Interconnection

Overview

Owner: Ian Wilson
Status: In Progress

Introduction

The Gas Act 1992 (the Gas Act) provides for regulations to be made for the purpose of 'prescribing reasonable terms and conditions for access to transmission or distribution pipelines'. Gas Industry Co's 2006 review of transmission access issues identified a number of concerns relating to interconnection with transmission pipelines. Subsequent discussions between Gas Industry Co and interconnecting parties suggested that: interconnection processes were poorly defined; technical requirements for interconnection equipment had been changed during the course of projects; roles and responsibilities had been confusing; and liability/insurance matters had not been addressed until late in the process.

The objective of this Interconnection work programme is to ensure that the arrangements for interconnection with transmission pipelines are reasonable. If necessary, as the industry body under the Gas Act, Gas Industry Co may recommend the introduction of rules or regulations to achieve the objectives of the Gas Act and Government Policy Statement on Gas Governance (GPS).

Review Process

Gas Industry Co has developed Interconnection Guidelines (Guidelines) that set out its view on the features of good interconnection practice. Although these guidelines have no legal standing, Gas Industry Co intends that transmission system owners (TSOs) should use them to develop their interconnection services. It is also intended that parties seeking interconnection use them as a guide to the principles, processes, documentation, and dispute arrangements that might apply.

Gas Industry Co will monitor the interconnection services provided by pipeline owners. If these services do not meet the requirements of the Gas Act and GPS, Gas Industry Co will consider other options for improvement, including recommending rules or regulations to the Minister of Energy and Resources (Minister).

Summary of Status

In 2009, Gas Industry Co conducted an initial review of the interconnection arrangements of both Maui Development Limited (MDL) and Vector Limited (Vector) against the Guidelines. Both MDL and Vector made further improvements in response.

In 2010, we formally assessed the improved interconnection arrangements against the objectives of the Gas Act 1992 and Government Policy Statement on Gas Governance 2008. The findings were generally favourable.

In a letter dated 9 March 2011, the Associate Minister of Energy and Resources acknowledged this progress and requested Gas Industry Co to '…undertake a formal review of the current interconnection arrangements after the next two interconnections to each of the transmission pipelines, or by the end of 2013, whichever is sooner.'

In a letter to the Minister, dated 20 December 2013, Gas Industry Co advised that in response to the 2011 request, we have reviewed two physical interconnections to the Vector pipeline, but that no substantial interconnections to the Maui pipeline had occurred. However, two significant new Maui pipeline interconnections are expected to occur in the first half of 2014. We therefore propose waiting for these interconnections before completing our review.

The letter to the Minister also advises of the 'interconnection' of the gas trading markets. During 2013, the New Zealand Exchange (NZX) finalised arrangement for a gas market 'connected' to the Maui pipeline, and Energy Market Services ('EMS', a commercial business group within Transpower NZ) finalised arrangements for a gas market 'connected' to the Vector pipeline. These gas market arrangements do not relate to the interconnection of physical equipment, but do raise some similar issues. Also, given that gas trading on a centralised platform is a new concept for the New Zealand gas market and has the potential to improve market efficiency, Gas Industry Co suggests to the Minister that we also review these 'interconnections'.

We sent reports to the Minister on the 'interconnection' of the gas trading markets and physical interconnections on 8 August 2014. Links to these reports can be found under the 'Review' tab.

Guidelines

In February 2009, Gas Industry Co issued the Transmission Pipeline Interconnection Guidelines (the Guidelines). The Guidelines set out its view on the features of good interconnection practice.

The objectives of the Guidelines are to:

  • describe what a TSO's interconnection policy should address;
  • describe the phases of interconnection, what should happen in each phase, and the key decision points;
  • establish principles that should apply to the overall provision of an interconnection service, and to each phase of interconnection;
  • encourage TSOs to adopt consistent interconnection documentation;
  • establish clear responsibilities; and
  • minimise barriers to entry by promoting transparency and efficiency.

Guidelines on Interconnection with Transmission Pipelines (February 2009)

Updated Guidelines

In September 2009, a review was conducted on the interconnection arrangements of both MDL and Vector against the Guidelines. As a result of the review and discussions held with the TSOs, some amendments to the Guidelines were considered necessary. These amendments and the reasons for them are noted in the table below.

Guidelines on Interconnection with Transmission Pipelines (November 2009)

Amendments to Guidelines on Interconnection with Transmission Pipelines

Amendment

Reason

3.2 Interconnection Policy

Each TSO should publish an interconnection policy that includes:

'the TSO's general policies relating to interconnection matters;'

An overarching interconnection policy would provide greater clarity to an interconnecting party (IP). A policy would provide a clear process for both parties in respect of information requirements, timelines, and responsibilities. It would also provide the principles for issues such as the near-by existing interconnection points.

5.2 Equipment Responsibilities

Ownership

The TSO and IP should agree the ownership and demarcation points of the interconnection equipment. In particular, they need to consider who will own TSO specified assets (noting that regardless of ownership, all TSO specified assetsshould be designed, constructed, operated, maintained and tested in accordance with the TSO's standards).

