market; regulate activities of participants in the gas market; and provide for access to the DTS and ensure its security. The Rules cover the following key areas: requirements for participation in the gas market (Part 15A, Division 1); gas scheduling process (Division2, Subdivision 2 ); market participants nominations and bidding processes (Division 2, Subdivision 2); determination of gas market prices (Division 2, Subdivision 3); metering and settlement processes of the gas market (Division 2, Subdivision 6); monitoring market participants prudential requirements (Division 2, Subdivision 7); publication of market and planning information (Division 4) management of emergency, market suspension and system security threats (Division 5); dispute resolution (Division 2, Subdivision 4); and the Rule change process (Division 8). 7

11 SECTION 2 An overview of the Victorian Wholesale Gas Market FIGURE 2.4 THE RULE CHANGE PROCESS Any person (AEMO, Stakeholder, Vic Government etc) Start Propose rule changes Consultative Forum Rule changes considered and submission made to AEMC AEMC Consider proposed rule change, start formal consultation process and consider submissions Notify participants of the rule change Implement the rule change Stop LINK Available from the AEMO website at National Gas Rules 8

12 SECTION 3 Participants in the Gas Market This chapter discusses the different types of participants operating in the gas market, their rights and obligations. Participants can be directly or indirectly involved in the gas market. Those who are entitled to inject gas into, or withdraw gas from, the DTS are also referred to as Market Participants (MPs). 3.1 Participants in the market AEMO AEMO is the national gas and electricity market operator and was established by legislation passed in the South Australian Parliament, which acts as lead legislator for the jurisdictions in which AEMO operates. This legislation enables AEMO to undertake its various market and system operation functions, including management of the wholesale and retail gas market in Victoria and network operation of the DTS. Retailers Retailers purchase gas from gas producers, bid this gas into the market and sell gas to end-use customers. Imbalances are settled through the market. Retailers must be licensed by the Essential Services Commission. As they trade gas in the market they are Market Participants (MPs) Market customers A small number of large customers have elected to participate directly in the wholesale gas market. Market customers are responsible for sourcing their own gas from the gas market, and making commercial arrangements for transportation of the gas through the transmission and distribution networks to their premises. Market customers trade gas and so are MPs Traders Traders are MPs who buy and sell gas from/to other market participants or gas producers. Traders can also trade gas interstate through the interconnecting pipelines. Traders do not have or require a retailer licence. These are also referred in some markets as Shippers. 3.2 Participants indirectly involved in the market The Transmission pipeline owner APA-GasNet is the Transmission pipeline owner (TPO) who owns and maintains the DTS gas transmission system and related facilities used to transport gas from injection points to withdrawal points. Producers A Producer is a participant who processes gas from fields and injects into the DTS. Note: A Producer could become an MP if it bids gas directly into the market. Storage providers A Storage provider is a participant who has a facility that receives and stores natural gas (this gas may have been previously transported through the DTS). The stored gas is injected into the DTS at a later time (e.g. during peak the winter period). Generally the stored gas injected or withdrawn is owned by retailers or traders. Note: A Storage provider could become an MP if it bids gas directly into the market. Interconnected pipeline owners Interconnected pipeline owners own, maintain and operate other transmission pipelines that connect to the DTS. Interconnected pipeline owners interface with the gas market through the connecting flange of their network with the DTS. They enter into connection operating agreements with AEMO. Distributors Distributors (distribution network businesses) own and operate the lower pressure distribution networks. Distributors transport gas withdrawn from a transmission system through their distribution pipelines to the end-use customers. Customers Customers purchase gas from their retailer of choice. Customers are distribution customers if they are connected to a distribution system network. Alternatively, they are transmission customers if they are connected directly to the transmission system. Customers are further assigned by their level of gas demand to tariff classes as follows: tariff D if the consumption at the site is over 10 TJ/year or their maximum quantity is over 10 GJ/hour; or tariff V which applies to residential, small to mediumsized commercial and industrial sites. Figure 3.1 summarises the commercial relationships between the different types of participants in the gas market. 9

