PROPOSALS FOR ADDRESSING SUPPLY OUTAGE AT AN INJECTION POINT WITH MULTIPLE SUPPLY SOURCES - REVIEW

Transcription

1 PROPOSALS FOR ADDRESSING SUPPLY OUTAGE AT AN INJECTION POINT WITH MULTIPLE SUPPLY SOURCES - REVIEW PREPARED BY: Market Development DOCUMENT NO: GWCF GWCF MEETING: 155 DATE: 04 DEC 2009 Australian Energy Market Operator Ltd ABN IO info@aemo.com.au NEW SOUTH WALES QUEENSLAND SOUTH AUSTRALIA VICTORIA AUSTRALIAN CAPITAL TERRITORY TASMANIA

2 Executive Summary This is a follow-up GWCF paper to look at the alternative option for resolving the issue of an upstream supply failure at a system injection point (SIP) with multiple supply sources. Currently this type of outage cannot be properly accounted for in the scheduling process as an SPDC cannot be applied at the injection point. An MP scheduled to inject from the failed supply source would incur deviation payments and be exposed to potential surprise uplift. In more serious instances, as SPDCs cannot be applied to reflection the reduction in supply, such an outage could result in a threat to system security. Six solution options were presented in GWCF , from which two options were further investigated in detail in GWCF (This paper was reissued to GWCF members following the last GWCF meeting). It was concluded and agreed upon that Option 6 was the most suitable solution to proceed with subject to final costings. However, the cost of Option 6 turned out to be significantly higher than that expected due to the IT implementation cost, as presented in GWCF Thus, both options with a more detailed costing estimate are compared and presented in this paper. A brief summary of the Options is as follows: Option 6 allows MPs to submit injection bids with reduced quantities at reschedules. The resubmitted daily quantities must not be less than the total quantities already scheduled for the current and previous scheduling intervals on the gas day. In the event of a supply outage at a specific supply source at the SIP, the affected MPs may: rebid reduced quantities at the next reschedule immediately after the event is known to them; indicate (via the WEX input screen) that the reduced bids are due to supply outage and that they are to declare a participant force majeure event (PFM); and must advise AEMO operations as soon as practicable and submit a formal declaration of PFM after the event including a supporting statement/confirmation from the relevant producer. AER will be informed of such instances in respect to matters of compliance with the Rules and Procedures. Option 2 requires separate market participant registrations for each upstream source or supply contract and the use of an MHQ= 0 override to be applied to the failed supply source(s) at the SIP. This option can also be used to selectively constrain injection bids during a supply shortage e.g. non-firm gas supply could be descheduled ahead of firm gas subject there being separate MP registrations. This option is not treated as a PFM but requires advice to AEMO from the SIP operator only (and not from individual MPs). DATE DOCUMENT ID-VERSION NUMBER PAGE 1

3 This option requires that: MPs intending to inject from multiple supply sources/contracts at a SIP have multiple MP registrations at the SIP i.e. one registration for each supply source or contract at the SIP including firm/non firm contracts if so desired. In the event of a partial gas production failure, the MHQ=0 override constraint can be applied specifically to deschedule MPs with lower priority or non-firm supply contracts. MPs with multiple registrations may need to use Agency Injection Hedge nominations to effectively hedge against congestion uplift. In the event of a supply outage at a specific supply source upstream of the SIP: The facility operator at the SIP (for e.g., SEA Gas operator) (under prior arrangements/agreement made with the potentially impacted MPs) is required to advise AEMO of the supply outage event, the impacted MPs and the estimated duration (in hours) of the outage. AEMO system operators will manually set the MHQ=0 for the affected MP registrations and for the specified duration. AEMO will issue a system wide notice to notify MPs and the AER of the supply outage event similar to an SPDC notification. Both proposals require changes to existing systems with no impact on MCE. Drafted changes to rules and Procedures for Option 6 have been presented in the GWCF paper Some changes to operational Procedures will be needed for implementing Option 2, but no rule changes are required. On operability grounds option 6 is simpler and more flexible. Nevertheless, it only applies to a minority of injection points and Market Participants, is far more costly and it would be subject to the AEMC rule change consultation process and decision. Option 2 requires multiple registrations for supply contracts sharing a SIP and MPs to have arrangements with the SIP facility operator. Option 2 is perceived to be more consistent with the current market design in place, as it uses similar operational procedure to that used with SDPC, where activation is only triggered upon the SIP facility operator s notification to AEMO, not individual MPs. Option 2 is far cheaper than option 6 to implement (25% of the cost) and some of these costs are borne directly by those using this option. OVERALL RISK CONSIDERATION These proposed options are both capable of mitigating system security risks on most occasions with a small residual risk due to infrequent human errors. MPs have increased flexibility to manage their financial risks due to exposure to deviation and/or uplift payments. DATE DOCUMENT ID-VERSION NUMBER PAGE 2

