Statement of Intent 2021 2023 - Gas Industry Company
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GAS INDUSTRY COMPANY LIMITED Statement of Intent 2021 – 2023
GAS INDUSTRY COMPANY LIMITED
CONTENTS
CHAPTER ONE Foreword 2
CHAPTER TWO Work Programme Priorities 4
CHAPTER THREE Consultation Process 6
CHAPTER FOUR Operating Environment 7
CHAPTER FIVE Industry Performance 10
CHAPTER SIX Work Programme & 14
Indicative Activities
FY2021 – 2023
CHAPTER SEVEN Financial Matters 19
CHAPTER EIGHT Financial Statements 19
CHAPTER NINE Alignment with 26
Government Policy
Objectives and Outcomes
CHAPTER TEN Other Information 28
CHAPTER ELEVEN Directory 29
Note: References to the Minister in this Statement of Intent relates to the Minister of Energy and Resources.
Gas Industry Company Limited’s Statement of Intent is available on our website: www.gasindustry.co.nz
Please consider the environment before printing.STATEMENT OF INTENT / 2021 – 2023 STATEMENT OF INTENT 1 Financial Years 2021-2023 The Gas Industry Company Limited (Gas Industry Company) was established in 2004 as the ‘industry body’ under Part 4A of the Gas Act 1992 (Gas Act). This Statement of Intent has been prepared by Gas Industry Company to meet the requirements of section 43ZQ of the Gas Act. It sets out the intended scope and objectives of Gas Industry Company’s operations for the financial year ended 30 June 2021, and the following two financial years (30 June 2022 and 30 June 2023), and provides information about the Company and its operating environment. The work programme described in this Statement of Intent is designed to meet the governance objectives set out in section 43ZN of the Gas Act, with regard also to the objectives and outcomes of the April 2008 Government Policy Statement on Gas Governance (GPS), as well as the wider strategic objectives of the Company. The Company’s role is to: » develop arrangements, including regulations where appropriate, which improve: – the operation of gas markets; – access to infrastructure; and – consumer outcomes; » develop these arrangements with the principal objective of ensuring that gas is delivered to existing and new customers in a safe, efficient, reliable, fair, and environmentally sustainable manner; and » oversee compliance with, and review such arrangements. Gas Industry Company is required to report on the achievement of those objectives and on the performance and the current state of the New Zealand gas industry. Rt Hon James B. Bolger, ONZ Robin Hill CHAIR DEPUTY CHAIR June 2020
GAS INDUSTRY COMPANY LIMITED
2 CHAPTER 1
Foreword
In our role as the industry body under the Gas Act, Gas Industry Company works with the
Government, industry, and regulatory agencies in a co-regulatory partnership.
Gas Industry Company’s strategy and work programme The reference to ‘sustainable’ arrangements links our
set out in this Statement of Intent have been prepared in work to the work led by the New Zealand Government
consultation with the industry and Government, while also to address climate change issues during the transition
having regard to changes being experienced in the wider to a low emissions future.
energy sector.
Natural gas has an important transitional role to play in
Emerging climate change policies, new technological New Zealand’s primary energy mix and to the country’s
developments, and the availability and affordability of economy. As New Zealand pursues its goal of 100 percent
natural gas continue to influence the future shape of renewable electricity generation by 2035, gas is still
the New Zealand gas industry. seen as a complementary form of energy, especially for
weather-sensitive renewables, and as an integral element
The Government has set a target under the Paris
of smart infrastructure network systems of the future.
Agreement to reduce New Zealand’s greenhouse gas
emissions by 30 percent below the 2005 levels by 2030. Gas Industry Company recognises and reflects this
It aims to achieve a net zero carbon economy by 2050. context of change - our activities remain firmly directed
This ambitious goal requires transition away from an at addressing the objectives and outcomes for the
energy system which is dependent on hydrocarbons downstream gas sector as set out in the Gas Act and
such as oil, coal, and gas, to one that is based on the GPS. Our priority projects are driven by a matrix
renewable energy sources. of statutory and policy requirements, maintaining the
momentum of existing and committed projects, and
Last year, the Interim Climate Change Commission (ICCC)
attending to new work that is seen as priority by the
provided its recommendations on planning for that
Government, Gas Industry Company and industry
transition and its response proposed the Government
stakeholders.
focus on electrifying fossil-fuelled processes to meet
the challenge of ensuring reliable electricity supply. Gas Industry Company’s information disclosure
workstream, initiated in August 2018, is aimed at
‘A Vision for Hydrogen in New Zealand’ released last 1
considering whether the existing market arrangements
September aims at signalling the opportunity hydrogen
relating to information disclosure are sufficient, or if further
can bring to New Zealand and frame discussions for a
arrangements are required. Industry response to our March
national strategy. The paper discusses the potential for
2019 Options Paper indicated a broad consistent theme
hydrogen to be blended with natural gas and distributed
in its submissions that upstream production outage
through the gas network. In addition to this paper,
information, both planned and unplanned, should be the
First Gas has received a grant to support a trial that will
highest priority for this workstream. As a result, and in
investigate how hydrogen could be distributed through
parallel to our workstream, upstream parties who
its existing gas pipelines.
acknowledge this view are actively working to develop an
It is often said about the energy sector that the only industry-led disclosure regime for gas production outages.
constant is change. Recent changes present fresh
By the end of FY2020, Gas Industry Company will have
challenges for the gas industry. In this regard, the role
analysed submissions on its recent problem assessment
of Gas Industry Company is also evolving. Gas Industry
paper, and will begin consultation on a statement of
Company intends to monitor the progress of work
proposal for information issues that have been identified
undertaken by the industry that investigates the potential
as having the highest priority. This statement of proposal
use of hydrogen in both transmission and distribution
will set out these issues and review options for addressing
pipelines. We will also review arrangements in other
them (including non-regulatory options). Our work will
international jurisdictions and accordingly work on
involve working alongside the Ministry of Business,
updating any rules and regulations needed to support
Innovation and Employment (MBIE) on the information
the inclusion of hydrogen in our energy system.
identified in the paper. Likewise, we will also be working
Central to our planning process is our statutory obligation with the Electricity Authority on its wholesale market
to develop and administer industry arrangements and information disclosure workstream, which will pick up the
ensure that gas is delivered to consumers in a ‘safe, disclosure of thermal generators’ fuel positions. We will
efficient, fair, reliable, and environmentally sustainable continue the statement of proposal process during FY2021
manner’. This is further supported by our overarching which will likely require continued work with the industry
strategic goal to provide leadership for the New Zealand to deliver robust industry-led solutions or recommending
gas industry. regulation to the Minister (or a combination of both).