13 SECTION 3 Participants in the Gas Market FIGURE 3.1 PARTICIPANTS IN THE GAS MARKET INJECTIONS Producers Storage Providers Interconnecting Pipelines PARTICIPANTS Retailers, Market Customers and Traders MARKET PARTICIPANTS Victorian Declared Wholesale Gas Market (AEMO) MARKET OPERATOR Retailers Market Customers Traders MARKET PARTICIPANTS Interconnecting Pipelines Storage Providers Interconnecting Pipelines Storage Providers PARTICIPANTS Customers WITHDRAWALS TABLE 3.1 REGISTRATION REQUIREMENTS FOR MARKET PARTICIPANTS Requirement Who does it apply to? Who to contact for approval? Prudential All market participants AEMO Connection to AEMO IT systems All market participants AEMO Approved retail licence Retailers The Essential Services Commission Approved gas safety case Retailers Energy Safe Victoria Agreed Transmission Use of System Agreement Agreed Distribution Use of System Agreement All market participants Retailers, market customers APA Distributors 10

14 SECTION 3 Participants in the Gas Market 3.3 Registration To become a participant in the market, interested parties must register with AEMO by providing the required information in the registration kits which are available from AEMO. Interested parties are encouraged to contact AEMO prior to submitting an application so that any areas of uncertainty can be discussed and clarified in advance. In addition to the general requirements listed in the application, there are different requirements which apply to different categories of participants. Table 3.1 lists some specific requirements for MPs and the organisations that MPs need to contact to obtain approvals for those requirements. AEMO will contact the applicant within 5 working days of receiving the application if further information is required. If AEMO does not receive the requested information within a further 15 business days, AEMO may treat the application as withdrawn. If the application is successful, AEMO will advise the applicant of the outcome within 15 working days of receiving the application or within 15 working days on receipt of the requested further information for the application. NOTE Contact helpdesk@aemo.vic.gov.au for further information about how to register as a participant in the Victorian gas market. 3.4 Market consultative forums Changes to market rules and material changes to key procedures occur are initiated through consultative processes involving committees comprised of stakeholders: Gas market consultative forum The AEMO board established a gas market consultative forum of gas industry participants in 1998 to consider and make submissions to it on issues relating to the development or operation of the gas market and any consequential changes to the MSO Rules, and subsequently the National Gas Rules (NGR). This forum is known as the Gas Wholesale Consultative Forum (GWCF). See the AEMO website for more details about the roles and membership of the gas market consultative forum Retail market consultative forum A retail market consultative forum was established in 2002 to provide advice to the AEMO board in its management of these Retail Rules. Changes to the operation of the gas market and the MSO rules, and subsequently the NGR, can potentially have impact on the operation of the Victorian retail market which is governed by the NGR. See the AEMO website for more details about the roles and membership of the retail market consultative forum. 11

15 SECTION 4 Trading gas imbalances MPs, and in particular retailers, generally enter into long-term gas supply contracts with producers and must manage their exposure to the financial risks in the gas market. However, MPs must trade gas amongst each other or buy and sell linepack gas to manage imbalances on each gasday. The diagrams in Figure 4.1 show some possible scenarios of gas traded by MPs. These examples assume there are only two MPs (A and B) involved. Colours are used to indicate the gas bought or sold between each MP (blue and yellow), or trading system linepack imbalances (green). The lower part of each diagram also indicates the source of the purchased gas by colour. FIGURE 4.1 GAS TRADING EXAMPLES A +5GJ INJECTIONS B +10GJ Scenario 1 No gas traded Market Participants A and B withdraw the same quantities of gas as they each inject (5TJ and 10TJ, respectively) during a trading period. Both are in balance and there is no change in linepack. -5GJ -10GJ No gas is traded on the gas market. WITHDRAWALS A +5GJ -4GJ INJECTIONS B +10GJ -11GJ Scenario 2 1 GJ of gas traded, no change in linepack A injects 5 GJ as scheduled and withdraws 4 GJ; B injects 10 and withdraws 11GJ during a trading period. Total injections balance total withdrawals so there is no change in system linepack. In effect A has sold 1GJ to B at the market price which is set by A s marginal price bid for last (5th) GJ it injected WITHDRAWALS A +4GJ -5GJ INJECTIONS B +10GJ -11GJ Scenario 3 More gas withdrawn than injected, reduced linepack A and B both withdraw 1GJ more gas than they each inject resulting in 2 GJ reduction in system linepack. A and B have each bought 1GJ from system linepack gas at the market price to meet the gas demands of each of their customer loads WITHDRAWALS A +7GJ INJECTIONS B +10GJ Scenario 4 One MP over-injected, increased linepack A injects 7 GJ and withdraws 5 GJ. B injects 10 GJ and withdraws 11 GJ. In effect, A sells 1 GJ to B and sells 1 GJ into system linepack at the market price. -5GJ -11GJ WITHDRAWALS 12

