MARKET OPENING PROGRAMME

Transcription

1 CER/03/285 Proposal for co-ordination of ongoing reform programmes in the Irish gas market Version November 2003 Market Opening Programme Interim market opening options - Version 1.0

2 Document Control File Name: CER proposal v0.2.doc Date Issued: 27 November 2003 Version No: Version 1.0 Approval for External Release Name and Title Date Approved Produced by Reviewed by Approved by Dan Roberts Kevin Battams Denis Twomey Steering Group Executive Regulatory Committee Change Log Version Revision Date Revision Description Author October November 2003 Initial version Final version for circulation to CER taking on board Bord Gáis Transportation comments D. Roberts D. Roberts Abstract This document sets out a proposal to the CER for the treatment of ongoing regulatory reforms to the Irish gas market 1

3 Contents 1.0 Introduction Harmonisation of implementation programme delivery dates Approaches to interim market opening Co-ordination of an integrated industry programme Next steps

4 1.0 Introduction EU Directive 2003/55/EC requires market opening for non-household gas customers from 1 July In Ireland, this will represent the third tranche of market opening. The CER, Bord Gáis Transportation and shippers / suppliers have been working to design arrangements to facilitate this and the subsequent final tranche of market opening (to all customers) through the development of, and consultation on a blueprint, a set of high level principles and a set of detailed business models. The Gas Market Opening Working Group (GMOWG) has been the principal consultation forum in relation to this design work. In parallel with the design work, Bord Gáis Transportation have been undertaking system development work in order that the full systems to support this third tranche can be delivered in a timely manner. This work has been based on assumptions as to the key features of the design. There are a number of other regulatory initiatives ongoing in the Irish gas market these include: the move from point-to-point to entry / exit transportation arrangements; and the implementation of a range of changes to the gas market arrangements. Supply tariffs will also need to be reviewed in the context of market opening. It is now envisaged that a large number of these additional initiatives (in particular, the review of supply tariffs and the introduction of entry / exit transportation arrangements) will be implemented in October Given the interdependency between the next phase of market opening and these other initiatives (both commercially and in terms of the need for implementation of systems and processes by Bord Gáis Transportation and shippers generally) we now believe there is logic to harmonising the schedules for delivery of the implementation programmes. In this paper, we therefore set out our proposals for taking forward: harmonisation of implementation programme delivery dates; systems and processes to support interim market opening between 1 July 2004 and 1 October 2004; and putting in place co-ordination mechanisms for an integrated industry programme to deliver these reforms Many of the decisions in relation to the proposals in this document fall within the remit of the CER. We therefore also set out the actions which we believe the CER 3

5 should undertake, on the assumption that there is agreement on the overall nature of our proposals. 2.0 Harmonisation of implementation programme delivery dates In relation to market opening and the move to entry / exit arrangements, there are three key events to consider: legal market opening: the point at which non-domestic customers are entitled to change shipper / supplier; market opening systems implementation: the point at which the full suite of systems are available to support legal market opening (the implication being that if the full systems are not available, an interim system or manual process is put in place to manage any customer transfers and associated allocation and settlement of gas); and entry / exit implementation: the point at which the transportation regime (and supporting systems) move from point-to-point to entry / exit. Broadly speaking, the full range of options based on existing implementation dates are set out in the table below. Reform aspect Timing Scenario 1 Scenario 2 Scenario 3 Scenario 4 Legal market opening July 04 July 04 July 04 October 04 Market opening systems July 04 July 04 October 04 October 04 implementation Entry / exit implementation July 04 October 04 October 04 October 04 However, we believe some scenarios can immediately be ruled out: scenario 1: even under the most optimistic timescale, it will not be possible to agree and implement the entry / exit arrangements by July 2004; scenario 4: from a legal viewpoint, to comply with the new EU Directive, customers must legally be able to change shippers / supplier by July Further, there are a number of significant downsides to scenario 2 these include that: having implemented full market opening systems in July 2004, a revised implementation of some part of the systems functionality (e.g. that dealing with determination, allocation and settlement of capacity) would be required in October 2004 when the transportation arrangements changed. Equally, shipper systems which interact with the market opening systems would also need to be modified having only been implemented for 3 months. This would clearly add additional 4