1 A Vision for Hydrogen in New Zealand: Green paper is available on MBIE’s website: https://www.mbie.govt.nz/have-your-say/a-vision-for-hydrogen-in-new-zealand-public-consultation/STATEMENT OF INTENT / 2021 – 2023
3
Industry input into our work programme and budgeting
process has been robust and successfully underpins the
co-regulatory model for the downstream gas sector.
This was especially evident at our November 2019
Co-regulatory Forum where a question was raised on
whether there would be benefit in understanding if
efficiency gains could be made in the end-to-end process
of supplying gas, that could result in a reduction of
emissions. To better understand this, we will work with
the industry on establishing if a gas supply efficiency
review would be valuable and, if so, we will progress to
commissioning such a review in FY2021.
Gas Industry Company’s strategy seeks to lead forward
thinking, in conjunction with industry stakeholders, to
anticipate future opportunities and challenges within the
industry. In this respect we will continue to produce a range
of documents that enrich understanding of the industry
and its contribution to the economy, as well as assist
participants with their planning and to provide our
assessment of how the industry is generally performing.
This Statement of Intent outlines what the Company
intends to accomplish specifically for the 2020/21 financial
year and more broadly over the coming three-year period.
The work programme set out in this Statement of Intent is
extensive. We look forward to continuing to work with the
industry and Government to meet the challenges raised
either through the operation of the existing gas
governance arrangements, or those that might arise
from policy development activity.
Gas Industry Company remains committed to delivering
value in both its operational workstreams and in
organisational arrangements. There is a strong focus at
Board and Management levels on prioritising workstreams
to ensure available funds are used wisely and efficiently.
The ongoing success of the co-regulatory model continues
to be built on the considerable contributions of all our
stakeholders. We record our appreciation and thank all
stakeholders for their valuable input to the work
programme development during the consultation process.
We look forward to working together with our
co-regulatory partners in tackling the challenges
that lie ahead.
Rt Hon James B. Bolger, ONZ Andrew Knight
CHAIR CHIEF EXECUTIVE
June 2020GAS INDUSTRY COMPANY LIMITED
4 CHAPTER 2
Work Programme Priorities
This section sets out the main elements of Gas Industry Company’s work programme for FY2021,
and indicatively for the following two financial years. These elements are summarised in Table 1.
The work programme structure is designed to fulfil our Priority or committed and ongoing projects
statutory role through efficient governance arrangements,
progressing new or committed/ongoing projects that A number of important projects are in train or in prospect,
are important to the industry and other stakeholders, some at the request of the Minister. These projects aim to
and facilitating forward-looking discussion on future resolve priority issues within the industry and better meet
strategic issues. the Gas Act and GPS objectives.
Priority projects include:
Efficient governance arrangements » Information disclosure;
» administer existing rules and regulations: » Advanced gas metering;
– Gas (Switching Arrangements) Rules 2008 » The biennial update of the Long-Term Gas Supply
(Switching Rules) and Demand Scenarios;
– Gas (Downstream Reconciliation) Rules 2008 » Workstreams closely associated with the Gas
(Reconciliation Rules) Transmission Access Code (GTAC) arrangements
which will require review following its implementation,
– Gas Governance (Critical Contingency Management)
include downstream reconciliation, critical contingency
Regulations 2008 (CCM Regulations)
management, gas balancing, gas quality, and
– Gas Governance (Compliance Regulations) 2008 transmission interconnection; and
(Compliance Regulations);
» The Daily Allocation (D+1) pilot project will need to
» administer non-regulated monitoring arrangements, continue until there is agreement from industry for
including: its discontinuation or it is replaced by a production
– Retail Gas Contracts Oversight Scheme solution.
– Gas Distribution Contracts Oversight Scheme;
» review governance arrangements to ensure they Future strategic issues
remain fit for purpose and recommend changes
As part of our requirement to report on the performance
where improvements can be made efficiently;
and current state of the New Zealand gas industry, as
» monitor the compliance of industry participants and well as our strategic objective to communicate the role of
take enforcement action only where necessary; and gas in meeting the country’s energy needs, Gas Industry
» monitor and report on metrics arising from the market Company develops discussion and papers on the role of
and regulatory processes to enhance transparency and gas in New Zealand.
foster a well-informed market.
Past reports commissioned by Gas Industry Company
have focused on consumer energy options, options for
gas commercialisation, supply and demand study to assist
participants make informed decisions, and the potential for
demand management as a tool for managing transmission
pipeline congestion. The work programme provides an
ongoing focus on identifying and advancing such issues.STATEMENT OF INTENT / 2021 – 2023
5
Table 1: Work programme objectives and activities
OBJECTIVE 1 OBJECTIVE 2 OBJECTIVE 3 OBJECTIVE 4
Promote efficient, Facilitate efficient use Deliver effectively on Communicate the
competitive, and of, and investment in, Gas Industry Company’s role of gas in meeting
confident gas markets gas infrastructure accountabilities as New Zealand’s
the industry body energy needs
Comprising: Comprising: Comprising: Comprising:
» Retail gas contracts » Gas transmission access » Downstream » New Zealand Gas Story
oversight scheme » Transmission pipeline reconciliation » Other reports
» Gas distribution balancing » Switching and registry
contracts oversight » Transmission code » Critical contingency
scheme changes management
» Retailer insolvency » Transmission pipeline » Compliance and
» Gas quality interconnection enforcement
» Regulation and rule » Gas transmission » Statement of Intent
changes security and reliability and Annual Report
» Electricity price review » Gas supply efficiency
» Advanced gas metering review
» Gas supply/demand
» Wholesale market
» Information disclosure
» HydrogenGAS INDUSTRY COMPANY LIMITED
6 CHAPTER 3
Consultation Process
Consultation with industry stakeholders on Gas Industry Company’s intended work programme
and budget requirements, commenced with the Co-regulatory Forum, held in November 2019.
