Investment AMDQ: Enhancing Private Pipeline Investment

1. Investment AMDQ Don Vigilante Nov 2010

2. Investment AMDQ: Why? • Current Property Right regime in the DTS has failed to incentivize private pipeline investment • The NGO is achieved through a prudent mix of assets which are funded from both regulated tariffs & private investment • Because the DWGM is an enforced overlay on the DTS, market based property rights become the principle benefit for private investment decisions (akin to contract rights on contract carriage regimes) • Property right benefits should correctly reflect the risk profile of the investment vehicle • Funds-at-risk are lower for regulated assets • Current property right rules allow “free riding” of privately funded assets by tariff service users

3. Investment AMDQ: Proposal • Create investment-AMDQ (AMDQI) as a property right separate from Longford AMDQ & AMDQ Credits (AMDQC) • Dispatch Investment AMDQ ahead-of (Longford AMDQ & AMDQ Credits) in tie-break instances • Create Virtual Injection Investment Points to facilitate priority dispatch and co-scheduling with regulated property rights (see next slide) • Is this enough? – probably not • Consider additional enhancements (see later slides)

4. Investment AMDQ: co-scheduling Virtual Investment Injection Point (VIIP) System Injection Point Notional Privately Funded Pipeline Augmentation Investment AMDQ (AMDQI) Market Demand Regulated Asset Longford AMDQ & Normal Injection Point Registration Non-Longford AMDQC

5. Investment AMDQ: suggested VIIP rules • Only holders of Investment AMDQ may register at a VIIP • Accreditation table necessary for each registration at VIIP (as normal) • both upstream operator and pipeline owner may need to confirm • MDQ for VIIP must be no higher than face value of AMDQI certificates • Assume MDQ from normal SIP decreases when VIIP is registered • VIIP not close proximity point for transferring AMDQ/AMDQC & AMDQI • VIIP is close proximity point for transferring MDQ to/from normal injection point –intraday?

6. Investment AMDQ: Issues-1 • How are constraints apportioned for shared capacity ? (where privately funded assets contributed to common pipeline capacity) • It may not be possible to neatly separate private/regulated capacity in dispatch process • Suggestion: • Use Rules Based Approach and accept any deficiency in the allocation of SDPC across classes of property rights (Pareto principle - vital few & trivial many). • AEMO to develop options paper • Alternative approaches? • What happens if private investment is rolled-into the regulated asset sometime in future? • Suggestion: • AMDQI is forfeited and AMDQC can be purchased in normal way

7. Investment AMDQ: Issues-2 • Will priority dispatch in tie break cases be enough? • Probably not – Enhancements include: • Recognise that capacity augmentation has wider benefits in constraint cases (i.e. more than just, congestion hedge): • Could allow AMDQI to also hedge against Surprise Uplift Charges • Recognise that privately funded investment often supports site specific augmentations (i.e. new generation plant etc) • Is it fair in curtailment events for privately funded capacity to be thieved for use by tariff users? • Could allow holders of AMDQI to have greater immunity in involuntary curtailment events (than Longford AMDQ & AMDQC)

8. Investment AMDQ: questions for way forward • Does the proposal have support from industry? • if not, let’s go do other things! • Does the proposal have support from AEMO ? • If not, let’s not replicate the dynamic for the (in)famous Ancillary Services proposal! • Are we prepared to commit to a more detailed investigation? • involvement versus commitment (analogy with the role of the chicken and the pig in a bacon & egg sandwich) • Commitment means establishing project timelines and (AEMO) resources devoted to further work