4 IMPLEMENTATION TIME AND RISK CONSIDERATION The expected completion time for Option 6 implementation is estimated to be September Risk wise, the impact on the stability of the system and MCE as the result of implementation is expected to be manageable but requires further assessment. With Option 2, the market systems interface will need to be modified with minimal impact expected. The implementation of the option 2 would be expected by May FINANCIAL CONSIDERATION At this stage, the IT implementation costs for Option 6 and Option 2 have been estimated to be around $320k and $80k respectively. Option 6 is far more costly. For Option 2 the costs of any additional registrations and arrangements with the SIP facility operator are borne by the impacted MPs. ADDRESSING MARKET OBJECTIVES The proposed options are is capable of mitigating system security risks and reducing deviation and potential uplift risks for MPs affected by supply failures at a SIP with multiple supply sources, however options 2 is cheaper and requires the individual participants to carry the costs of additional registrations and make arrangements with the SIP facility operator. CONSULTATION UNDERTAKEN GWCF has previously been consulted on these proposals. This paper summarises the earlier analysis of the proposed options and provides considered cost estimates and AEMO s recommendation. GWCF representatives are asked to indicate if they support the following recommendation or not. RECOMMENDATION AEMO recommends that option 2 be implemented. This is based on the relatively high cost of option 6 which involves a minority of Market Participants and would only be required in infrequent and severe circumstances. The onus is then on parties holding multiple supply contracts which use a common system injection point to undertake any additional registrations they consider are required to manage their risks. SUBMITTED BY Louis Chen 4 Dec 2009 AEMO DATE DOCUMENT ID-VERSION NUMBER PAGE 3

5 DETAILED SUBMISSION BACKGOUND This is a follow-up GWCF paper to further explore the proposals for addressing the issue of supply failure at a system injection point (SIP) with multiple supply sources. This issue was previously discussed in GMCC , GWCF and GWCF Currently, when a supply outage (total or partial) occurs at a SIP with a single supply source AEMO, on advice from the facility operator at that SIP, applies a SDPC to reduce the total scheduled injection at that SIP to the required level. However, this action is not effective for injection points with multiple upstream supply sources (for e.g., SEA Gas SIP). This is because AEMO scheduling process and the MCE do not distinguish supply sources at a SIP, and the SDPC, if and when triggered, applies to all injection bids regardless of supply sources. Furthermore, the current systems and the NGR do not allow MPs who were scheduled to inject gas from the failed supply source, to reduce their injection bids at subsequent schedules. This problem, if sustained and not corrected during the gas day, can cause serious threats to system security. Furthermore, the MPs scheduled to inject from the failed supply source can face significant deviation payments (because of reduced actual gas flows) and possibly surprise uplift payments (due to injection deviations) if LNG is scheduled subsequently. This paper revisits the two options discussed in GWCF with updated costs and benefits of each option. ANALYSIS OF THE OPTIONS Option 6: Rebid lower injection quantities at reschedules This option allows MPs to submit injection bids with reduced quantities at reschedules. 1 However, the re-submitted daily quantities should not be less than the total quantities already scheduled for previous scheduling intervals. In the event of a supply outage related to a specific supply source at the SIP, the affected MPs are required to: 1 Injection quantities are for 24 hours of the gas day DATE DOCUMENT ID-VERSION NUMBER PAGE 4

6 reduce their bid quantities at the next reschedule immediately after the event is known to them and in subsequent reschedules for the entire duration of the event; confirm (via the WEX screen) that the reduced bids are due to soppy outage and declare a participant force majeure event (PFM); and submit a written report to AEMO as a formal declaration of PFM after the event. AEMO is required to issue a system wide notice to notify MPs and the AER of the PFM event. AEMO may be required to assist the AER with their follow-up investigation of participants compliance obligations related to the PFM events. Option 2: Apply SDPC at selected supply sources at the SIP This option proposes to modify the current process for SDPC so that it can be applied specifically to the failed supply source (in lieu of all supply sources) at the SIP as required. This means that: MPs intending to inject from multiple supply sources at a SIP are required to apply for multiple MP registrations (i.e. one registration for each supply source at the SIP that the MP intends to inject gas from). MPs with multiple supply contracts (for e.g. a mixture of firm/non firm contracts) with an upstream producer can also apply for multiple MP registrations (i.e. one registration for each supply contract) so that, in the event of a partial gas production failure, SDPC can be applied specifically to the target MPs to constrain the low priority supply contracts. All MPs registered for the above purpose need to comply with the NGR. In the event of a supply outage at a specific supply source at the SIP: The facility operator at the SIP (for e.g., SEA Gas operator) (under prior arrangements/agreement made with the potentially impacted MPs) is required to advise AEMO of the supply outage event, those MP registrations impacted and the estimated duration (in hours) of the outage. AEMO system operators will manually set the MHQ=0 for the affected MP registrations and for the specified duration. AEMO will issue a system wide notice to notify MPs and the AER of the supply outage event similar to an SPDC notification. It should be noted that Agency Injection Hedge nomination (AIHN) needs to be used in conjunction with this proposal if the MPs with multiple registrations wish to use their total scheduled injections for uplift hedge. The following example illustrates how this works. For example, if MP A intends to inject gas from Minerva and Otway at the SEA Gas SIP it is required to register as 2 different MPs, for e.g. A1 and A2 respectively. MP A1 may submit a demand forecast of 10TJ to cover the total customer load and injection bids of 5TJ from Minerva. MP A2 only submits injection bids of 5TJ from Otway gas. If MP A intends to use the total scheduled injections from both Minerva and Otway to hedge against congestion uplift MP A2 needs to submit an AIHN specifying that its scheduled injections from Otway are to be combined with those from Minerva (from MP A1) for the purpose of calculating IH and UH for MP A1. DATE DOCUMENT ID-VERSION NUMBER PAGE 5