6 programme costs (both for Bord Gáis and shippers) which would need to be justified; and based on direction from the CER, all of the detailed process documentation currently going through the GMOWG, and which will form the basis for the functional specification of the market opening systems, is based on the assumption of entry / exit transportation arrangements. Hence, even following the conclusion of the GMOWG process, there will be no set of commercial arrangements and processes supporting market opening under point-to-point arrangements which have been through industry consultation. Therefore, we believe that the only realistic option at this point in time is to follow scenario 3 namely for legal market opening to take place in July 2004 in accordance with the EU Directive, but for the full market opening systems to be implemented in parallel with the move to entry / exit transportation arrangements in October This approach has a number of significant benefits for the industry as a whole: through the remainder of the implementation process (e.g. during the process of developing code modifications) there is scope to extend the time period for shippers to consider the key design issues related to market opening; the implementation programme is lower risk, as there is more time available for key testing and cutover activities; and since the full market opening systems implementation date will align with that for entry/exit, overall systems costs will be lower. We believe that the CER should endorse this proposal as a pragmatic way forward. 3.0 Approaches to interim market opening If the above approach is adopted, consideration needs to be given to the approach (in terms of interim systems and processes) to be taken to support legal market opening prior to the availability of the full suite of market opening systems. We have considered two feasible options for this approach: Option A: Daily Meter Installation; and Option B: Interim Settlement Solution We assess each of these options against the following criteria: compliance with the 2004 market opening requirement (the Irish Government s interpretation of EU Directive 2003/55/EC); potential impact on extent of customer switching within the relevant market segment; 5

7 the accuracy of settlement during the interim period; costs of implementation and operation; complexity of enabling legal and contractual arrangements (i.e. effort to develop and agree interim code modifications); and impact and potential for distraction from work on the enduring arrangements. In general, we believe that the development of any interim arrangements should involve the minimal effort required to support legal market opening, in order that effort can be focused on delivery of the full suite of market opening systems. Below we describe each of the options and our assessment in detail, and finally provide a summary of this assessment in support of the above conclusion. Option A: Description Eligible customers wishing to change shipper would be required to install daily metering at the relevant gas points. The cost of this meter installation and operation would be recovered through distribution charges in order not to disincentivise customer switching. These customers would then be settled under the existing interim arrangements for daily metered customers. Option A: Assessment This option has the advantages of simplicity and clarity for consumers. It would remove completely the need to create special interim arrangements as the existing DM arrangements would be used. The use of existing arrangements means that there would be no issues around the accuracy of settlement. The enabling legal code modifications would be relatively straightforward. As a result, this option would involve little distraction to the ongoing development programme. However, the requirement to purchase and install metering equipment would increase the cost base of the industry as a whole. Equally, it is important to note that, under this approach, time lags associated with meter equipment procurement and installation may hinder some switches. Option B: Description This option involves the implementation of simplified arrangements for the interim period which are based on those in place for the DM market but which do not require meter installation. The key characteristics of these arrangements are that they 6

8 minimise the need to include special functionality within the integrated systems and, where possible, they utilise existing functionality. Under this option, the existing arrangements and GTMS functionality for daily metered sites would be used to process estimated daily readings for NDM gas points for which a CoS occurs during the interim period. The estimated daily readings are created via offline processes and would be derived from: Estimated Annual Consumptions (EACs) for the relevant gas points based on historic consumption data; and simple and static profiles of gas consumption over the gas year which are applied to these EACs. The number and granularity of profiles needed would depend on the type of customers switching. They could be derived from aggregate historic data or A and B parameters (which could, by July, include data from the weekend NDM I&C sampling study). It is anticipated that these offline processes will use simple automation tools (e.g. spreadsheets). The resulting estimated daily gas quantities would be entered to GTMS as though it were a DM read and the usual settlement processes would follow. Meter readings from NDM gas points relating to the interim period will be received both during and after the period itself. Were the full suite of systems operational, these would normally result in adjusted EACs and amendments to the initial settlement calculations. However, to simplify the process, a single (one-off) reconciliation relating to the entire interim period would be conducted offline once all the relevant gas points affected had at least one valid meter reading dated after 1 st October Validation processes (either manual or systematised) would be required to support the CoS process. These could be based on the existing interim CoS process. The high-level principles already agreed by the CER for the NDM market identify a number of areas in which DM sites are treated quite differently from NDM sites. These include that: DM sites are subject to Supply Capacity and Reserve Capacity overruns, ratchets and overrun charges whereas NDM sites are not; DM supply point (distribution) capacity is booked by a shipper whereas NDM capacity is determined by BGT; and In the NDM market, BGT provide nomination advice which if followed means imbalances are cashed out non-punitively In processing NDM gas points as DM, it may therefore be necessary to switch off some of the functionality that implements these principles in the DM market. 7