16 SECTION 5 Gas market processes There are five main gas market processes including: the allocation of authorised MDQ and AMDQ credit certificates which allocates transportation rights to MPs (see chapter 7 for more details). The authorised MDQ and AMDQ credit certificates are inputs to the gas scheduling, settlements and reporting processes; the gas scheduling process which uses demand forecasts and injection/withdrawal bids to determine the gas market price and the schedules for each MP i.e. the quantities of gas to be injected by each MP at each injection point and the quantities to be withdrawn from the DTS by any controllable loads during the gas day (refer chapter 8); the metering process which includes metering installation, meter registration and metering database maintenance sub-processes (refer chapter 9 ). The metering process provides the required inputs to the settlement process; the settlements process which calculates payments to and from participants (refer chapter 10); and the reporting process which publishes the required market information in the Market Information Bulletin Board (MIBB) (see section 6.6). Figure 5.1 provides an overview of the key processes in the declared wholesale gas market and how they are connected via inputs and outputs. FIGURE 5.1 AN OVERVIEW OF GAS MARKET PROCESSES Inputs Start MP and AEMO inputs Metering Stop Key Processes Allocation of authorised MDQ and AMDQ credit certificates Gas Scheduling Settlements Reporting Outputs Authorised MDQ and AMDQ credit certificates Scheduling inputs and outputs Settlements, quantities and payments The MBB reports 13

17 SECTION 6 The Gas Market System The Gas Market System (GMS) consists of seven inter-related applications. Figure 6.1 shows the links within the GMS. 6.1 Transportation and Market Manager The Transportation and Market Manager (TMM) is the central application software and designed to perform the following functions: storing market information submitted by MPs via the WebExchanger (see section 6.2 for more details about the WebExchanger); storing and maintaining MCE reference and operational data from the SCADA system (see section 6.3 for more details about the SCADA system); organising gas scheduling information required for initiating runs of the Market Clearing Engine (MCE) (see section 6.4 for more details about the MCE); processing the outputs from the MCE; storing and processing demand forecasts provided by MPs before they are forwarded to AEMO Demand Forecasting System (DFS) for further processing (see section 6.7 for more details about the DFS); and organising market data to be published in the Market Information Bulletin Board (MIBB) (see section 6.6 for more details about the MIBB). 6.2 WebExchanger The WebExchanger is a Web based application and provides the interface for MPs to use to submit bid data and other required market information to AEMO. The WebExchanger is an integral part of the MIBB (see section 6.6 for more details about the MIBB). 6.3 SCADA The SCADA system is used to store operational data such as nodal pressures, injection pressures, LNG stock level, heating values and system linepack data. 6.4 Market Clearing Engine The Market Clearing Engine (MCE) is a linear optimisation program (which includes a simplified model of the pipeline system) that produces the operating and pricing schedules for the gas market based upon the schedule input information passed from the TMM. 6.5 Metering and Settlements System The Metering and Settlements system (MMS) has two separate components which operate as follows: FIGURE 6.1 AN OVERVIEW OF THE GAS MARKET SYSTEMS Scada WebExchanger (WEX) Demand Forecast System (DFS) Transportation and Market Manager (TMM) Market Clearing Engine (MCE) Market Information Bulletin Board (MIBB) Metering Management and Settlements (MMS) NOTE See Appendix 3 for more details about the information flow between the applications within the GMS. 14

