CENTRAL WEST PIPELINE
ACCESS ARRANGEMENT AND ACCESS ARRANGEMENT INFORMATION

ADDITIONAL GENERAL INFORMATION

Question

Please set out what AGLP considers to be the purpose of the fixed principle (p.12 of the AA)

The purpose of the Fixed Principle is to:

1)	establish that tariffs in future Access Arrangement Periods will be based on the residual value set under the Fixed Principle for the initial Access Arrangement Period.  This residual value will recognise the under-recovery of revenue that is forecast to occur during this period; and

2)	provide AGLP with the opportunity to earn a reasonable return from the CWP over the 80 year economic life of the CWP.

The CWP is no different from the typical long life “green-field” infrastructure project in that there will a considerable length of time required before there is sufficient utilisation of the asset to completely cover its total cost of operation (ie operating and capital costs including depreciation).  This is unlike a mature asset which has an established customer base from which the total cost of operation can be recovered (so that its capital base is diminishing). 

What things do you think it achieves?

The Fixed Principle achieves the aim of providing sufficient incentive for AGLP to offer the current level of reference tariffs for the CWP which are required to develop the gas market in the Central West region. The Fixed Principle provides AGLP with some certainty that the return on its capital invested in the CWP and forgone in its early years of operation will be recovered in the longer term.

The Fixed Principle does not provide complete certainty that AGLP will recover its capital invested, since AGLP still faces the risk of establishing a sufficient level of demand for CWP haulage services.  However, the Fixed Principle, at least for the initial Access Arrangement Period, will allow AGLP to pursue the development of the gas market in the Central West region, without the concern that it is unable to earn a return on all of the capital invested because of low throughputs in this period.  The Fixed Principle therefore maintains the incentive for AGLP to develop the market for pipeline services.

Question

How are the arrangements between AGLP and EAPO concerning O&M specified, and on what basis were they determined?  The Commission will need to audit this information through access to copies of relevant contracts and other documents.

The arrangements covering the operation and maintenance of the CWP are specified in a contract between AGLP and EAPO that has yet to be formally executed.  The terms and conditions of this contract are still subject to final negotiation between the parties, but through a verbal agreement, it has been in place since 1 July 1998.  EAPO have been invoicing AGLP since that date, and by year end AGLP will have paid the amount specified in the Revised Access Arrangement Information (ie $450k).

Regarding the quantum of operating costs negotiated under this agreement, in light of AGLP’s experience in operating other pipelines in Australia, we believe the outcome is favourable to AGLP (and in turn users of the CWP who will benefit from lower operation and maintenance costs).  As is detailed in the Revised Access Arrangement Information, the total operating costs estimated for the CWP (of which operation and maintenance is a significant portion) is demonstrably lower than industry accepted standards.

As noted in the Revised Access Arrangement Information, EAPO has provided an indicative  breakdown of costs of operating and maintaining the CWP.  The information in the following table has been calculated from the percentages set out in the Revised Access Arrangement for year ending June 1999.

Component	Cost
($’000)	
Labour	131	
Outside services	122	
Materials and supply	27	
Property taxes	3	

Question

What forecast volumes were used in connection with the tender process managed by ORDO?  The Commission will need to audit this information through access to copies of relevant documents.

There were no volume forecasts supplied during the tender process.  The Central West Project received AGL Board approval based on the throughput estimates prepared at that time.  In respect of the tender process managed by ORDO, it has been AGLP’s understanding that the focus of the tender process was on achieving the objective of ensuring a pipeline was built to deliver gas on a zonal tariff basis to the local communities making up ORDO.

Question

AGLP has requested that certain information not be disclosed by the Commission as it considers that disclosure could be unduly harmful to AGLP.  AGLP cited as an example that alternate energy suppliers might formulate strategies to impede penetration of natural gas into the Central West region, particularly in the earlier years of the project.  AGLP needs to provide sufficient information to persuade the Commission that disclosure of each item or category of information identified would be likely to be unduly harmful to AGLP, a user or a potential user.  This would include information on the nature, likelihood and extent of potential harm.

The information that AGLP is seeking to be kept confidential is financial and throughput information relating to the pipeline for the period after the initial Access Arrangement Period. The information does not affect Users’ or Prospective Users’ ability to understand the derivation of the Reference Tariffs or to form an opinion as to compliance of the Access Arrangement with the Code. 

It remains AGLP’s position that financial and throughput information relating to the CWP subsequent to the initial Access Arrangement Period should remain confidential for the reasons given to the Commission in prior correspondence relating to this matter. In particular, AGLP believes that it is inappropriate that this information should be released publicly, including to suppliers of competing fuels. 

AGLP is of the opinion that the previous correspondence on this matter  is sufficient to establish that release of the information could be unduly harmful the legitimate business interests of AGLP, Users or Prospective Users.  It is not necessary under the Code that the Commission be satisfied that release “would be likely” to be unduly harmful. 

Question

When did operation of the CWP commence?

1.	The section of the CWP from Marsden to Parkes was commissioned on 29 April 1998, with first gas supply through the Forbes off-take on 1 May 1998, and through the Parkes off-take on 2 May 1998.  The consent to operate this section of the pipeline was granted on 23 July 1998.

