Background

The Gas Transmission Investment Programme (GTIP) was a set of projects aimed at addressing industry concerns over the long-term outlook for gas transmission capacity availability in the Auckland region. This work has its origins in 2009, when Vector announced to the industry that it would no longer be able to sell new capacity on its North Pipeline as that pipeline had reached the limits of its capacity. Large end users on the North Pipeline subsequently experienced a reduction in the number of credible bids they receive when seeking a new gas supplier. Gas Industry Co’s investigation of the situation prompted key industry members to put in place a set of ‘commitments’ to improve market performance. These were known as the Bridge Commitments, as they provided a bridge to longer term solutions the GTIP projects aimed to provide. The GTIP projects were:

• Vector Capacity Determination – aimed at Vector transparently reviewing the North Pipeline capacity
• Supply and Demand Outlook – aimed at improving the quality of information to enable better transmission investment decisions
• Transmission Market Disclosures – aimed at ensuring that information necessary for efficient operation of the market is available
• Backstop Information Gathering and Analysis – aimed at ensuring Gas Industry Co had access to data necessary for its analysis
• Transmission Access and Capacity Pricing – aimed at ensuring efficient arrangements for optimal allocation, utilisation, and pricing of capacity
• Gas Trading Arrangements – aimed at ensuring efficient gas trading arrangements
• Testing Investment Options – aimed at identifying whether there are appropriate incentives in place for investment

Gas Industry Co’s July 2013 paper, Gas Transmission Investment Programme, Status and Development reported that three projects were complete: the Vector Capacity Determination project, the Supply and Demand Outlook project, and the Backstop Information Gathering and Analysis project. The paper noted that the Gas Trading Arrangements Project had been identified as a possible project in the event that a ‘market carriage’ type access arrangement was pursued but since this did not occur the project was suspended. Similarly, the Testing Investment Options project was never begun since it was largely superseded by the Commerce Commission’s price-quality regime.

The remaining project, Transmission Access and Capacity Pricing, was the central, and most challenging project. The project initially involved a Panel of Expert Advisors (PEA) providing Gas Industry Co with advice. The PEA held its first meeting in October 2011, published its first advice paper in July 2012, and its second advice paper in July 2013. 

In line with the PEA’s advice, in October 2013 Gas Industry Co invited MDL, Vector and the signatories to the pipeline access codes to adopt and operationalise the guiding principles PEA had developed. MDL and Vector subsequently agreed a Memorandum of Understanding (MoU) agreeing to proceed with such a programme of work. A Gas Industry Transmission Access Working Group (GITAWG) was formed to do the work, comprising representatives from MDL, Vector and their shippers.

At the same time Gas Industry Co embarked on a policy process to develop a counter-factual design, to be pursued if industry efforts failed. This process resulted in two options papers, one published in December 2013 and the other in May 2015. The second options paper noted the difficulty the GITAWG was having in grappling with transmission access and capacity issues. As an alternative, the paper proposed going back to the PEA’s recommendation for ‘evolutionary convergence’ and developing a vision of where transmission access arrangements are headed. However, this work was paused to permit First Gas time to complete its pipeline transactions and establish a new management structure.

Much of this work on transmission access reflected the separate ownership of the two systems by Maui Development Limited and Vector. These systems are now under the single ownership of First Gas. Gas Industry Co and First Gas envisage moving from the previous ‘evolutionary convergence’ approach to development of a single code, with First Gas playing a leadership role. There is scope for such a code to be agreed by relevant parties, but a regulatory backstop will also be developed. Gas Industry Co and First Gas are currently discussing possible project governance arrangements, including involvement of stakeholders.