18 SECTION 6 The Gas Market System The metering system: manages the collection and storage of metered energy values from the metering data agents (MDA) and allocation agents to be used in the settlements process; and processes and stores the adjusted metered energy values to account for gas losses in the DTS. AEMO (or the appropriate MDAs) apply the appropriate Un- Accounted-For-Gas (UAFG) rates at the different system withdrawal points; The settlement system: manages the production and provision of financial settlement statements and supporting data for MPs in the gas market; determines the energy traded by participants using energy values extracted from the metering system and various other inputs from scheduling (for example, market prices) to perform these calculations in relation to each billing period; and performs prudential processing and the calculation of Ancillary and Uplift payments. 6.6 Market Information Bulletin Board The Market Information Bulletin Board (MIBB) is the interface mechanism through which AEMO communicates with MPs. The MIBB: provides transaction interfaces with external MPs; reports market information; and publishes system-wide notices to MPs and the general public. Participants are required to comply with the procedures set out by AEMO which define the communication interfaces and infrastructure for electronic communications between AEMO and participants to support the operation of the gas market. The MIBB reports are made available using Web technologies. Access to these reports will depend on a user s security privileges, which fall into three general classes: public: this type of information is available to everybody, including members of the general public. There is no security control over this information; all participants: this type of information is available to all organisations participating in the gas market; and participant confidential: this type of information is available only to an individual or a restricted group of participants. The generation and publishing of a report can be initiated in three ways: daily at a pre-determined time; triggered by an event; and forced to run by the administrator. A listing of the market reports is published in the document MIBB report participant guide on AEMO s website. The published details can include (but are not limited to) purpose, format, contents, type of access, frequency of reporting and specification of the data fields). LINK Available from the AEMO website at See the document MIBB report participant guide for more details about the published reports Gas Market Data > Data Guides and Manuals 6.7 Demand Forecast System The Demand Forecast System (DFS) prepares forecasts focusing the scheduling process as follows: MP s submit forecast of their loads including individual forecast for very large customers which are collated by the DFS; The DFS also produces AEMO demand forecasts using weather forecasts from the Bureau of Meteorology and input data from the TMM on historical load profiles and levels; and The DFS forwards the demand forecasts and weather data (actual and forecast) to be published in the MIBB. LINK Available from the AEMO website at For more details about the communications procedures see the document Electronic Communications Procedures for Victorian Wholesale Gas Market Gas Market Operations > IT Systems Access 15

19 SECTION 7 Authorised Maximum Daily Quantity Authorised Maximum Daily Quantity (AMDQ) refers to both authorised AMDQ and AMDQ credit certificates. This chapter describes AEMO s process for allocating authorised MDQ and AMDQ credit certificates, outlines the process for obtaining them and explains the benefits they provide to those who hold them. Refer to the National Gas Rules Part 19 Division 4 Subdivision 3 for more details. 7.1 Authorised MDQ Authorised MDQ is a transportation right which provides a hedge against congestion uplift to MPs withdrawing gas from the DTS that has been injected at Longford. Individual tariff D customer sites with authorised MDQ also have in principle preferential treatment in the event of load shedding resulting from a transmission constraint. The initial allocation of authorised MDQ occurred in 1988 when Longford was the only source of gas supply for the DTS, LNG excepted. The total Authorised MDQ was set equal to the peak capacity of the system from Longford of 990 TJ/d. The authorised MDQ was allocated to the following existing and committed new loads (at that time): Contract customer sites - large customer sites typically with demand exceeding 10 TJ per year and now classified as tariff D. The authorised MDQ allocated to each site was set equal to the contract MDQ with any revisions approved by an independent panel; The Interconnect, Wimmera pipeline, Murray Valley towns and DTS compressors; and The balance of the 990TJ was assigned as a block to all residential and small to medium sized commercial and industrials customers - now classified as tariff V customers. Figure 7.1 outlines the process for the initial allocation and re-allocation of authorised MDQ (see page 17). AEMO sub-allocates the tariff V authorised MDQ block amongst the retailers in proportion to their calculated share of the tariff V load on winter high demand days. The proportions are adjusted at the end of each subsequent month for net customer transfers and customer growth during the month*. LINK Available from the AEMO website at See the GMCC paper Apportionment of tariff V Authorised MDQ to Market Participants dated 22 November 2007 for more information Gas Market Operations > Working Groups and Forums > Gas Wholesale Consultative Forum Some customers may change from tariff D to tariff V (or vice versa) subsequent to the initial authorised MDQ allocations. The responsible retailer is required to advise AEMO of this tariff change so that the tariff D and V authorised MDQ can be updated accordingly. If a tariff D site reverts to tariff V, any authorised MDQ allocated to that site is relinquished and will be added to the tariff V block. If a tariff V site converts to tariff D it may be allocated a quantity of authorised MDQ based on its estimated daily loads on winter peak days in 1998 (subject to such data being made available, for example bimonthly billing data may be used as the basis of estimates). Figure 7.1 depicts the process for re-allocation of authorised MDQ. AEMO will conduct auctions of accrued relinquished or identified spare Authorised MDQ from time to time. Refer to Appendix 4 for a detailed diagrammatic representation of AMDQ. * In August 2008, the GMCC has endorsed daily apportionment of tariff V authorised MDQ. The change is expected to be implemented before winter

