Critical Contingency Management
Overview
Introduction
In recognition of industry dissatisfaction with existing voluntary arrangements, and in line with the GPS requirement for sound arrangements for the management of critical gas contingencies, Gas Industry Co has developed regulations for critical contingency management. The purpose of the regulations is to achieve the effective management of critical gas outages and other security of supply contingencies without compromising long-term security of supply.
The call for a regulatory approach to contingency management came with the understanding that gas outages of a sufficient magnitude, if left unchecked, could cause significant costs in both time and resources for those parties involved. Where the market cannot self-manage such situations it was deemed necessary for the existence of arrangements that enforce an obligatory curtailment and contingency pricing regime.
Specific objectives in establishing the regulatory solution were the appointment of a critical contingency operator, the preparation and publication of critical contingency management plans, and the development of a methodology for the determination and resolution of critical contingency imbalances. The regulations went live in January 2010 following Gas Industry Co's approval of the transmission system owners' critical contingency management plans.
Summary of Status
A review of gas emergency arrangements was carried out in July 2006 which concluded with a recommendation that mandatory arrangements should be put in place. A statement of proposal was issued in August 2007 which outlined a replacement to existing arrangements in the form of regulations under the Gas Act. Gas Industry Co released two further consultation papers in December 2007 and May 2008 which discussed further refinements to the proposed regulations. A recommendation to the Minister of Energy was made in June 2008 to approve the Gas Governance (Critical Contingency Management) Regulations 2008 and associated amendments to the Gas Governance (Compliance) Regulations 2008. The regulations were gazetted on 6 November 2008.
On 28 November 2008, Gas Industry Co appointed Vector Gas Ltd as critical contingency operator for an inital five-year term beginning on the commencement date, 4 December 2008. Gas Industry Co also appointed an expert adviser (Concept Consulting Group Ltd) to review the first set of critical contingency management plans. The MDL and Vector plans were approved by Gas Industry Co in September 2009 and December 2009 respectively. Gas Industry Co subsequently published a notice in the New Zealand Gazette announcing the approval of the plans and the go-live date, 21 January 2010.
Contact Details
gasindustry [dot] co [dot] nz
Discussion Papers, Presentations and Reports
Previously Consulted On
Presentation - Emergency Management Arrangements Workshop
This presentation from an industry workshop in May 2007 contains an updated and revised approach to emergency management based on submissions analysis from the July 2006 discussion paper. The proposal given at the workshop is a combination of a mandatory framework based on regulations together with industry arrangements that provide the details. The presentation also highlights key design issues and explores how the proposed hybrid approach will interact with MPOC mechanisms and processes.
Discussion Paper - Review of Gas Emergency Arrangements
This discussion paper reviews the current arrangements for dealing with gas outages and contingencies, recommends mandatory arrangements be put in place, and highlights the issues and design decisions that need to be addressed. Gas Industry Co will take into account feedback received on the paper when undertaking the detailed design of gas emergency arrangements.
Submissions received
Report - Emergency Management and Gas Outages: Economic Issues
This report, prepared for Gas Industry Co by Farrier Swier Consulting in association with Johnson Winter & Slattery, advises on the commercial issues involved in updating the National Gas Outage Contingency Plan (NGOCP). The overall objective is to develop a soundly based policy for pricing under outage and contingency situations. The report sets out detailed background information and analysis to enable stakeholders to provide informed input as a basis for a decision by Gas Industry Co on the most appropriate approach.
Statement of Proposal, Supplementary Consultations and Analysis
Previously Consulted On
Statement of Proposal - Gas Outage and Contingency Management Arrangements
Date Published: August 2007
Industry members have requested Gas Industry Co develop mandatory arrangements to replace the voluntary National Gas Outage Contingency Plan (NGOCP). This Statement of Proposal puts forward replacement arrangements which are a combination of regulations under the Gas Act and industry-developed arrangements to meet the requirements of those regulations.