The work programme and budget addressing the
Company’s strategic priorities were detailed in a
Consultation Paper2, which was issued in December 2019.
Submissions on the Consultation Paper were taken
into account in finalising the recommendation to
the Minister for levy funding through regulations
(Levy Recommendation) for the financial year
ending 30 June 2021.
The consultation process led to the development
of this Statement of Intent which, along with the Levy
Recommendation3, provides the basis for Gas Industry
Company to deliver robust outcomes for gas consumers
and the wider industry as part of our mandate as the
industry body. The Levy Recommendation and draft
Statement of Intent are presented to the Minister in
March each year.
Figure 1 sets out the consultation and approval processes
leading to the annual promulgation of Levy Regulations.
Figure 1: Consultation process
NOVEMBER DECEMBER JANUARY FEBRUARY MARCH
Initial industry Consultation Industry Board approves Board approves Statement of
engagement on Gas Industry submissions Recommendation Draft Statement Intent and Levy
(Co-regulatory Company FY2021 for Levy of Intent then Regulations
Forum) Work Programme Regulations delivered take effect from
and Levy released to Minister 1 July 2020
for comment
Recommendation
to Minister
to approve Levy
Regulations
2 Consultation on Gas Industry Company FY2021 Work Programme and Levy found at www.gasindustry.co.nz
3 Gas Industry Company Recommendation to Minister of Energy and Resources to make Gas (Levy of Participants) Regulations 2021 found at www.gasindustry.co.nzSTATEMENT OF INTENT / 2021 – 2023
CHAPTER 4 7
Operating Environment
Gas Industry Company’s work programme is directly influenced by the industry structure, and the
legislative and policy framework. Together these form the Company’s operating environment.
Industry context Legislative and policy framework
Ongoing change in the energy sector influenced by a Since 2004, the gas industry downstream of the
number of factors, such as emerging climate change exploration and production sector has been governed by
policies and new technological developments, will alter a co-regulatory model. As the industry body, Gas Industry
the future shape of the New Zealand gas industry. Company creates the link between Government and
industry to deliver improved governance arrangements
The ICCC’s expert report Accelerated Electrification
for participants and consumers in gas markets.
recommends a series of actions the Government can
take using renewable electricity to achieve its 100 Gas Industry Company’s regulatory oversight encompasses
percent renewable target by 2035. The report notes the natural gas wholesale and retail markets, processing
that New Zealand is on track to deliver a 93 percent facilities, and the transmission and distribution sectors of
renewable electricity system by 2035. The report opens the industry (see Figure 2 Gas industry structure).
the way for the industry and Government to work together
Gas Industry Company’s role in relation to the gas
on a steady transition.
transmission and distribution sector focuses on terms
Looking forward, the industry is embracing these new and conditions of access to open access pipelines.
challenges by collaborating and working together to test The Commerce Commission has a complementary
out options to achieving their emissions targets. Joint role in relation to economic regulation of those assets.
venture partners Hiringa Energy and Ballance Agri As provided for in the Gas Act, the two agencies work
Nutrients, a major gas user, confirmed a joint development closely together on any areas of potential overlap.
agreement for a project in Taranaki to explore the
The Gas Act empowers Gas Industry Company to make
production of green hydrogen. Hiringa Energy is aiming
recommendations to the Minister on certain matters,
to start building its Kapuni hydrogen plant later in 2020.
having regard to the objectives for the industry body in
A Vision for Hydrogen in New Zealand discusses the the Gas Act, and the objectives and outcomes in the GPS.
potential for hydrogen to be blended with natural gas.
The Gas Act specifies that the industry body’s principal
Following a Government funding, First Gas will investigate
objective in recommending regulations is to ensure that
and trial how hydrogen could be distributed through
gas is delivered to existing and new customers in a ‘safe,
its existing gas pipelines. The trial will assess whether
efficient, and reliable manner’. The GPS has a broader
hydrogen can be used in New Zealand and transported via
policy objective: it sets, for the entire gas industry, the
its pipelines which will result in the first ever commercial
objective of ensuring that gas is delivered to existing
pilot in New Zealand of hydrogen from production to
and new customers in a safe, efficient, fair, reliable, and
distribution to end use.
environmentally sustainable manner.
As new technologies surface, natural gas will have an
Other objectives specified by the Gas Act for the industry
important role during this transition phase in providing
body in recommending regulations include:
cost effective electricity supply security and to support
renewable electricity generation. » the facilitation and promotion of the ongoing supply of
gas to meet New Zealand’s energy needs, by providing
Natural gas currently contributes 21 percent of our primary access to essential infrastructure and competitive
energy. It provides over 290,000 New Zealand homes, market arrangements;
business and local amenities such as schools, hospitals,
» barriers to competition are minimised;
and rest homes with secure affordable energy.
» incentives for investment in gas processing facilities,
transmission, and distribution are maintained or
enhanced;
» delivered gas costs and prices are subject to sustained
downward pressure;
» risks relating to security of supply, including transport
arrangements, are properly and efficiently managed
by all parties; and
» consistency with the Government’s gas safety regime
is maintained.GAS INDUSTRY COMPANY LIMITED
8
Figure 2: Gas industry structure
EXPLORATION
& PRODUCTION
OFFSHORE ONSHORE
PROCESSING
STORAGE
TRANSMISSION
MAJOR USERS
ELECTRICITY INDUSTRY
GENERATION
DISTRIBUTION
RETAIL MARKETSTATEMENT OF INTENT / 2021 – 2023
9
Additional objectives for Gas Industry Company and Gas Industry Company vision, mission,
the gas industry are set out in the GPS and include: and values
» energy and other resources used to deliver gas to
Consistent with the legislative and policy framework
consumers are used efficiently;
described above, Gas Industry Company’s Board has put in
» competition is facilitated in upstream and downstream place the following vision, mission, and values which assists
gas markets by minimising barriers to access to in the delivery of its statutory role, including by framing the
essential infrastructure to the long-term benefit of Company’s proposed FY2021 work programme (see Figure 3).