7 Impact of the proposals on market systems and business processes These proposals are expected to impact on current business processes, market systems, and Gas Rules and Procedures. The following table provides a high-level comparison of the 2 proposed options in this regard, and a discussion of the expected costs and residual risks. Impact on business processes Impact on market systems NGR changes Procedure/ user guide changes Costs Residual risks OPTION 6: ALLOW MPS TO REBID REDUCED QUANTITIES AT RESCHEDULES There may be a need to develop new processes for PFM events. Significant changes to WEX and TMM are expected. MCE is not impacted. A review of the relevant clauses of the NGR regarding bid quantities may be required. Changes to WEX user guide are expected IT implementation cost is expected to be around $320k. It is possible that the MPs affected by PFM events may inadvertently leave the bids unchanged (for e.g. due to standing bids being used). If AEMO does not intervene with an ad hoc schedule the affected MPs OPTION 2: APPLY SDPC TARGETED AT THE FAILED SUPPLY SOURCE Multiple registrations are required from each MP injecting from multiple supply sources. Existing accreditation process/procedure applies to each registered MPs. Existing notification process for SDPC events applies. No impact on WEX and MCE. Changes to TMM are expected (for e.g., the Accreditation table will be modified to store the supply source & injection point) Rule changes are not expected. Accreditation procedure may need updated (to include for example the supply source where gas is injected from) An annual participant fee of $16,620 is incurred for each MP registration to cover the initial annual charge $5,670 and $30 daily fee) IT implementation has is expected to be around $80k. The manual process for overriding MHQ may not be error free. Risks of deviation and uplift payments are identical to those for option 2. See more details in the next section. DATE DOCUMENT ID-VERSION NUMBER PAGE 6

8 Ad hoc schedules OPTION 6: ALLOW MPS TO REBID REDUCED QUANTITIES AT RESCHEDULES are expected to face a small increase in deviation and uplift risks. See more details in the next section. Ad hoc schedules are not possible as the affected MPs can only re-submit their bids at the following standard schedule time. OPTION 2: APPLY SDPC TARGETED AT THE FAILED SUPPLY SOURCE Ad hoc schedules are performed only if there are threats to system security. RISK CONSIDERATION These proposed options are both capable of mitigating system security risks on most occasions with a small residual risk due to infrequent human errors. MPs have increased flexibility to manage their financial risks due to exposure to deviation and/or uplift payments. FINANCIAL CONSIDERATION At this stage, the IT implementation costs for Option 6 and Option 2 have been estimated to be around $320k and $80k respectively. Option 6 is far more costly. For Option 2 the costs of any additional registrations and arrangements with the SIP facility operator are borne by the impacted MPs. ADDRESSING MARKET OBJECTIVES The proposed options are is capable of mitigating system security risks and reducing deviation and potential uplift risks for MPs affected by supply failures at a SIP with multiple supply sources, however options 2 is cheaper and requires the individual participants to carry the costs of additional registrations and make arrangements with the SIP facility operator. CONSULTATION UNDERTAKEN GWCF has previously been consulted on these proposals. This paper summarises the earlier analysis of the proposed options and provides considered cost estimates and AEMO s recommendation. GWCF representatives are asked to indicate if they support the following recommendation or not. RECOMMENDATIONS AEMO recommends that option 2 be implemented. This is based on the relatively high cost of option 6 which involves a minority of Market Participants and would only be required in infrequent and severe circumstances. The onus is DATE DOCUMENT ID-VERSION NUMBER PAGE 7

9 then on parties holding multiple supply contracts which use a common system injection point to undertake any additional registrations they consider are required to manage their risks. SUBMITTED BY Louis Chen 4 Dec 2009 AEMO DATE DOCUMENT ID-VERSION NUMBER PAGE 8