Submissions received
Presentation - Gas Outage and Contingency Management Arrangements Industry Forum
Date Published: 23 August 2007
This presentation on the draft outage and contingency management regulations introduces changes in terminology, proposes a framework and timetable for implementation and gives a breakdown of the draft regulations and supporting arrangements.
Report - Gas Outage and Contingency Management Arrangements – Submissions Analysis and Next Steps
Date Published: October 2007
A statement of proposal was released in August 2007 which put forward arrangements for the replacement of the NGOCP. The proposed hybrid approach is a combination of regulations under the Gas Act and industry-developed arrangements to meet the requirements of those regulations. Submissions were sought on the proposal and have been collated and analysed. This document sets out the submissions analysis, a summary of changes to the regulations in light of submissions and the next steps which include an industry workshop and further consultation on the revised draft regulations.
Presentation - Gas Outage and Contingency Management Arrangements Stakeholder Workshop
Date: 27 November 2007
The purpose of the workshop was to review and discuss a number of proposed changes to the statement of proposal which was issued in August 2007. The agenda included:
- a revised approach to cash-out of imbalances based on existing processes;
- allocation of imbalances to shippers downstream of welded points;
- derivation of gas contingency price and consideration of alternatives;
- avoiding deadlocks in OCMP preparation & approvals;
- standardising terminology across work streams;
- funding and cost allocation; and
- timetable and next steps.
Supplementary Consultation Paper - Gas Outage and Contingency Management Arrangements
Date Published: December 2007
The supplementary consultation paper focuses on a number of issues that were raised in response to the statement of proposal issued in August 2007. Gas Industry Co has proposed ways of addressing the issues raised and seeks feedback on these. There are some additional issues that have been identified separately from the submissions process and these are also discussed together with solutions being presented. The paper includes a revised set of draft regulations.
Submissions received
Report - Gas Outage and Contingency Management Arrangements - Supplementary Submissions Analysis
Date Published: March 2008
This paper provides an analysis of the submissions in response to questions included in the supplementary consultation paper of December 2007. Next steps suggested in this paper include establishing an industry implementation group to help co-ordinate the preparation work for the new arrangements, and developing terms of reference for the critical contingency operator (CCO) service provider agreement.
Short-form Consultation Paper - Gas Critical Contingency Management Arrangements
Date Published: May 2008
This paper builds on the previous Statement of Proposal (August 2007) and Supplementary Consultation Paper (December 2007) and focuses on changes to the proposed regulations since the December 2007 paper. These changes are mainly in response to comments received from MED and PCO. The paper also outlines the role of the Contingency Management Implementation Group (CMIG), reports on the service provider contract to appoint Vector as the CCO, and provides a further opportunity for comment on the draft regulations before a recommendation is made to the Minister.
Submissions received
Market Administration
Go-Live Date
On 14 January 2010 Gas Industry Co published a notice in the New Zealand Gazette stating that it had approved critical contingency management plans covering the whole transmission system and announcing the go-live date, 21 January 2010, on which parts 3 and 4 of the regulations come into force. The text of this notice is available by clicking on the link below.
Extract from the New Zealand Gazette
The presentation below was developed by Gas Industry Co and the critical contingency operator to highlight the key responsibilities of industry participants and consumers under the new contingency management arrangements and to summarise the communication protocols between the parties affected by contingency events.
Regulations
The Gas Governance (Critical Contingency Management) Regulations 2008 (the Regulations) were published in the New Zealand Gazette on 6 November 2008. Parts 1, 2 and 5 came into force on 4 December 2008 and parts 3 and 4 came into force on 21 January 2010 (the go-live date).