end-users;
» the full costs of producing and transporting gas are
Gas Industry Company governance
signalled to consumers;
» the quality of gas services, where those services include Gas Industry Company is owned by industry participant
a trade-off between quality and price, as far as possible, shareholders and is incorporated as a company under the
reflect customers’ preferences; and Companies Act 1993. Strategic oversight of the Company
is provided by the Board of seven Directors, all elected by
» the gas sector contributes to the Government’s climate
the shareholders. Four Directors, including the Chair, are
change objectives as set out in the New Zealand Energy
independent (having no material or financial interest in
Strategy, or any other document the Minister may
an industry participant), and three are non-independent
specify from time to time, by minimising gas losses
Directors (usually senior executives of industry participants).
and promoting demand-side management and energy
efficiency. The Board meets on around eight scheduled occasions each
year and holds unscheduled meetings to consider matters
The Minister has statutory powers to make rules or to
requiring immediate attention as needed. The Board has one
recommend regulations on a wide range of gas governance
standing committee, the Independent Directors’ Committee,
matters. Under the co-regulatory model, the industry body
comprising the four independent Directors. The Committee
advises the Minister on the exercise of many of these
addresses matters where the industry-associated Directors
powers and must follow prescribed procedures before
have potential or actual conflicts of interest.
making a recommendation. The procedures include
requirements for consultation with affected stakeholders,
and an obligation to assess the costs and benefits
associated with any recommendation.
When developing recommendations on governance
arrangements, Gas Industry Company must consider all
reasonably practicable options, including non-regulated
options that achieve the same outcome.
Existing arrangements are monitored for their ongoing
effectiveness and relevance and are refined as necessary.
Figure 3: Vision, Mission, and Values
OUR VISION
Provide leadership in co-regulating the New Zealand gas industry.
Our Mission Our Values
Promote safe, efficient, Collaboration: We work together
and reliable gas markets. VISION with integrity, to achieve our goals.
Facilitate efficient use of, and Impartiality: Our decisions
investment in, gas infrastructure. are transparent, fair and
based on evidence.
Deliver effectively on our
accountabilities as the Inclusiveness: We treat others
industry body. with respect, listening to all
MISSION VALUES views, and engaging openly.
Communicate the role of gas
in meeting New Zealand’s Excellence: We strive for
energy needs. quality in everything we do.GAS INDUSTRY COMPANY LIMITED
10 CHAPTER 5
Industry Performance
In addition to alignment with Government policy objectives and outcomes, Gas Industry Company’s
strategic and work programme objectives seek to support key areas of industry performance,
particularly in relation to consumer switching, downstream reconciliation, critical contingency
management, and transmission system balancing.
The Company tracks, and reports regularly upon, the Customer Switching
performance of the Switching Rules, Reconciliation
Rules, and CCM Regulations in terms of their ongoing Since the implementation of the Switching Rules in 2009,
effectiveness, the competitive outcomes they foster, a competitive, vibrant retail market has developed. Annual
and industry participants’ adherence to them. switching rates, an indicator of contestability in the market,
have ranged from 15 percent to 18 percent in the last five
years, as shown in Figure 4.
Figure 4: Monthly switching rates
6,000
5,000
NUMBER OF SWITCHES
4,000
3,000
2,000
1,000
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
SWITCHES IN MONTH ROLLING MONTHLY AVERAGE (OVER 12 MONTHS)STATEMENT OF INTENT / 2021 – 2023
11
Figure 5: Average time to switch a customer
12
10
8
BUSINESS DAYS
6
4
2
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
MONTHLY AVERAGE YEARLY AVERAGE
Another positive outcome of the Switching Rules is that Market concentration, as measured by the Herfindahl-
switches are completed much faster than previously. Hirschman Index (HHI), has decreased, both in the gas
Currently, switches take place in just over two business market as a whole and in the regions where gas is available
days on average, as shown in Figure 5. (Figure 6). This change has been particularly striking in
areas such as Waikato, Northland, Gisborne, and Hawke’s
As a comparison, gas switches in the United Kingdom
Bay, where the HHI in 2009 was greater than 6,000. The
take about 18 days for domestic consumers4.
HHI is now less than 2,100 nationally and less than 3,000 in
The increased switching activity reflects, in part, greater all regions where gas is available (as a point of reference,
consumer choice as more retailers have joined the market. the United States Department of Justice considers markets
In the past ten years, eight retailer brands have entered the in which the HHI is between 1,500 and 2,500 to be
gas market: Energy Online (owned by Genesis Energy); moderately concentrated. Markets with an HHI of greater
MegaTEL (owned by Nova Energy); Trustpower; Pulse than 2,500 are considered highly concentrated)5.
Energy; Switch Utilities; Scholarship NZ; Hanergy; and
The changes in HHI show the decreasing concentration
energyclubNZ.
of national and regional retail gas markets as new retailers
Gas customers generally have access to multiple retailers. have gained market share, diluting the dominance of
The ten largest retailers are active at gas gates (where gas previously incumbent retailers.
leaves the high-pressure transmission system and enters
Gas Industry Company considers there is potential for retail
the local gas distribution networks) that together represent
competition to strengthen further as more niche retailers
over 50 percent of consumers. Over 99 percent of
join the market. While these sorts of market forces are
consumers are connected at a gas gate where at least
outside Gas Industry Company’s direct influence, the
seven retailers trade.
Company maintains a strong focus on ensuring market
arrangements and associated mechanisms, such as the
gas registry, effectively support competitive activity and
the best interests of consumers.
4 The UK regulator Office of Gas and Electricity Markets (Ofgem) publishes a number of retail market indicators, including switching times, on its website at
https://www.ofgem.gov.uk/data-portal/retail-market-indicators
5 http://www.justice.gov/atr/public/guidelines/hhi.html accessed 1 May 2014.GAS INDUSTRY COMPANY LIMITED
12
Figure 6: Retail market concentration
HHI REGIONAL CHANGE SINCE REGISTRY GO-LIVE
ALL OF NORTH ISLAND
MANAWATU
HAWKES BAY
GISBORNE
AUCKLAND
WHANGANUI
BAY OF PLENTY
TARANAKI
WELLINGTON
NORTHLAND
WAIKATO
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000
MARCH 2020 2015 2012 2009
Figure 7: Annual unaccounted for gas
1,000 2.5%
TJ OF UNACCOUNTED-FOR GAS
UNACCOUNTED-FOR GAS (%)
800 2.0%
600 1.5%
400 1.0%
200 0.5%
0 0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
TJ OF UFG (LHS) % OF ALLOCATED GAS CONSUMPTION (RHS)STATEMENT OF INTENT / 2021 – 2023
13
Downstream Reconciliation Critical Contingency Management
Introduced in 2009, the Reconciliation Rules provide a In 2009, the CCM Regulations replaced a voluntary
formal process for attributing volumes of gas used by industry arrangement, reflecting the increasing complexity
consumers at shared gas gates to the retailers responsible of the gas industry and the need for greater certainty
for them. around the industry’s response, including demand
curtailment, during a serious supply emergency.
