RBP Access Arrangement Auction Workshop
Brisbane 17 May 2012
Current state of play

APTPPL proposed moving from a First Come First Served (FCFS) Queue to an NPVranked auction for spare and developable capacity

AER has rejected APTPPL’s proposed approach on a number of grounds
–
Requires reversion to two FCFS Queues (Spare Capacity and Developable Capacity).

APTPPL must file a Revised Proposal by 25 May 2012

Purpose of today’s workshop:

–
To work through various auction designs to define the best option
–
To identify issues to be addressed in APTPPL’s Revised Proposal
Goal is for APTPPL to submit a revised proposal that is acceptable to both the AER
and shippers
APA Group Presentation  2
NERA Report

APTPPL engaged economics firm NERA to advise on auction processes and
structures

This report was not considered by the AER in reaching its draft decision
–

This report is on the AER’s web site
Ann Whitfield from NERA will discuss this report and its findings
–
[review Ann Whitfield’s presentation here]
APA Group Presentation  3
A capacity auction is held in
which seven bids are received.
 100 units of capacity 
Each bidder defines its own
capacity needs and the price it is
willing to pay for that capacity.
 Quantity
Worked example
 ---------- Price ---------- 
Adam (50 x $10) $500
Area = Bid Value
Bob (30 x $8) $240
Chris (25 x $9) $225
Assume a pipeline
with 100 units
of available capacity
Derek (15 x $10) $150
Edith (15 x $9) $135
Fred (10 x $10) $100
Ginger (10 x $9) $90
APA Group Presentation  4
Total value ranking approach:
Adam (50 x $10) $500
Step 1: Arrange bids in
descending revenue order.
1
Bob (30 x $8) $240
 100 units of capacity 
2
Chris (25 x $9) $225
3
Derek (15 x $10) $150
Edith (15 x $9) $135
4
5
Fred (10 x $10) $100
Ginger (10 x $9) $90
6
7
APA Group Presentation  5
Ranking approach:
Adam (50 x $10) $500
Step 2: Assign capacity in that order.
Step 3: Stop assigning capacity as
soon as the “next largest” cannot be
served.
1
Utilisation
80%
Bob (30 x $8) $240$740
Revenue
20 units available capacity
25
 100 units of capacity 
2
Chris (25 x $9) $225
3
Derek (15 x $10) $150
Edith (15 x $9) $135
4
5
Fred (10 x $10) $100
Ginger (10 x $9) $90
6
7
APA Group Presentation  6
Advanced Ranking 1:
Adam (50 x $10) $500
Step 2: Assign capacity in that order.
Step 3: Skip any bids that are too
big to serve in full.
Step 4: Repeat until no more full
bids can be served.
1
Utilisation
95%
Bob (30 x $8) $240$890
Revenue
2
20 units available capacity
25
 100 units of capacity 
5 units available capacity
Chris (25 x $9) $225
3
Derek (15 x $10) $150
Edith (15 x $9) $135
4
5
Fred (10 x $10) $100
Ginger (10 x $9) $90
6
7
APA Group Presentation  7
Advanced Ranking 2:
Adam (50 x $10) $500
Step 2: Assign capacity in that order.
Step 3: Offer partial capacity to any
bids that are too big to serve in full.
1
Utilisation 100%
Bob (30 x $8) $240 $920
Revenue
Workshop: 1) Status of Chris’ bid.
2) Status of unserved request:
Interruptible? Priority?
2
20 units available capacity
25
 100 units of capacity 
5 units unserved capacity
Chris (25 x $9) $225
3
Derek (15 x $10) $150
Edith (15 x $9) $135
4
5
Fred (10 x $10) $100
Ginger (10 x $9) $90
6
7
APA Group Presentation  8
Marginal value ranking approach:
Adam (50 x $10) $500
Step 1: Arrange bids in
descending price order.
1
Derek (15 x $10) $150
1
 100 units of capacity 
Fred (10 x $10) $100
Chris (25 x $9) $225
Edith (15 x $9) $135
Ginger (10 x $9) $90
1
2
2
2
Bob (30 x $8) $240
3
APA Group Presentation  9
Marginal value ranking approach:
Adam (50 x $10) $500
Step 2: Assign capacity in that order.
1
Step 3: Same issues as above apply
as soon as the “next largest” cannot be
served.
Not clear how a tie would be decided. The auction
would deliver the same value if we accepted Edith and
Ginger’s bids instead of Chris’.
Utilisation
Revenue
100%
$975
Derek (15 x $10) $150
1
 100 units of capacity 
Fred (10 x $10) $100
Chris (25 x $9) $225
Edith (15 x $9) $135
Ginger (10 x $9) $90
1
2
2
2
Bob (30 x $8) $240
3
APA Group Presentation  10
Optimisation approach:
Step 1: No need to rank bids in
any particular order.
 Quantity
 ---------- Price ---------- 
Adam (50 x $10) $500
Bob (30 x $8) $240
 100 units of capacity 
Chris (25 x $9) $225
Derek (15 x $10) $150
Edith (15 x $9) $135
Fred (10 x $10) $100
Ginger (10 x $9) $90
APA Group Presentation  11
Optimisation approach:
Step 2-∞: Use an optimisation
engine to determine the optimal
combination of bids delivering the
maximum NPV:
 100 units of capacity 
5 units available capacity
Utilisation
Revenue
95%
$890
Chris (25 x $9) $225
Derek (15 x $10) $150
Bob (30 x $8) $240
Adam (50 x $10) $500
Edith (15 x $9) $135
Fred (10 x $10) $100
Ginger (10 x $9) $90
APA Group Presentation  12
Optimisation approach:
 100 units of capacity 
Step 2-∞: Use an optimisation
engine to determine the optimal
combination of bids delivering the
maximum NPV:
Ginger (10 x $9) $90
Fred (10 x $10) $100
Bob (30 x $8) $240
Adam (50 x $10) $500
Utilisation
Revenue
100%
$930
Chris (25 x $9) $225
Derek (15 x $10) $150
Edith (15 x $9) $135
APA Group Presentation  13
Optimisation approach:
 100 units of capacity 
Step 2-∞: Use an optimisation
engine to determine the optimal
combination of bids delivering the
maximum NPV:
Ginger (10 x $9) $90
Derek (15 x $10) $150
Bob (30 x $8) $240
Adam (50 x $10) $500
Utilisation
Revenue
100%
$940
Note that total revenue is higher,
but Adam,
the highest value bidder on the day,
would miss out under this approach
Chris (25 x $9) $225
Edith (15 x $9) $135
Fred (10 x $10) $100
APA Group Presentation  14
Optimisation approach:
Step 2-∞: Use an optimisation
engine to determine the optimal
combination of bids delivering the
maximum NPV:
 100 units of capacity 
Q: How do we solve a tie? The auction would
deliver the same value if we accepted Edith and
Ginger’s bids instead of Chris’.
Fred (10 x $10) $100
Derek (15 x $10) $150
Chris (25 x $9) $225
Adam (50 x $10) $500
Utilisation
Revenue
100%
$975
Bob (30 x $8) $240
Lucky for Adam, that was not the
optimal solution. But Bob, the second
highest value bidder, misses out
because there is another combination
that generates a higher total revenue.
Edith (15 x $9) $135
Ginger (10 x $9) $90
APA Group Presentation  15
Open forum

Open floor discussion
APA Group Presentation  16
Delivering Australia’s Energy
www.apa.com.au
APA Group Presentation  17