The purpose of the Regulations is to achieve the effective management of critical gas outages and other security of supply contingencies without compromising long-term security of supply. The Regulations provide for:
- The appointment of:
- a critical contingency operator (CCO);
- an expert adviser; and
- an industry expert;
- Funding of fees to cover the critical contingency development and ongoing costs;
- The establishment of a critical contingency website;
- Processes for:
- the preparation, review, approval, publication and testing of critical contingency management plans (CCMPs) for each transmission system;
- the preparation and publication of a communications plan and information guide; and
- the declaration and termination of a critical contingency by the CCO, and the curtailment and restoration of gas consumption during a critical contingency;
- The obligations of certain parties before, during and after a critical contingency; and
- A methodology for the calculation of contingency imbalances and the determination of a critical contingency price.
Part 1 covers general provisions for the appointment of the CCO and terms of the CCO service provider agreement, the scope of the Regulations, funding of the development and ongoing fees, and the giving and receiving of notices.
Part 2 covers the obligations of certain parties prior to the critical contingency management go-live date (Go-Live Date), in relation to CCMPs, the communications plan and information guide, and the provision of transmission system and consumer information.
Part 3 sets out the processes for the determination, declaration and termination of a critical contingency and the role and obligations of certain parties during a contingency event.
Part 4 provides for obligations after critical contingency events, including reporting requirements, and processes for the appointment of an industry expert, determination of a critical contingency price and the determination and resolution of contingency imbalances.
Part 5 provides for miscellaneous activities such as audits, the treatment of critical contingencies occurring before the Go-Live Date and the separation of roles for the CCO.
Expert Adviser
For each proposed CCMP or amendment to a CCMP, an expert adviser must be appointed by Gas Industry Co to review the proposed plan or amendment and to make a recommendation on whether Gas Industry Co should approve the proposed plan or amendment. Gas Industry Co must appoint an expert adviser within 30 business days of the commencement date in the case of a proposed plan and, for a proposed amendment, within 5 business days of receiving the amendment from the TSO.
On 27 January 2009, Gas Industry Co appointed Concept Consulting Group Limited as the Expert Adviser to review the initial critical contingency management plans proposed by Vector Gas Limited and Maui Development Limited respectively.
The terms and conditions of the appointment are available by clicking on the link below:
Expert Adviser appointment - 27 January 2009
Industry Expert
Gas Industry Co must appoint an independent industry expert to determine the critical contingency price within 10 business days of the termination of a critical contingency. Each TSO, interconnected party, and shipper who will be affected by the determination of a critical contingency price may nominate 1 person to be considered by Gas Industry Co when appointing the industry expert.
Determinations
The Contingency Management Regulations provide for the industry body (Gas Industry Co) to determine and publish certain matters regarding the operation of the regulations. Notice of these determinations is available by clicking on the link below:
Critical Contingency Management Determinations v1.0
Critical Contingency Operator
The CCO (Vector Gas Limited) was appointed by Gas Industry Co on 28 November 2008.
This is in line with regulation 6 which requires Gas Industry Co to appoint the person that is the system operator of all of the transmission system as the CCO for an initial term of 5 years. Regulation 8 of the Contingency Management Regulations requires that Gas Industry Co publish the CCO service provider agreement. Accordingly, a copy of the service provider agreement is available by clicking on the link below.
Draft CCMPs
Before submitting a critical contingency management plan (CCMP) for approval, transmission system owners (TSOs) are required to consult on a draft of the proposed plan with persons representative of the interests of those likely to be affected by the CCMP.
Immediately before this consultation, TSOs must provide a draft of the CCMP to the industry body to be published on their website.
Gas Industry Co has received draft CCMPs from Maui Development Ltd and Vector Gas Transmission, which are available to view or download by clicking on the links below. Please note that submissions on the draft plans should be made directly to the relevant TSO.
MDL Draft Critical Contingency Management Plan (submissions closed 10 February 2009)
Vector Draft Critical Contingency Management Plan (submissions closed 10 February 2009)
Proposed CCMPs
Proposed CCMPs were submitted to Gas Industry Co for approval in February 2009. The plans were reviewed by the expert adviser, who gave notice on 27 March 2009 that the plans should not be approved by Gas Industry Co. Following revisions in accordance with the expert adviser's notice, the TSOs resubmitted proposed CCMPs for approval on 15 April 2009. The resubmitted plans are available to view or download by clicking on the links belows.
