DECLARED WHOLESALE GAS MARKET
(DWGM)
PROPOSAL TO MOVE FROM A TWO-TIER
TARIFF STRUCTURE TO A SINGLE TARIFF
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STRUCTURE OF PARTICIPANT FEES IN AEMO‟S GAS MARKETS
Background
As part of the review of AEMO‟s gas market fees it is proposed to move from the current two-tiered
fee structure (tariff V and tariff D) to a single fee structure based on a flat rate ($) payable by
market participants for each gigajoule of gas withdrawn from the Declared Transmission System.
The history as to how the current fee structure was determined is summarised below:
In 1997, VENCorp, one of AEMO‟s predecessor organisation‟s, submitted its access arrangement
to the Australian Consumer and Competition Commission. The access arrangement included the
methodology to recover VENCorp‟s costs in relation to the Victorian wholesale gas market.
The methodology involved ascertaining fixed and variable cost pools from the annual VENCorp
budget. These cost pools were then allocated based on the following set of guiding principles:
(1)
allocate costs to end-use customer groups on a commercially reasonable and
economically efficient basis;
(2)
allocate costs so as not to distort potential investment decisions in pipeline and enduser facilities;
(3)
provide incentives to grow the gas market;
(4)
costs must be simple to understand and implement; and
(5)
as far as possible, allocation should be cost reflective.
The fixed costs were assessed as being:
(1)
meter data handling (CTMs and tariff D meters) and
(2)
participant registration fees
These fixed costs were each recovered via separate fees consistently across all participants.
The remaining costs constituted the variable cost pool.
The methodology employed to allocate the variable cost pool was based on an end-use bearable
methodology.
This resulted in end-use customer groups being allocated differing proportions of the cost pool. For
consistency with the network tariffs, these end-use customer groups were defined as:
(1)
tariff V
(2)
tariff D
A tariff D customer is defined as those consuming greater than 10 terajoules per year or those so
advised by a Network Service Provider. Tariff V customers are classed as all other customers.
A variable cost pool allocation of 72% to tariff V and 28% to tariff D was deemed to achieve the
principles outlined above and achieve a target of VENCorp costs being approximately 1% to 1.5%
of total delivered energy costs for most customers.
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STRUCTURE OF PARTICIPANT FEES IN AEMO‟S GAS MARKETS
Analysis
The National Gas Rules detail a number of principles that need to be considered by AEMO when
determining the structure of participant fees. These principles include:

The components of participant fees charged to each Registered Participant should be
reflective of the extent to which AEMO‟s budgeted revenue requirements involve that
Registered Participant.
Reflective of participant involvement is consistent with the principle of „user pays‟.

The structure should be simple.

Participant fees should not unreasonably discriminate against a category or categories of
Registered Participants.

AEMO must have regard to other fee structures that it thinks appropriate for comparison
purposes.
A key point to note is that the principles that AEMO is required to have regard to in
determining this fee structure are significantly different to the principles that were
considered back in 1997 when the current fee structure was developed.
In considering the principles above, a key question for AEMO to consider was “in providing
services to DWGM participants is there a distinction between the resources required to provide
specific tariff V services compared to specific tariff D services”.
In assessing this question, sessions were held with 5 senior AEMO employees whose teams
provide services to DWGM participants. The intent of the sessions were to:
a) identify the key services that their team provides DWGM participants; and
b) in providing those services, determine if there is a focus of resources or effort by their team
in delivering specific tariff V or tariff D services.
The result of this analysis is included as attachment 1.
In summary, the analysis very clearly illustrates that for the vast majority of services, AEMO does
not distinguish between tariff V and tariff D.
The results of this analysis indicate, from a „user-pays‟ perspective, it is very difficult to justify
retaining the current two-tiered structure.
In regard to the other principles listed above:
-
it is clear that the proposed single tariff is a more simple structure.
-
in considering other fee structures for comparison purposes, it is difficult to gain any guidance
due to each markets unique circumstances and environment, however it is worth noting that
neither the National Electricity Market (NEM) or the Short Term Trading Market (STTM) fees
distinguish between end-use customers.
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STRUCTURE OF PARTICIPANT FEES IN AEMO‟S GAS MARKETS
KEY SERVICES - VICTORIAN DECLARED WHOLESALE GAS MARKET
Focus of resources to deliver services
Tariff V specific
Tariff D specific
Total load
Comment
Gas Operations
Controlling security and operation of the DTS
Gas Operations work is focussed on a total load basis and
does not distinguish between tariff V and tariff D customers.
Operating the DWGM
Coordinating maintenance and system augmentation of the DTS
Metering & Settlements
Settling and clearing the DWGM
Prudential Management of the DWGM
The Metering & Settlements team do undertake additional
work to profile domestic meters, however this work is
recovered via the Victorian FRC tariff, not via tariff V or tariif D.
Provision of market data
All other M&S work is completed on a total load basis.
Gas Market Performance
Market design and market efficiency
Manage rule change/procedure change processes
The resources required to provide Gas Market Performance
services are not impacted by the proportion of tariff V or
tariff D load.
Demand Forecasting
Provision of demand forecasts
Different processes are undertaken to develop domestic
demand forecasts compared to industrial demand forecasts.
Slightly more effort required for the domestic demand process
however AEMO considers this difference to be immaterial and
it does not impact the results of this analysis. (The DWGM
demand forecasting costs are less than 2% of the total
DWGM annual costs ).
Gas Planning
Victorian APR
The resources required to provide Gas Planning services
are not impacted by the proportion of tariff V/ tariff D load.
Victorian Gas System Adequacy Report
Information Technology
Provision of systems and IT services
The provision of IT services are not materially impacted by
the proportion of tariff V/ tariff D load.
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