Capacity trading reform package
The capacity trading reform package was recommended by the Australian Energy Market Commission (AEMC) as part of its Eastern Australian Wholesale Gas Market and Pipelines Framework Review (East Coast Review) and endorsed by the COAG Energy Council (Energy Council) at its August 2016 meeting. The reforms, which relate to transmission pipeline and compression services (jointly referred to as ‘transportation services’), include the development of:
- A capacity trading platform that will form part of the gas trading exchange (i.e. the Gas Supply Hub (GSH)) and provide for exchange-based trading of commonly traded transportation products and a listing service for other more bespoke products.
- A day-ahead auction of contracted but un-nominated capacity (CBU), which will be conducted each day on non-exempt transportation facilities shortly after nomination cut-off time and subject to a reserve price of zero.
- A range of measures to facilitate capacity trading and the day-ahead auction, including the development of standard operational transportation service agreements (standard OTSAs) that will establish the standard contract terms between transportation service providers and shippers for capacity procured through the capacity trading platform, auction and bilaterally (i.e. if the secondary shipper elects to use an operational transfer).
- A reporting framework for secondary capacity trades and a number of other transparency measures that are designed to facilitate capacity trading and the auction.
- A standard market timetable that provides for:
- a common gas day start time of 6 am (AEST) across the east coast and the Northern Territory (NT) that will apply to all production, pipeline, compression and storage facilities and in the facilitated markets; and
- a common nomination cut-off time of 3 pm (AEST) for transportation facilities subject to the capacity trading reforms and common auction service nomination cut-off time of 6:45 pm (AEST) for transportation facilities subject to the auction.
Together these reforms are expected to foster the development of a more liquid secondary capacity market and, in so doing, improve the efficiency with which capacity is allocated and used on transportation assets operating under the contract carriage model (i.e. outside the Declared Transmission System in Victoria), by:
- using market based processes to allocate capacity on a non-discriminatory basis to those that value it most;
- improving the incentive shippers have to trade capacity and posing a constraint on the ability of pipeline operators to sell secondary capacity at prices in excess of what would be expected in a workably competitive market;
- reducing search and transaction costs; and
- reducing information asymmetries and aiding the price discovery process.
The GMRG commenced work designing elements of the package in February 2017 and established the following project teams to assist with the design and development work:
- the Standardisation project team;
- the Capacity trading platform project team; and
- the Auction project team.
Further information about these teams can be found on the Design page.
The GMRG made its final recommendations to the COAG Energy Council on the design of the capacity trading platform, the standardisation related reforms, the secondary trading reporting framework and the day-ahead auction in the latter half of 2017. The Energy Council unanimously endorsed the GMRG’s final recommendations on:
- who should operate and administer the capacity trading platform and the day-ahead auction in July 2017;
- the design of the capacity trading platform, the standardisation related reforms, the secondary trading reporting framework and the harmonisation of gas day start times and nomination cut-off times on 24 November 2017;
- the design of the day-ahead auction of contracted but un-nominated capacity on 3 January 2018 (out-of-session); and
- the legal and regulatory instruments required to give effect to the capacity trading reform package on 29 June 2018 (out-of-session).
At the COAG Energy Council’s 24 November 2017 meeting, it was agreed that:
- the capacity trading platform and day-ahead auction would commence by 1 March 2019; and
- the standard market timetable would be implemented by 1 October 2019.
Before the capacity trading reform package can be implemented, extensive work is required by the Australian Energy Market Operator (AEMO), the Australian Energy Regulator (AER) and service providers on the following tasks:
- Development of regulatory and contractual architecture: This task will involve:
- The development of the Capacity Transfer and Auction Procedures (including the auction agreement) and amendments to a range of other subordinate instruments by AEMO. AEMO will also be responsible for determining the zones to be used for the capacity trading platform and auction and publishing the transportation service point register.
- The development of record keeping guidelines by the AER.
- The development of standard OTSAs by service providers.
- Market systems development, which will involve designing, developing and testing the new systems that will be required for the capacity trading platform and the day-ahead auction and related activities.
- Industry readiness, which will involve the development of guidelines and training material for market participants, industry testing and market trial, and other market readiness related activities.
Further information on the work that AEMO and the AER are carrying out on the implementation of the reform can be found on AEMO's Pipeline Capacity Trading and the AER’s Pipeline Capacity Trading and Day Ahead Auction.