On 18 May 2009 the expert adviser notified Gas Industry Co that the two amended plans had not been recommended for approval as they were incomplete. TSOs were therefore given 10 further business days to amend their proposed plans in line with the expert adviser's notice.
MDL resubmitted an amended proposed CCMP on 26 May 2009, and Vector submitted on 4th June. The plans can be accessed by clicking on the links below.
On 3 July 2009 the expert adviser wrote to Gas Industry Co to recommend that the proposed CCMP submitted by MDL on 26 May 2009 not be approved. MDL subsequently submitted an amended proposed CCMP which can be accessed by clicking on the link below.
On 14 July 2009 the expert adviser wrote to Gas Industry Co to recommend that the proposed CCMP submitted by Vector on 4 June 2009 not be approved. Vector subsequently submitted an amended proposed CCMP which can be accessed by clicking on the link below.
On 17 August 2009 the expert adviser wrote to Gas Industry Co to recommend that the proposed CCMP submitted by MDL on 17 July 2009 not be approved. MDL subsequently submitted an amended proposed CCMP which can be accessed by clicking on the link below.
On 23 October 2009 the expert adviser wrote to Gas Industry Co to recommend that the proposed CCMP submitted by Vector on 23 September 2009 not be approved. Vector subsequently resubmitted an updated proposed CCMP which can be accessed by clicking on the link below.
Approved CCMPs
On 9 September 2009 Gas Industry Co received a recommendation from the expert adviser to approve MDL's proposed CCMP. After considering the plan, Gas Industry Co agreed that it complies with regulation 25 and gives effect to the purpose of the regulations and the CCMP was therefore approved on 16 September. The approved CCMP can be viewed by clicking on the link below. The regulations referred to as Attachment 1 can be found here
On 10 December 2009 Gas Industry Co received a recommendation from the expert adviser to approve Vector's CCMP. After considering the plan, Gas Industry Co agreed that it complies with regulation 25 and gives effect to the purpose of the regulations and the CCMP was therefore approved on 18 December 2009. The approved CCMP can be viewed by clicking on the link below.
Essential Services and Minimal Load Guidelines
These Guidelines are not required under the Regulations. Gas Industry Co intends to use the Guidelines as a means of ensuring a consistent approach to designations in respect of large consumers and in considering designation disputes from consumers generally. Although the Guidelines do not have any particular status under the Regulations, it is hoped that retailers will perceive value in the Guidelines when processing applications from their customers. In this way, classifications could be expected to be reasonably consistent across retailers. Please note these Guidelines are not legally binding and need to be read in conjunction with the Regulations. The general approach set out in these Guidelines in no way reduces the requirement upon participants to know and comply with their obligations under the Regulations.
Essential Services and Minimal Load Guidelines
Critical Contingency Ongoing Costs
Regulations 17 through 19 of the Contingency Management Regulations provide for ongoing fees to be paid by wholesale purchasers of gas on a monthly basis to meet the critical contingency ongoing costs. The critical contingency ongoing costs are the costs:
- payable by Gas Industry Co to the critical contingency operator in respect of that year; and
- payable to any person appointed by Gas Industry Co to carry out any obligations under the Contingency Management Regulations in respect of that year; and
- of Gas Industry Co associated with critical contingency management and its obligations under the Contingency Management Regulations during that year.
Gas Industry Co has determined that the critical contingency ongoing costs should exclude any overhead costs or policy work resulting from operational activities under the Contingency Management Regulations. Any such work is to be funded from the Gas Industry Co Levy. The critical contingency ongoing costs therefore only relate to other direct external costs in connection with Gas Industry Co administering the Contingency Management Regulations.