For a delivery interconnection point (see Figure 3):

· ownership of the equipment downstream of the primary isolation valve should be agreed between the parties. The TSO should not be obliged to own or provide this equipment. The TSO should give the IP an option to own this equipment permanently, or to transfer ownership to the TSO once constructed; and…

The objective of the Guidelines is to provide flexibility to an IP in respect of ownership and the means of cost recovery. By allowing an IP to own the station, it can choose how it funds the capital expenditure and be assured of a competitive cost.

As MDL does not fully address the requirements of a delivery interconnection, an interconnection policy should provide guidance in respect of delivery point interconnections. The delivery interconnection point is amended so that an interconnecting party (or a third party appointed by the IP) can construct the station and then transfer ownership to the TSO, enabling the IP a similar degree of financing flexibility.

Appendix A Documentation

Interconnection Policy

An interconnection policy should include:

Relevant policies and standards:

h) general policies relating to interconnection matters, including:

I the use of existing interconnection points;

ii equipment ownership and ownership transfer; and

iii other relevant policy matters;

i) links to other policies and technical standards relevant to interconnection, including:

i pricing policy;

ii list of TSO-specified assets; and

iii technical standards;

Technical review principles:

l) a description of the process and principles that will be used to assess the technical acceptability of an interconnection application.

Neither has a specific interconnection policy; however, many aspects of the policy are addressed by each TSO in various documents. An overarching interconnection policy would provide greater clarity to an interconnecting party (IP). A policy would provide a clear process for both parties in respect of information requirements, timelines, and responsibilities.

Review Process

2014 Review Material

Material from the 2014 reviews of the 'interconnection' of the gas trading markets and physical interconnections is presented below:

Letter to Minister of Energy and Resources, 8 August 2014

Report on gas trading market interconnections and related issues, August 2014

Report on interconnections to Maui and Vector transmission pipelines, August 2014

In relation to the gas market interconnections we note that the introduction of a gas trading market is a significant step towards achieving the Government's policy objective of efficient arrangements for short-term trading of gas. We find no issues requiring intervention, but note that the Maui pipeline owner is concerned that market trading may cause pipeline balancing issues. While acknowledging these concerns, we consider that the risks arising from the introduction of the market are manageable. We will keep track of balancing metrics in the immediate future to identify any emerging problems.

In relation to the physical interconnections we find that the owners of the Maui and Vector transmission pipelines now each have very comprehensive interconnection policies, procedures and documentation in place, closely aligned with the Interconnection Guidelines Gas Industry Co published in 2009. The recent interconnections have all been effective, with pipeline owners and interconnecting parties working collaboratively. We will be discussing the few issues that did emerged with the pipeline owners, and propose to continue monitoring new connections.

2013 Update

In 2013 we updated the Minister on interconnection activity, noting that two interconnections to the Vector pipeline had occurred, but that significant interconnections to the Maui pipeline were not expected to occur until early in 2014, and that Gas Industry Co will provide the Minister with an update at that time. We also noted that we would report on the 'interconnection' of the gas trading markets.

Letter to Minister of Energy and Resources Update on progress, December 2013

2011 Request for further review

Gas Industry Co advised the Minister of the efforts made by pipeline owners to improve their interconnection processes to align with the Guidelines and objectives of the Gas Act and GPS, the Associate Minister of Energy and Resources requested that we '…undertake a formal review of the current interconnection arrangements after the next two interconnections to each of the transmission pipelines, or by the end of 2013, whichever is sooner'.

Letter from Associate Minister of Energy and Resources, March 2011

2010 review material

Material from the 2010 review of TSO interconnection arrangements against the objectives of the Gas Act and GPS is presented below.

Letter to MDL regarding the 2010 Gas Act-GPS Interconnection Review and review questions, May 2010

Letter to Vector regarding 2010 Gas Act-GPS Interconnection Review and review questions, May 2010

Evaluation criteria for the 2010 Interconnection Review, May 2010

2010 Review of MDL's Interconnection Arrangements, December 2010

2010 Review of Vector's Interconnection Arrangements, December 2010

Letter to MDL regarding the 2010 Gas Act-GPS Interconnection Review, December 2010

Letter to Vector regarding the 2010 Gas Act-GPS Interconnection Review, December 2010

2010 Advice to the Minister

2009 review material

Material from the 2009 review of TSO interconnection arrangements against the Guidelines on Interconnection to Transmission Pipelines is presented below.

Letter to MDL regarding Interconnection Review, July 2009

Letter to Vector regarding Interconnection Review, July 2009

Letter to MDL regarding Interconnection Guidelines Review, August 2009

Letter to Vector regarding Interconnection Guidelines Review, August 2009

2009 Review of MDL Interconnection Arrangements, December 2009

2009 Review of Vector Interconnection Arrangements, December 2009

2009 Advice to the Minister