9 Alternatively, if selective switching off of these principles proved difficult to achieve in the systems, these principles may need to be applied to NDM gas points solely for the interim period. Option B: Assessment This solution allows the market to open fully on 1 st July If a large number of customers switch during this interim period, it may be cheaper to implement than option A. Equally, it does not suffer from limitations resulting from the logistics of daily metering procurement and installation. However, it does have some disadvantages: there will be development effort the legal and contractual framework would not be as straightforward as under option A (e.g. the profiling and estimation approaches would need to be agreed and specified) and the automation tools would need to be developed; there would be increased operating costs of the arrangements, as they rely on manual intervention; the profiling approach suggested is deliberately uncomplicated and as such it is likely to result in greater inaccuracy in settlement; a disproportionate part of the errors in the profiling could be borne by BGE Energy Supply; and reconciliation for NDM actual meter reads relating to the interim period is likely to be delayed for some months after October Summary assessment The table below summarises the options discussed and rates their performance against the criteria identified. Criteria Option A Daily Metering Option B Interim Settlement Compliance with market open requirement Yes Yes Impact on customer switching Medium Low Accuracy of settlement High Medium Cost of implementation Proportionate to churn Medium Cost of operation Proportionate to churn Medium Complexity of enabling legal arrangements Low Medium Impact on existing program Low Medium 8

10 Looking at the decision from a very narrow programme management perspective would probably suggest that option A is preferable, as it requires minimum effort to implement and will therefore result in least distraction to the programme to deliver in October That said, it is clear that the CER will wish to consider a wider range of policy issues in determining the appropriate way forward. We believe that the CER should give urgent consideration to the approach to be taken in this area. 4.0 Co-ordination of an integrated industry programme Harmonisation of the programmes to deliver market opening, entry / exit and wider Gas Market Arrangements Group (GMAG) driven changes in turn implies an increased co-ordination requirement in relation to implementation effort within the industry. To date, the commercial, legal and regulatory details of changes to the market have been discussed and consulted upon within different fora, including the Gas Market Opening Working Group (GMOWG) and the Gas Market Arrangements Group (GMAG). The CER also consults upon the arrangements following discussions in these groups. The final responsibility for determining the changes made to the market lies with the CER. This structure has worked well so far in the development of the high level principles for gas market opening, and will be key to ensuring buy-in to the detailed market processes currently being developed by Bord Gáis for market opening, and to the arrangements for entry / exit. Implementation responsibility in relation to these changes is shared across the industry: the CER: the CER is responsible for the consultation process to discuss and agree the detail of the market opening arrangements, and for the implementation of the required changes to the regulatory framework (e.g. licence modifications, agreeing changes to the Code of Operations) to create the legal and regulatory framework to underpin the market. The CER is also responsible for making the final go/no-go decision on market go-live; Bord Gáis Transportation: BGT has responsibility for the development of the commercial, legal and regulatory arrangements (for approval by the CER), and for the modification, development and implementation of the central systems and processes to support and facilitate the market; and Shippers and suppliers: shippers and suppliers in general are responsible for the implementation of their own systems and processes to enable them to participate in the market. 9