The Reconciliation Rules have been instrumental in
reducing the level of unaccounted-for gas (UFG), which is The CCM Regulations have been activated five times since
the difference between the amounts of gas that retailers they came into full effect in 2010. The most recent event
estimate their customers have used, and the actual gas was in May 2017, caused by a system imbalance related to
volume leaving the transmission system at a gas gate and excess demand during a planned production station
entering the local distribution network. UFG imposes a cost outage. Gas Industry Company regularly maintains a close
on the market as it is gas that retailers must pay for, but watch on the effectiveness of the CCM Regulations through
cannot sell. As such, the extent of UFG is a measure of the monitoring of critical contingency events and annual
market efficiency. exercises. Experience from events and exercises is used
to refine the critical contingency arrangements in a
Since 2009, annual UFG has fallen from 600,000
process of continual improvement.
gigajoules (GJ) to about 310,000 GJ, or from about 2
percent of gas consumed to about 0.9 percent (Figure 7).
Compliance with Governance Rules
The move to a rules-based regime, and the lower amounts
and Regulations
of UFG associated with it, have delivered an ongoing
stream of cost savings to the industry worth several million The Compliance Regulations provide for the monitoring
dollars a year. Benefits include improved market efficiency, and enforcement of the other gas governance rules and
more accurate retailer reporting, more equitable allocation regulations. They are designed as an efficient, low-cost
of UFG among retailers, greater information transparency, means of determining and, where appropriate, settling
and both performance and event auditing that can more rule breaches that raise material issues.
readily identify anomalies in consumption data.
Breach allegations are considered first by the market
administrator, a role performed by Gas Industry Company.
Where a material issue is deemed to exist, the matter
is referred to an independent investigator for further
examination and, where appropriate, settlement.
Settlements must be referred to the Rulings Panel for
approval or rejection. The Rulings Panel, a one-person
quasi-judicial body appointed by the Minister, also
considers matters where parties are unable to settle
breaches. The Rulings Panel can issue fines, make orders
for compensation, make orders directing compliance, and
suspend or terminate the rights of an industry participant
under any gas governance regulation or rule.
Gas Industry Company liaises closely with participants
to ensure there is a good understanding of regulatory
requirements. The amount of enforcement activity that
we need to undertake is typically low, as participants are
generally diligent in ensuring their business processes
are compliant with regulatory requirements.GAS INDUSTRY COMPANY LIMITED
14 CHAPTER 6
Work Programme & Indicative Activities FY2021 – 2023
This section outlines the scope of Gas Industry Company’s operations for the financial years
ended 30 June 2021 to 2023.
The FY2021 work programme has been developed Checks with retailers and distributors in FY2015 and
having regard to the Gas Act and GPS objectives and FY2016 indicated that there had been no material changes
outcomes for the gas industry, Gas Industry Company’s to standard terms.
statutory accountabilities under existing governance
A further check will be undertaken in FY2020 and
arrangements, and reporting requirements under the
Gas Industry Company will consider the findings of the
Gas Act and Companies Act 1993.
checks with retailers and distributors. If required, Gas
The multi-year scope of the Statement of Intent, with Industry Company will review the Distribution Scheme,
a focus on the first year of the three-year period and with a focus on its effectiveness in facilitating reasonable
indicative activity in the subsequent years, reflects the terms and conditions for access to, and use of, distribution
requirement for Gas Industry Company’s funding to be pipelines and report our findings to stakeholders.
approved by regulation each year, the changing nature
of the industry and the co-regulatory role. Further, it
Retailer insolvency
recognises that policy development requires comprehensive
consultation, which provides the opportunity for This workstream aims to manage the market issues
continuous improvements in policy thinking, and created when a gas retailer becomes insolvent. Because
consequently the work programme, year-on-year. an instance of retailer insolvency can unfold quickly,
Gas Industry Company has developed an agile approach
The work programme is substantially in the form
that would allow us to quickly develop a recommendation
consulted on with stakeholders, which was broadly
for urgent regulations that are tailored to the specific
supported in submissions. The submissions themselves,
situation. To do this, Gas Industry Company has developed
and the Analysis of Submissions, can be found on
a framework that sets out the steps we would take in the
Gas Industry Company’s website.
event of a retailer insolvency and provides a template for
urgent regulation drafting instructions.
With the anticipated implementation of the GTAC during
OBJECTIVE 1
FY2022, Gas Industry Company will revisit the framework
arrangements to identify any minor amendments that need
Promote efficient, competitive, and confident
to be made to the drafting instructions. It is not expected
gas markets
that any routine activity will be required in FY2021 beyond
that already provided for within the audits under the
Retail Gas Contracts Oversight Scheme Switching Rules (i.e. checking that registry participants
The Retail Gas Contracts Oversight Scheme assesses are able to meet their obligations under those rules).
retailers’ posted contracts for residential and small
Gas Industry Company will maintain a watching brief in this
commercial/industrial consumers against a series of
area and will implement retailer insolvency arrangements
benchmarks consistent with satisfactory customer
as necessary in the unlikely event of a retailer insolvency.
expectations and outcomes. Reviews are undertaken by
Retailer insolvencies are very low-frequency events, but
an Independent Assessor. The most recent full assessment
they have a potentially high impact on the retail market,
was undertaken in late 2018, which concluded that retail
which is why, if intervention is required, they need to take
contracts showed ‘substantial’ compliance with the
place in an orderly and timely manner.
benchmarks.