20 SECTION 7 Authorised Maximum Daily Quantity FIGURE 7.1 ALLOCATION AND RE-ALLOCATION OF AUTHORISED MDQ Transmission pipeline owner Sign off service envelope agreement with AEMO Allocate authorised MDQ Agree with the TPO on modelled capacity Tariff D sites allocation Tariff V block allocation and MP monthly allocation Stop AEMO Determine pipeline capacity (the Common Model) Update metering register Update information Update and publish register of spare capacity Notify retailers and custmers Start Review and update authorised MDQ allocation Retailer Advise AEMO of customer Tariff (D/V) conversion 17

21 SECTION 7 Authorised Maximum Daily Quantity 7.2 Authorised MDQ transfers Currently, transfers of authorised MDQ may be undertaken between: tariff D customer sites; a tariff D customer site and the Reference Hub; the Reference hub and a tariff D customer site; or parties at the Reference Hub In order to ensure that authorised MDQ continues to align with physical capacity, the transfers of auth MDQ take account of location and load diversity: Each tariff D site has had an authorised MDQ diversity factor assigned to it based on 2004 actual gas usage. The diversified AMDQ is equal to the product of the (certificate) authorised MDQ and the diversity factor. In transfers where one or more of the sites is upstream of Pakenham, a location factor is applied to the transferred amount. 7.3 AMDQ Credits The capacity of the DTS has increased as a result of gas system developments and augmentations including the Vic-NSW Interconnect, the South West Pipeline, the connection of the Western Transmission System, the Brooklyn Lara Loop and the BassGas project. Figure 7.2 depicts the process for allocating AMDQ credit certificates which requires that: AEMO and the TPO agree on the increased pipeline capacity resulting from the extension or expansion project and update the SEA accordingly; AEMO allocates the AMDQ credit certificates to MPs as specified quantities for set periods as directed by the TPO. Accordingly, MPs should apply to the TPO for AMDQ credit certificates. Any revenues received by the TPO in exchange for allocating AMDQ credit certificates are deducted from their regulated revenues. MPs with AMDQ credit certificates need to advise AEMO whether the allocated AMDQ credit certificates are to be nominated to sites or the Hub. 7.4 Obtaining AMDQ MPs who wish to acquire authorised MDQ and/or AMDQ credit certificates can: negotiate with holders of authorised MDQ to have an agreed quantity of the allocations transferred to from one site to another or to the hub; negotiate with holders of AMDQ credit certificates to have the agreed quantity transferred at the hub apply and negotiate with the TPO for AMDQ credit certificates if/when they expand the capacity of the DTS or when existing AMDQ Credit contracts others hold expire; contract with the TPO to privately expand the DTS capacity; or bid for and purchase spare authorised MDQ at auctions conducted by AEMO from time to time. 7.5 Benefits of AMDQ By holding authorised MDQ or AMDQ credit certificates MPs will get the benefits of: curtailment rights - in the event of transmission constraints, unauthorised customers will be disconnected from the system ahead of authorised customers; priority in scheduled injections when there are equally priced injections bids those associated with authorised MDQ or AMDQ credit certificates will be scheduled first; reduced Uplift payments as MPs can use part or the whole of their authorised MDQ or AMDQ credit certificates as Uplift hedges (see chapter 15 for more details about Uplift hedges). 7.6 Public Register of Spare Capacity In accordance with the NG Rules, AEMO maintains and publishes a public register of spare capacity on the AEMO website. This register reports capacity of pipelines and the amount, if any, of unallocated authorised MDQ or AMDQ credits. An MP finding itself with excess AMDQ credit certificates may trade some to another party. Transfers of AMDQ credit certificates are currently limited to transfers between parties at the Reference Hub. 18

22 SECTION 7 Authorised Maximum Daily Quantity FIGURE 7.2 ALLOCATION OF AMDQ CREDIT CERTIFICATES MARKET PARTICIPANT Advise AEMO to nominate to hub or sites TRANSMISSION PIPELINE OWNER Start Extend or expand pipelines Consult AEMO MP owns extension expansion? Update or develop service envelope agreement YES Notify MP Direct AEMO to allocate authorised MDQ/AMDQ credit certificates to MP Stop NO AEMO Detirmine pipeline capacity and agree with the TPO Allocate authorised MDQ or AMDQ credit certificates as directed Update metering register Notify MP and (or) customers Update and publish register of spare capacity Allocate authorised MDQ/AMDQ credit certificates and update information See Appendix 4 for a detailed diagrammatic representation of AMDQ credit certificates. LINK Available from the AEMO website at For more details about transfer of authorised MDQ and AMDQ credit certificates see the document AMDQ Transfer Procedure Gas Market Operations > AMDQ The document Wholesale Market (AMDQ Auction) Procedures provides the values of the locational and diversity factors which are specific for each transfer zone Gas Market Operations > Declared Wholesale Gas Market Rules and Procedures 19