Estimated ongoing costs for the 2010/2011 financial year
For each year following the first year or part year of operation, Gas Industry Co must estimate and publish a breakdown of the estimated critical contingency ongoing costs for that year. The breakdown is set out in the table below.
| Estimated ongoing costs of Contingency Management Regulations | |
|
Cost categories |
Estimated cost |
| Service provider (establishment and base fees) | $442,000 |
| Service provider (event fee) | $71,000 |
| Industry expert costs | $75,000 |
| Expert adviser costs | $5,000 |
| Total ongoing costs | $593,000 |
Estimated ongoing costs for the period from go-live to 30 June 2010
As soon as practicable after the go-live date, Gas Industry Co must determine and publish a breakdown of the estimated critical contingency ongoing costs for the first year or part year of operation of the critical contingency management plans. The breakdown is set out in the table below.
|
Estimated ongoing costs of Contingency Management Regulations |
|
| Cost categories |
Estimated cost (part year) |
| Service provider (establishment and base fees) | $196,666 |
| Service provider event fee | $71,000 |
| Expert adviser/Industry expert costs | $81,000 |
| External advisers | $30,000 |
| Total ongoing costs | $378,666 |
| Invoice month | for gas consumed in | CC ongoing cost ($/GJ) |
| February 2010 | December 2009 | $0.0062117452 |
| March 2010 | January 2010 | $0.0062540428 |
| April 2010 | February 2010 | $0.0062757035 |
| May 2010 | March 2010 | $0.0051482701 |
| June 2010 | April 2010 | $0.0056451463 |
Critical Contingency Development Costs
The Contingency Management Regulations provide for Gas Industry Co to recover the critical contingency development costs (the development costs) from wholesale purchasers of gas, via a development fee.
The development costs are—
- the costs of the industry body associated with
- the appointment of the critical contingency operator; and
- the review and recommendation for approval of proposed critical contingency management plans under regulations 26 to 30 (including the costs payable to the expert adviser); and
- the costs (if any) payable by the industry body to the critical contingency operator before the go-live date in respect of the development and establishment of any critical contingency management arrangements required under these regulations; and
- the costs of the industry body in connection with the development and establishment of the critical contingency management arrangements.
The development costs were incurred by Gas Industry Co between the commencement date (4 December 2008) and go-live date of the Regulations. Under regulation 16(3) Gas Industry Co is required to determine and publish a breakdown of the estimated development costs on its website. As soon as practicable after go-live, Gas Industry Co must also determine and publish a breakdown of the actual critical contingency development costs. The breakdown of actual costs is shown below.
Actual critical contingency development costs
| Cost categories | Actual Cost ($) |
| Cost of review and recommendation of proposed CCMPs | 42,580 |
| Costs payable to CCO | 139,115 |
| Costs of the industry body | 33,216 |
| Total critical contingency development costs | 214,911 |
| Amount recovered through market fees | 219,500 |
| Over-recovery | 4,589 |
No less than 10 business days after publication, Gas Industry Co is required to invoice, or issue a credit note to, every person who paid the development fee, with the difference between that person’s share of the actual development costs and the development fee paid by that person.
Transmission System Map
Regulation 10(3) of the Gas Governance (Critical Contingency Management) Regulations 2008 requires that the industry body publish a map depicting the transmission system based on information supplied by transmission system owners under regulation 10(1).
The transmission system map, along with the accompanying pipeline schematics, is available to view or download from the publications section of the CCO's website which can be accessed by clicking on the link below.
Contingency Modelling - Interdependency of Gas and Electricity
Date Published: May/June 2008
Authors: Vector/Contact
A group was convened by Contact Energy, and its role was to work towards a better understanding of the interdependencies between the electricity and gas sectors. Membership of the group was broad, covering gas transmission, electricity generation, electricity system operation (Transpower), the Electricity Commission and Gas Industry Co. Both Vector and Contact Energy undertook modelling work which was presented to that group and the outputs from that work are provided below.
Vector gas modelling
Covering Letter
Contingency Modelling
Contact electricity modelling
Covering Letter
Contingency Modelling
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