Gas Industry Company aims to conduct full reviews at Gas quality
three-yearly intervals, and the next one is scheduled for
FY2022. Gas Industry Company will also provide additional In FY2015, Gas Industry Company published a Gas Quality
information to assist new entrant retailers to understand Requirements and Procedures document describing the
their obligations and governance processes. legal landscape in relation to gas quality, clarifying the
responsibilities of industry participants, and relating how
those parties were performing their respective roles.
Gas Distribution Contracts Oversight Scheme This work was in response to stakeholder concerns that
The Gas Distribution Contracts Oversight Scheme the supply chain participants may not have clear and
(Distribution Scheme) assesses gas distributors’ contracts comprehensive responsibility and liability for gas quality.
with gas retailers against a common set of distribution
principles. Over recent years, distributors have developed
new agreements in consultation with their customers. The
second assessment by an Independent Assessor in FY2014
found that the contracts offered by distributors exhibited
‘substantial’ alignment with the distribution principles.STATEMENT OF INTENT / 2021 – 2023
15
Stakeholders have re-visited some aspects of gas quality Electricity price review
while developing the GTAC arrangements. As well as
The Electricity Price Review6 (EPR) has identified
simplifying those arrangements by bringing them under
32 recommendations for the electricity industry. In
a single code, the GTAC, when implemented, would also
reviewing the EPR, Gas Industry Company identified that
bring improved transparency. An update of the Gas Quality
some of the recommendations relating to the electricity
Requirements and Procedures document was completed in
industry arrangements and practices also exist in the gas
October 2019 to reflect the consolidated and improved
industry. This has led to a new workstream being formed
arrangements the industry had forged into the new GTAC.
which will involve reviewing and considering whether the
With a view to achieving better outcomes against Gas recommendations should result in changes to existing gas
Act objectives, Gas Industry Company will be ready to governance arrangements or if new arrangements should
review operation of the GTAC in relation to gas quality. be introduced.
Gas Industry Company intends to encourage further
Gas Industry Company will liaise with the Electricity
improvements to the notification of gas quality excursions
Authority and other government agencies to understand
and procedures for managing gas quality incidents and
their responses to the recommendations in the EPR.
will further update the Gas Quality Requirements and
We will also consider whether the recommendations
Procedures document as required.
should result in changes to the existing gas governance
arrangements, or if new arrangements should be
Regulation and rule changes introduced, and will make recommendations to the Minister
The objective of this workstream is to ensure efficient, where appropriate on the proposed changes under the
effective regulatory arrangements. Details of all regulations empowering provisions in the Gas Act.
and rules administered by Gas Industry Company can be
found on our website. Advanced gas metering
A technical advisory group was established in FY2018 with
Downstream Reconciliation
the objective of developing a minimum voluntary standard
Gas Industry Company will keep the D+1 Pilot Scheme for advanced gas metering. That work was paused as
running and will continue to make refinements to its further information on the capabilities of devices likely to
calculation and operation before the introduction of be deployed by meter owners was uncertain. More recently,
the GTAC. however, work has commenced to consider the changes
that may be required to the industry systems and rules to
The D+1 Pilot Scheme was initiated as a result of the
support a roll-out of advanced gas meters following
transmission access arrangements in place at the time of
Genesis Energy’s announcement that it would roll-out
its development. Gas Industry Company will continue to
advanced gas meters to its customers in FY2021. This work
run the D+1 Pilot Scheme and work with the industry to
will also consider whether there is still merit in producing
determine whether the scheme will be required under
an advanced gas metering standard. The work required for
the new GTAC arrangements.
FY2021 will be to build on the work taking place during
If the D+1 Pilot Scheme is required to continue, we will also FY2020 and working closely with the industry during the
begin the process of amending the Reconciliation Rules roll out to ensure industry systems are appropriate for
to formalise the requirements and procedures for daily advanced metering.
day-after allocations, in consultation with stakeholders.
Subject to Ministerial approval of a recommendation to Gas supply/demand
amend the Reconciliation Rules, Gas Industry Company
will work to implement the changes, including developing Gas Industry Company first published a study on long-term
and testing new supporting allocation systems. gas supply and demand scenarios in 2012. Due to the
significant contribution of the report, update reports have
Critical Contingency Management since been published in 2014 and 2016. The reports survey
the gas supply and demand landscape in New Zealand and
It is expected that during FY2020 Gas Industry Company analyse a range of supply scenarios. Each report also takes
will make a recommendation to the Minister to amend the an in-depth look at a topic relevant to natural gas: gas
CCM Regulations as a result of the Critical Contingency supply, pipeline capacity, electricity generation, industrial
Management Review being undertaken this financial year. demand, and distribution-level demand projections.
Subject to Ministerial approval, Gas Industry Company will
be working to implement the recommended changes Gas Industry Company intends to publish the next update
during FY2021. in FY2021 and will work with the industry to communicate
its findings.
Switching and Registry In addition to this long-term report, Gas Industry Company
intends to develop further reports for the industry that
During FY2020 Gas Industry Company will be working with
have a shorter-term focus. We intend to begin producing
the industry to assess the effectiveness of the Switching
a report that investigates the relationship between
Rules to support an anticipated gas advanced meter roll-out
short-term gas supply and electricity security of supply.
(discussed below under ‘Advanced gas metering’). This
We expect this work to continue into FY2021.
assessment may resolve that changes to the Switching Rules
are required and the work would commence in FY2021.
6 Government’s Final Report on the Electricity Price Review released 21 May 2019: https://www.mbie.govt.nz/building-and-energy/energy-and-natural-
resources/energy-consultations-and-reviews/electricity-price/GAS INDUSTRY COMPANY LIMITED
16
Wholesale market Gas Industry Company intends to monitor the progress of
any work undertaken by the industry that investigates the
The emsTradepoint Wholesale Market (eTp) has now been potential use of hydrogen in both transmission and
in operation for over five years and has increased in both distribution pipelines. Gas Industry Company also intends
membership and volume over that time. We note that the to review arrangements in other international jurisdictions
GPS seeks an outcome of ‘efficient arrangements for the and if required, update any rules and regulations needed
short-term trading of gas’ and eTp makes a clear to support the inclusion of hydrogen.
contribution to that outcome.
