31 July 2014

Manager, COAG Energy Council Secretariat Department of Industry GPO Box 1564 Canberra ACT 2601

Dear Secretariat,

Enhanced Pipeline Capacity Information

Alinta Energy welcomes the opportunity to make a submission in response to the COAG Energy Council Officials’ consultation paper entitled ‘Enhanced Pipeline Capacity Information’.

Alinta Energy is an active investor in the energy retail, wholesale and generation markets across Australia. Alinta Energy has around 2500 megawatts of generation capacity in Australia (and New Zealand) and a growing customer base of approximately 750,000. Alinta Energy has significant gas interests across Australia.

Alinta Energy is the incumbent gas retailer in Western Australia and offers gas at the mass market retail level in South Australia and Victoria. Alinta Energy is also active in the gas market in Queensland and has a range of commercial interests; this includes commercial and industrial wholesale gas sales.

Alinta Energy’s portfolio includes three gas-fired generation units at the Braemar Power Station facility in the Queensland region, four gas fired units which form the Pinjarra Power Station and facilities in the Western Australian south-west interconnected system, and the Port Hedland Power Station and in the region.

Alinta Energy also is part owner of the Goldfields Gas Transmission Pipeline, and owns an approximately 150km gas pipeline in Queensland serving the Braemar Power Station facility.

Alinta Energy is a participant in the Adelaide and Brisbane hubs of Short-Term Trading Market, the Victorian Declared Wholesale Gas Market and notably, initiated the first trade in the Wallumbilla Gas Supply Hub.

Alinta Energy continues to support development of Australia’s gas markets and is an advocate of greater trading opportunities including secondary capacity trading.

Gas Transmission Pipeline Capacity Trading , May 2013

Alinta Energy responded to the earlier paper as follows:

• in-principle agreement that additional trading capacity is desirable, particularly for pipelines which are currently fully contracted; • supportive of the view that increasing capacity utilisation of existing pipelines will likely be an avenue for more efficient pricing and gas allocation in the market; and

• shared the conclusion that east coast gas market has not developed an effective or efficient pipeline capacity trading market [should be noted developments have advanced since that time].

Nevertheless, the earlier submission went on to indicate a number of reasons why pipeline capacity remains underutilised. These are repeated below.

1. Information on available capacity in the forward period is limited and not readily accessible. 2. Market does not cater to short-term trades. 3. Transactions costs are high due to contractual and administrative burdens associated with all trades involving gas pipelines. 4. Interface with hubs has not been resolved. 5. Exposure to additional pipeline charges is unknown at time of capacity trade and can be difficult to manage. 6. Marginal benefits of increased pipeline trade may be dwarfed by more significant benefits in retail gas markets.

Enhanced information is but one factor

Alinta Energy supports the view that all relevant information that would encourage capacity trading is not readily available in the right timeframes so as to provide parties with a clear understanding of where capacity is, or may be, available and for what duration of time.

Alinta Energy supports efforts which increase the availability of gas market information; however, increased information is only of value if the information provided addresses gaps in the market. Information which is not targeted at addressing specific gaps may ultimately create a reporting burden for little discernible benefit.

In the consultation paper a large range of information variables are identified. Alinta Energy supports the bulk of the suggested improvements to information provision except where that information would materially commercially disadvantage a market participant. This is arguably the case in relation to contracted capacity information. Alinta Energy supports the provision of capacity data in aggregate form on a monthly or similar basis not information that identifies the position of individual shippers.

On the other hand production data from fields, pipeline flow data, all available line pack information, and short and medium term capacity outlook information is considered necessary to better inform the market. As it stands the bulletin board does not display all information that impacts market conditions and is material. Gas fields that do not inject to domestic pipelines directly impact gas and electricity conditions but are generally excluded from the bulletin board. This extends to showing how “full” facilities may be.

Additional information regarding storage is worth considering but again the impact on individual participant’s commercial arrangements may be relevant where storage facilities are used exclusively in-house. This latter argument has some bearing on the balance of displaying information regarding how full any facility is. Nonetheless, on balance the weighting of any consideration should be towards transparency for physical characteristics of the market.

The other data published in Western Australia, notable large user consumption, detailed facility data and flow data by delivery and receipt point would go a significant way to improving market transparency and developing the conditions for increased trade.

While Alinta Energy supports the provision of additional information (barring any large cost impediments), information is but one factor in improving the operation of Eastern Australian gas markets and in isolation may only marginally improve capacity usage and trading.

Other factors relevant to gas market development

Alinta Energy suggests it is appropriate to consider whether the market can better develop through the removal of a number of structural impediments that are largely in place as a consequence of history and custom, not necessity.

For instance, existing gas transportation agreements could be more flexibly structured to facilitate capacity trading. The use of more flexible terms and conditions, fewer strictures around delivery and receipt points, and charging of only justifiable costs where shippers trade capacity could be considered in the near term.

Importantly, pipeliners can play a major part in facilitating trading. This has been evidenced at the Wallumbilla Gas Supply Hub through the good work undertaken by the APA Group which has developed a capacity trading platform. More recently, industry has become aware of deals which provide for even greater flexibility in delivery and use of points across the network. These sorts of arrangements may be worthy of further investigation as a basis for market operation more generally.

In this regard, Alinta Energy questions whether there is the potential to create a more flexible method of managing capacity. Such a model would rely less on specific gas transportation agreements, although they would remain for those with firm capacity who have underwritten infrastructure, and greater reliance on nominations between delivery and receipt points across the network (whether grouped in zones or not) under standardised terms with the pipeliner.

Under this model the key criteria would not be the need to negotiate a cumbersome agreement but the actual knowledge of where and when capacity was available backed up by an appropriate charging regime. Alinta Energy can envisage such a model leading to more flexibility in the market, greater use of in-pipe trading and the potential for derivatives markets to develop as capacity and commodity between groups of points can be more transparently valued.

Alinta Energy appreciates that a full exploration of these issues is not possible within the context of the current consultation paper and the points above are provided for the purposes of directing future discussions only.

Alinta Energy also notes that the industry, with some assistance from Government, is best placed to lead the reform process and encourages Government to facilitate those discussions in the near term.

Yours sincerely,

Jamie Lowe Manager, Market Regulation