Application Martin No: gr9902 Jones Contents

Clause 19 Imbalance and zone variation

OEP submitted in relation to clause 19 that the requirement for an eight per cent maximum imbalance appears to affect payments rather than security of supply.³⁵⁹ OEP further submitted that the clause may cause disputes, and that if these disputes were to affect supply, the charge may need to be reviewed. OEP also raised the issue of whether any revenues from the imbalance charge have been included in operational income.

Osborne submitted that the excess imbalance charge is excessive and too restrictive. Osborne considered that there should be a wider tolerance, and users should be able to make reasonable corrections on subsequent days.³⁶⁰ Osborne noted that all current users of the pipeline system operate aggregated gas supply portfolios.³⁶¹ However, future projects such as independent gas power generators would encounter more difficulty with the proposed arrangements than would a gas aggregator.³⁶²

Origin made the following points in relation to clause 19:

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  users should incur an imbalance charge only if their imbalance is greater that 15 per cent of MDQ on more than two consecutive days;
  
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  Epic should be able to require users to curtail deliveries of gas only where:
  

Epic, reasonably and prudently, forms the opinion that a user’s imbalance will:

(a) materially impede the ongoing efficient and reliable operation of the pipeline system; or

(b) prevent Epic fulfilling its obligations to other users.

• 
  in these circumstances, Epic should be able to require users to curtail deliveries of gas to receipt/delivery points to the extent necessary to correct the imbalance so that it no longer has the effects described in (a) and (b) above;
  
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  in relation to clause 19.4 of the access arrangement, Epic’s right to correct the imbalance should be restricted to critical situations. That is if it is necessary to:
  

(a) preserve the operational integrity of the pipeline system; or

(b) prevent Epic from defaulting on its contractual requirements to other users.³⁶³

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  Epic should only be entitled to take the actions referred to in clause 19.4 to the extent necessary to ensure that any imbalance does not have the consequences referred to in (a) and (b);³⁶⁴ and
  
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  clause 19.4 should be amended to provide that Epic should be liable for any loss suffered pursuant to Epic’s actions under clause 19.4, if that loss results from Epic’s negligence.³⁶⁵ Origin submitted that clause 19.4 as amended should read:
  

The Service Provider will not be liable for any losses, costs, damages or expenses that the User may suffer or incur as a result of curtailment, suspension, cessation or confiscation under this clause 19.4, except to the extent those losses, costs, damages or expenses are caused by the Service Provider’s unnecessary actions or negligence.³⁶⁶

Origin submitted in relation to clause 19.5 that:

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  the words ‘third party’ should be replaced with ‘user’;
  
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  the indemnity should not extend to losses incurred due to Epic’s negligence; and
  
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  the indemnity should not extend to losses which would not have been incurred by Epic had it used reasonable endeavours to mitigate its loss.
  

Origin also submitted that:

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  Epic should not be indemnified where it has purported to take action pursuant to clause 19.4 in circumstances where clause 19.4 does not permit Epic to take such action;³⁶⁷
  
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  in some circumstances, an imbalance may be caused by Epic’s action rather than by those of users. Accordingly, clause 19 should provide that the excess imbalance charge and the indemnity do not apply unless Epic can prove that a user’s imbalance is not caused by Epic’s actions;³⁶⁸
  
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  the onus should be on Epic to prove that it was not the cause of an imbalance, since Epic has access to all relevant information concerning the operation of the pipeline system;
  
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  unless additional imbalance tolerance is provided, the access arrangement should include a park and loan reference tariff. If clause 19 remains in its present form, users will only be able to acquire sufficient flexibility to meet customer demand if they are able to enter a park and loan service with Epic; and
  
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  if a park and loan reference service is not offered in the access arrangement, Epic would be able to extract monopoly rents on such a service.³⁶⁹
  

In relation to clause 19.7, Origin submitted that:

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  there should only be one zone covering the Iron Triangle, the Barossa and Adelaide.³⁷⁰ Virtually all of the delivery points are located in the last quarter of the pipeline system, and after the last compressor;
  
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  charging for variations by zone reduces aggregation efficiencies;
  
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  the zone variation charge should be replaced by a variation charge that applies where the aggregate of deliveries to a user varies by more than 10 per cent from the scheduled delivered quantities of that user. This proposal would preserve the operational integrity of the pipeline system by controlling the total amount of gas taken out of the bottom of the pipeline system;
  
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  the variation charge should not apply to the extent that a variation is caused by an act or omission of Epic;
  
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  zone variation charges should be pro rated across users as partial compensation for the system use gas they are required to provide; and
  
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  when a zone variation occurs, Epic will need more system use gas to fuel additional compressor requirements. Accordingly, it is users rather than Epic who bear the cost of any zone variation.³⁷¹
  

In response to Origin’s submissions, Epic stated that users must submit to a level of discipline in how they operate under their access contract. This will allow Epic to maximise the capacity of the pipeline and minimise system use gas.

Epic considers that it must be permitted to curtail users who are impacting on the operation of the pipeline system, and threatening Epic’s ability to meet its obligations to other users. Epic indicated that it would consider making the curtailment order discretionary rather than mandatory in the event of an imbalance.

In response to Origin’s submission that liability and indemnity provisions should be changed to make them more equitable, Epic stated that it would review these provisions of the access arrangement. In addition it would review clause 19 in so far as users would be held responsible and penalised for imbalance caused by Epic or other users. Epic has not made these changes, and accordingly the Commission has required several amendments in relation to this issue. However Epic does not agree that a park and loan service should be a reference service.

In response to Origin’s submission that there should be one zone covering the iron Triangle, the Barossa and Adelaide, Epic commented in relation to this matter that zone variation charges are intended to minimise the opportunity for gaming, which might inhibit third party access.

In relation to Origin’s submission that variations by Epic should not be charged to a user, Epic submitted that it will amend the access arrangement such that Epic will not charge for variations caused by Epic breaching its access contract with the user.

In relation to Origin’s submission that variation and imbalance charges should not be paid to Epic, Epic submitted that the charges are for disciplinary rather than revenue purposes. However, Epic indicated that it was prepared to review the rebate mechanism in the access arrangement.³⁷² Epic did not amend the penalty regime.