Gas Industry Company intends to continue to monitor
activity and developments in the wholesale market with OBJECTIVE 2
a focus on the market’s role as the source of volume and
pricing for transmission balancing. Facilitate efficient use of, and investment in,
gas infrastructure
Information disclosure
Concerns have been expressed by some energy sector Gas transmission access
participants regarding information transparency in the The objective of this workstream is to ensure that
gas wholesale market, particularly information regarding transmission pipeline access arrangements transparently
upstream and major user outages (both planned and provide for the efficient utilisation of physical capacity and
unplanned). This issue was given some consideration effectively signal any need for efficient investment in
during the development of the GTAC, but no resolution additional capacity.
had been reached among stakeholders.
The past few years have seen an intense amount of
In parallel, the Minister wrote to Gas Industry Company activity dedicated to the development of a single
expressing concern with the lack of transparency regarding transmission access code, from First Gas, stakeholders,
upstream activities and asking whether the Gas Act and Gas Industry Company.
provides the necessary tools to address this issue.
Gas Industry Company completed its assessment of the
In response to these concerns Gas Industry Company GTAC in February 2019 (assessing it as materially better
commenced a workstream to assess the level of than existing arrangements). Gas Industry Company will
information disclosure in the industry and consider continue to provide support, as required, to aid effective
options to address any issues found. implementation of the new code. Once the code is
By the end of FY2020 Gas Industry Company will have implemented, Gas Industry Company will monitor these
analysed submissions on its recent problem assessment new arrangements to ensure they are performing
paper and will begin consultation on a statement of as expected.
proposal for information issues that have been identified
as having the highest priority. This statement of proposal Transmission pipeline balancing
will set-out these issues and review options for addressing
them (including non-regulatory options). Gas Industry The last significant improvement to transmission pipeline
Company will also work with MBIE on the information balancing occurred in FY2016 when market-based
identified in the paper that MBIE already collects balancing (MBB) was implemented. Implementation of
information on. Likewise, Gas Industry Company will the GTAC will significantly reorient the approach to
work with the Electricity Authority on its wholesale market pipeline balancing.
information disclosure workstream, which will pick up the Once there is sufficient experience following the
disclosure of thermal generators’ fuel positions. implementation of the GTAC, it may be necessary to
Work required during FY2021 will be to continue the re-assess the effectiveness of the balancing arrangements.
statement of proposal process and on its completion begin Gas Industry Company will continue to monitor the
the work required to deliver its proposed solutions. This arrangements and work with stakeholders on any
work will likely require continued work with the industry to balancing-related matters.
deliver industry-led solutions or recommending regulation
to the Minister (or a combination of both). Work will also Transmission code changes
continue with MBIE and the Electricity Authority on issues
that sit across those agencies. Gas Industry Company has a role in processing GTAC
change requests on an ‘as required’ basis. During the
development of the GTAC, early indication noted that a
Hydrogen code change request to address minor issues could be
In September 2019, the New Zealand Government expected soon after the GTAC is implemented. Gas
published a green paper that lays out its vision for Industry Company has published a document outlining
hydrogen in New Zealand. The paper discusses the how it would perform its GTAC change request role.
potential for hydrogen to be blended with natural gas and That document is available on our website.
distributed via the gas network. In addition to this paper,
First Gas has received a grant to support a trial that will
investigate how hydrogen could be distributed through its
gas pipelines.STATEMENT OF INTENT / 2021 – 2023
17
Transmission pipeline interconnection
OBJECTIVE 3
First Gas has reviewed and unified the transmission
pipeline interconnection arrangements as part of the Deliver effectively on Gas Industry Company’s
GTAC development. This includes developing an accountabilities as the industry body
Interconnection Policy explaining how First Gas will
facilitate new interconnections and setting out key terms
of interconnection. Downstream reconciliation
Gas Industry Company is assessing how these new The purpose of the Reconciliation Rules is to ‘establish a
arrangements compare to the Interconnection Guidelines set of uniform processes that will enable the fair, efficient,
that set out its view of good practice in relation to policies and reliable downstream allocation and reconciliation of
and procedures for connecting to transmission pipelines. We downstream gas quantities’. The Reconciliation Rules have
expect to complete our review by the end of FY2020. Subject been instrumental in reducing the level of unaccounted for
to its conclusions, it should be sufficient for Gas Industry gas (UFG) at the final allocation stage and Gas Industry
Company to monitor future interconnections at a high level Company will be continuing to assess the ongoing
and expect that any issues will be brought to its attention. performance of the Reconciliation Rules.
Gas Industry Company has an ongoing obligation to
Gas transmission security and reliability appoint and oversee the operation of the Allocation Agent.
It monitors allocation results to identify, at an early stage,
The introduction of information disclosure requirements in
any issues and ensure these are addressed in an
2012, as an element of a price-quality regime administered
appropriate and timely fashion. This work complements
by the Commerce Commission under the Commerce Act
that of a number of industry participants who also
1986, greatly improved the transparency of pipeline
undertake monitoring and, from time to time, bring issues
security and reliability (S&R). In particular, the owners of
to the attention of Gas Industry Company and the
open access transmission pipelines were required to
Allocation Agent.
publish their Asset Management Plans (AMPs). However,
stakeholders found the disclosed information difficult to The Reconciliation Rules also require Gas Industry
understand, and concerns about transmission pipeline S&R Company to commission performance audits of the
remained. This prompted Gas Industry Company to review Allocation Agent and Allocation Participants at regular
the factors influencing S&R and assess their adequacy. intervals. The Allocation Participant performance audit
Gas Industry Company’s findings were published in the programme is generally carried out every two or three
2016 Security and Reliability Issues Paper, and in 2017, years. The most recent programme commenced in FY2020
in a Security and Reliability Update Paper. and will continue throughout FY2021. As well as these
regular audits the rules require event audits to be
First Gas has since worked with stakeholders to develop
commissioned to examine particular issues or events.
the GTAC and revitalise associated business practices,
systems, and documentation of the previous pipeline In addition to the tasks required under the Reconciliation
owners. This has included adopting many of the Rules, it is expected that Gas Industry Company will
recommendations in Gas Industry Company’s S&R reports. continue the pilot project for D+1 allocations until there
is agreement from the industry for its discontinuation or it
In the wake of wider energy sector concerns about risk
is replaced by a production solution.
management and the resilience of key infrastructure,
we note that the two recent reviews by AECOM7,
commissioned by the Commerce Commission, give added Switching and registry
confidence in the S&R improvements introduced by First Gas.