23 SECTION 8 Gas scheduling Gas scheduling is the process that AEMO conducts a number of times each gas day to provide injection schedules for each MP and schedules for any controllable withdrawals. The market clearing algorithm used in optimising each operating schedule minimises the cost of supplying the forecast gas demand within the pipeline system security limits. This chapter: provides an overview of the gas scheduling process and the timeline of the schedules; describes the required inputs from MPs and AEMO in conducting this process; and explains the outputs which are reported in the MIBB. LINK Available from the AEMO website at For more details about the gas scheduling process see the document Gas Scheduling Procedures Gas Market Operations > Scheduling Information 8.1 An overview of the gas scheduling process Figure 8.1 depicts the key steps in the gas scheduling process linking MPs and AEMO s data inputs to the scheduling outputs published in the MIBB. There are two different courses of actions depending on whether the state of the operating conditions is normal or abnormal, as discussed below. FIGURE 8.1 THE GAS SCHEDULING PROCESS MARKET PARTICIPANT Start Submit data Stop AEMO SYSTEM OPERATIONS AEMO input data Run the MCE Prepare next schedule NO NO YES Assess results and issue scheduling instructions if results accepted Threat to system security? Intervene? YES Publish in the MBB Monitor gas system Produce ad hoc schedule 20

24 SECTION 8 Gas scheduling 8.2 Normal operating conditions For each schedule and under normal operating conditions, AEMO: collates the required input data from MPs including forecast demand and injection /withdrawal bids, prepares its own input data and demand forecasts and overrides MPs demand forecasts if required (see sections 8.5, 8.6,and 16.2 for more details); runs the Market Clearing Engine (MCE) based on the above input data to produce the optimal schedules; assesses the MCE results; and issues pricing and operating schedules if the MCE results are accepted or re-assesses the input data and repeats the process. 8.3 Abnormal operating conditions Threats to system security Monitoring system security is an integral part of the process which determines whether and when AEMO needs to take actions in case of system security threats which can be caused by: unplanned producer or transmission plant outages; gas demand exceeding transmission system capacity; gas demand exceeding available supply; transmission pipeline gas escapes or damage; or ongoing injections of off-specification gas In the events of system security threats, AEMO will: notify participants of the potential or existing system threats via a system wide notice published in the MIBB; seek participants and MPs advice and corrective actions to mitigate the risks/threats to system security if time is available (for example, AEMO may request MPs to change their market bids and/or bid additional gas); intervene in the market by issuing an ad-hoc operating schedule if time is not available; in the case of persistent off-spec gas, take mitigation steps in accordance with the gas quality guidelines (for example, possible curtailment of off-spec supply and/or scheduling alternative supplies) notify participants and MPs of the return to normal operating conditions if and when the threat to system security is removed; and report the event to the Australian Energy Regulator (AER). AEMO may, if it reasonably considers that the actions available to it under the Gas Industry Act 2001 may not be adequate to alleviate the threat, seek the Victorian Government intervention. AEMO will take appropriate actions including but not limited to: directing the curtailment of customers; injecting gas from AEMO s LNG reserve ; and directing the injection of non-firm gas. LINK Available from the AEMO website at For more details about curtailment of customers see the Gas Load Curtailment and Gas Rationing and Recovery Guidelines Emergency Management > Gas Emergency Management See also chapter 6 Intervention and Market Suspension in the NGR System force majeure events and market suspension A system force majeure event is an event that is likely to materially affect the operation of the market or materially threaten system security and has resulted in a reduction in the normal capacity of part or all of: the transmission system and/or the volume of gas which would otherwise normally flow in the DTS; or a Producer s or Storage Provider s plant or facility. If a system force majeure event occurs AEMO must notify Participants without delay and declare an administered price period Administered price period An administered price period will be invoked if one or more of the following events occur: a system force majeure event is declared; the market has been suspended; a market price or pricing schedule is unable to be published by the required time; or the cumulative price threshold has been exceeded. 21