11 Going forward, as the development programmes move into their implementation phase, we believe that there is likely to be a greater requirement for co-ordination and prioritisation of activities across the industry. In particular, we believe going forward there will be a need to put in place mechanisms to deal with three key areas: planning and co-ordinating, at an industry level, all of the implementation activity that will be needed to ensure readiness for go-live dates; prioritising of implementation activities; and highlighting areas in which implementation is falling behind, and ensuring mitigating actions are taken. We believe that it will be important to take action in this area quickly. In order to meet a go-live date of October 2004 for market opening systems and entry / exit transportation arrangements, implementation activities should already be underway within Bord Gáis Transportation and Shippers / Suppliers, and these activities will need to be co-ordinated. In our view, if this growing need is not addressed, it will create significant risk to the delivery of these programmes, and hence to the regulatory objectives behind the programmes and finally to Irish gas consumers. These risks include: failure to delivery to timescales: this risk could materialise in a number of ways, including: incurring unnecessary cost: again, there are a number of potential sources of cost failure to ensure that appropriate actions or activities are undertaken, resulting in a failure to deliver key aspects of the market arrangements; a lack of co-ordination of implementation activities resulting in only a subset of parties being ready for go-live; overruns: late changes to plans or decisions results in significant cost of rework; failure to recognise dependencies or interactions between streams of activity results in undertaking unnecessary activities; delay to overall programme delivery results in continued burn of resources creating confusion in the industry and/or with consumers: failure to coordinate and plan implementation activities may result in uncertainty in the industry in a number of areas (for example, timing of different deliverables, possibility of late delivery, stability of arrangements post delivery), including among consumers. This may in turn delay or deter new entry by increasing the cost and risk of participation in the market; and damaging the reputation of the Irish gas industry: if arrangements are put in place which are not robust (e.g. which cannot be relied upon to result in timely, accurate settlement of gas transactions), or which require significant modification 10

12 a short period of time after implementation, there is a risk that the reputation of the Irish gas industry as a whole is damaged (e.g. participants accounting statements being qualified). In the light of general international experience of similar reform programmes and as, under the proposals in this paper, we move into a implementation phase for October 2004, we believe it will be important to increase the focus across the Irish gas industry on implementation imperatives. We believe the right way to achieve this would be to put in place a senior steering group with a specific implementation remit, to allow stakeholders and those with delivery responsibility to plan, prioritise and co-ordinate activities, so that implementation issues could be addressed through a specific channel away from debates on detailed design issues. The group would ideally comprise of senior representatives from each of: the CER; Bord Gáis Transportation; and the constituency of third party shippers and suppliers. The group could be chaired by the CER, and Bord Gáis Transportation, in its role as programme manager and coordinator, could act as secretariat for the group. The group could meet on a monthly basis, with a remit which could include: discussing and reviewing the programme plans, timescales, and milestones and the level of resources required by participants; discussing the most significant implementation issues, risks and interdependencies across the gas market reform programmes in order to advise and inform the CER in their decision making; providing the CER with views on the actions required to co-ordinate and prioritise better implementation plans and activities across the industry; and monitoring progress of reform programmes against plans, and proposing options to the CER where there exists a risk of slippage. It would be essential that the remit of this group covered all the potential reform efforts currently ongoing i.e. market opening, implementation of entry / exit and the implementation of wider gas market changes. Equally, it is important to note that this group, focused on implementation issues, would operate alongside the ongoing GMAG and GMOWG consultation groups (although the intensity of the design consultation in those groups is likely to reduce over time as the design is finalised). We believe that the CER should arrange for the constitution of such a group. 11

13 5.0 Next steps In this paper, we have outlined the steps which Bord Gáis Transportation believe are necessary to ensure a successful, effective and co-ordinated implementation of the regulatory reform programmes currently under way in the Irish gas market. If there is agreement on these steps, we believe that the CER should: endorse an implementation approach in which the next tranche of customers become legally eligible in July 2004, with this market opening supported by interim processes and systems until the full suite of market opening systems are implemented (in parallel with systems to support entry / exit and wider gas market changes) in October 2004; determine a preferred solution for the interim systems and processes to support this market opening between July and October 2004; and constitute a Gas Market Implementation Group as described above to improve coordination of industry implementation activities. 12