The Switching Rules have the purpose of enabling
Given the safety, financial, and reputational importance of ‘consumers to choose and alternate, efficiently and
S&R, Gas Industry Company will continue to maintain a satisfactorily between competing retailers’. The Switching
watching brief and monitor AMPs and report on any Rules provide for a centralised database, the gas registry,
significant matters as required. which stores key technical parameters about every
customer installation and facilitates and monitors each
Gas supply efficiency review customer switch from initiation through to completion.
Gas Industry Company will continue to assess the ongoing
A question has been raised by the industry at our recent performance of the Switching Rules.
Co-regulatory Forum as to whether there is benefit in
understanding if any efficiency gains could be made in the There are a number of requirements under the Switching
end-to-end process of supplying gas, that would result in Rules that Gas Industry Company is required to continue.
a reduction of emissions. These include appointment and monitoring of the registry
operator as a service provider and making determinations
In this regard, Gas Industry Company intends to work with
under the Switching Rules as required. The Switching Rules
the industry during FY2020 to gain an understanding as to
also require Gas Industry Company to commission
whether a gas supply efficiency review would be beneficial.
performance audits of retailers, meter owners, and
If it is found that it would be useful, then work will be
distributors at regular intervals.
undertaken in FY2021 to commission such a review.
7 AECOM’s 17 September 2019 report, Geotechnical Risk Management Review – First Gas Transmission Pipelines, concluded that First Gas has good, well documented processes
in place to identify geohazards and evaluate/manage the risks associated with them. AECOM’s 4 October 2019 report, Risk Management Review of Gas Pipeline Businesses,
looked at the four distribution pipeline businesses as well as the gas transmission business. In relation to the transmission business the report suggests that First Gas is
approaching the best level of risk management.GAS INDUSTRY COMPANY LIMITED
18
These are done in conjunction with the audits under the Consistent with obligations under the Compliance
Reconciliation Rules. The most recent audit programme Regulations, Gas Industry Company performs the market
commenced in FY2020 and will continue throughout administrator role, and appoints and monitors the market
FY2021. As well as these regular audits the rules require investigator. The Rulings Panel is appointed by the Minister.
event audits to be commissioned to examine particular We provide assistance to the market investigator and the
issues or events. Gas Industry Company will also continue Rulings Panel as required. Gas Industry Company also
to monitor and report on the switching statistics. monitors compliance trends for indications of regulatory
inefficiency.
Alongside the Electricity Authority, Gas Industry Company
has provided modest support to Consumer NZ’s The Compliance Regulations and further details about
‘Powerswitch’ to ensure the continued existence of an compliance can be found on our website.
independent, credible source of information for consumers.
Gas Industry Company will continue to provide support to
Statement of Intent and Annual Report
Powerswitch until new arrangements are created and/or
the site becomes self-sustaining. The Gas Act requires that the industry body provide
its Annual Report to the Minister within three months
following the end of the financial year (the Minister then
Critical contingency management
tables it in the House of Representatives). Similarly, annual
The purpose of the CCM Regulations is to ‘achieve the Statements of Intent are required to be submitted to
effective management of critical gas outages and other the Minister for comment prior to being finalised
security of supply contingencies without compromising and published.
long-term security of supply’. The CCM Regulations have
Annual Reports and Statements of Intent can be found
been activated five times since they came into full effect
on our website.
in 2010: three have been caused by production station
outages, one by a break in the Maui pipeline in October
2011, and, in May 2017, a system imbalance event.
OBJECTIVE 4
The CCM Regulations require Gas Industry Company to
appoint and monitor the critical contingency operator
Develop and communicate the role of gas in meeting
(CCO), who is responsible for determining, managing, and
New Zealand’s energy needs
terminating critical contingencies, as well as associated
activities such as offering stakeholder training and running
exercises. Under the CCM Regulations, Gas Industry New Zealand Gas Story
Company is also responsible for processing gas consumers’ During FY2013, Gas Industry Company published the first
applications for critical care, essential services, critical New Zealand Gas Story. The last edition was published in
processing, and electricity supply designations. Gas December 2017. A new edition, with a refreshed format, is
Industry Company also appoints expert advisers to analyse expected to be published in FY2021. This work is intended
critical contingency management plans when required. to help stakeholders understand the industry and to assist
In the case of a critical contingency, Gas Industry industry participants to make informed investment and
Company considers the performance of the CCO and energy use decisions. In addition to the document itself,
the effectiveness of the CCM Regulations in managing the Gas Industry Company communicates the role of gas on its
situation, with a view to implementing improvements if website, in its annual and quarterly reports, and through
appropriate. Following non-regional critical contingencies presentations to various stakeholder groups.
(ie, those that involve the entire transmission system),
Gas Industry Company appoints an industry expert to Other reports
determine a critical contingency price and administers the
contingency pool used to settle contingency imbalances. Gas Industry Company is required by the Gas Act to report
on the present state and performance of the gas industry.
The CCM Regulations and further details about CCM can It does this through a number of publications, including
be found on our website. Quarterly Reports, Switching Statistics, and Industry
Performance Measures.
Compliance and enforcement Gas Industry Company has previously commissioned
reports focussing on particular aspects of the industry, and
The Compliance Regulations provide for monitoring and
further occasional reports will be published, and existing
enforcement of the other gas governance rules and
reports updated, where they can be of value to the industry.
regulations. The compliance arrangements are designed
as an efficient, low-cost means of determining or, where We published the Long-Term Gas Supply and Demand
appropriate, settling rules/regulations breaches that Scenarios in 2012, 2014, 2016, and more recently in 2019.
raise material issues. Where parties are unable to settle Each edition takes an in-depth look at a topic relevant to
breaches, the last resort is a hearing before a one-person the industry and surveys the gas supply and demand
Rulings Panel, a quasi- judicial body. The Rulings Panel can environment in New Zealand. Gas Industry Company
issue fines, make orders for compensation, and make intends to publish the next update in FY2021.
orders directing compliance and/or suspending or During FY2021, we intend to develop further reports with
terminating participants. a short-term focus and will begin producing a report that
investigates the future relationship between short-term
gas supply and electricity security of supply.You can also read