2.	The section of the CWP from Parkes to Dubbo was commissioned on 1 August 1998, with first gas flowing through the Narromine off-take on 2 August 1998, and through the Dubbo off-take on 4 August 1998.  The consent to operate this section of the pipeline was granted on 31 July 1998.

Regarding the consent to operate the Marsden to Parkes section of the pipeline, we confirm that this section commenced operation prior to consent to do such.

Question

What is the valuation of the assets based on DORC as at 30 June 1999 when a conventional approach to depreciation (rather than AGLP’s ‘economic depreciation’) is applied?

The table below details the calculation of the DORC valuation using the “conventional” approach which AGLP understands to be the application of straight line depreciation (over the economic life of the assets) to the ORC.

 Asset Type
as at 30 June 1999	RC
	ORC
	Adjusted
ORC	Accumulated Depreciation	DORC
	
Transmission Pipeline	29.76	26.98	24.98	0.312	24.668	
Compressor Stations:
Rotating Equipment
Station Facilities	
Nil
Nil	
Nil
Nil	
Nil
Nil	
Nil
Nil	
Nil
Nil	
Regulation & Metering Stations	0.17	0.17	0.17	0.003	0.167	
Odourisation Stations	0.15	0.15	0.15	0.004	0.146	
SCADA and Communications	0.63	0.63	0.63	0.063	0.567	
Total Asset Value ($’m)	30.71	27.93	25.93	0.382	25.55	

Question

Please list which risks are asymmetric (both those with upside and those with downside) and describe, for each risk, of the nature of the asymmetry.

In basic finance theory it is usually assumed that risks are normally distributed, and hence are symmetrical. The effect of this symmetry can be described as the upside risk equalling the downside risk (hence each risk cancels the effect of the other).

The Capital Asset Pricing Model (CAPM) assumes all risk is symmetrical - the only risk specifically taken into account by CAPM is non-diversifiable market risk (as captured by CAPM in the market risk premium) and the firm’s relationship to this risk (as captured by the equity beta).

In reality not all risks effecting a company are normally or symmetrically distributed.  The most readily identifiable asymmetric risks are regulatory risks and these risks are outlined below.

•	Price and Return Asymmetry Created by Regulation: In a non regulated market there is a risk that price or returns could fall and there is a risk that price or returns could rise (this risk is usually assumed to be symmetrical). However the existence of regulation creates asymmetry.  In a regulated market the risk of increased prices or returns are truncated by regulatory restrictions but there is no corresponding truncation of the risk of prices or returns falling, hence asymmetry exists. In this scenario upside is transferred to consumers, but downside is retained by the regulated entity.

•	Service and Quality Asymmetry Created by Regulation: In a non regulated market there is a risk that service and quality demanded by customers could fall and there is a risk that service and quality demanded by customers could rise. The existence of regulation creates asymmetry as in a regulated market service and quality standards are set by regulation. Hence the risk that service and quality demanded by customers could fall is truncated by regulatory restrictions but there is no corresponding truncation of the risk that service and quality demanded by customers could rise.  In addition there is a tendency for regulator determined service and quality standards to increase over time. These increasing standards act to further truncate the risk of higher returns. In a non-regulated market improved service levels could be expected to be compensated for by a higher willingness to pay and hence price, whereas in a regulated market firms face the asymmetric risk that prices or returns will be capped but service requirements will increase after the cap is set.

•	Asset Stranding: The existence of asset stranding under current regulation is an asymmetric risk. The initial capital base can be reduced by asset stranding, but it cannot be increased. Hence returns can be reduced by asset stranding but not increased. In relation to this issue IPART recently noted “regulatory risk is a legitimate concern for a regulated firm”. IPART then went on to state that in relation to the risks involved in capital redundancy (ie asset stranding) an allowance of 0.1 to 0.2 % on the rate of return is incorporated in its analysis. Depending on gearing this could be expected to equate to an increase of 0.2 to 0.4% on the cost of equity. 

•	“Regulatory Clawback” and “Benefit Sharing Mechanisms”: In price regulated industries it is possible that regulators will engage in the future “clawback” of perceived excessive returns, however there is no corresponding guarantee that in the instance of perceived inadequate returns regulators would act to compensate the regulated industry.

To some extent the risk of clawback may be reduced within a regulatory pricing period due to the existence of price paths, but even within regulatory periods there is the possibility that some measure of “benefit sharing” may be imposed if prices or returns are seen as too high.

It is not easy to quantify the effect of asymmetric risk, however one paper puts the impact of asymmetric regulatory risk on the cost of equity at 1.3%. Depending on gearing this could be expected to equate to approximately 0.6 % on the WACC. This figure was used as the basis of the asymmetric risk values used by AGLP in the Central West Pipeline RAAI, these values ranged from 0 to 1.5%.  

Quantification of asymmetric risk tends to be undertaken via empirical studies that examine the skewness of returns in regulated industries over time. These studies do not usually attempt to identify the components of the asymmetry. AGLP has had advice from the economic consulting firm Oxera that quantification of the individual components of asymmetric regulatory risk is difficult and is not generally undertaken.

Taking account of asymmetric risk in the CAPM approach is problematic as CAPM assumes risk is symmetric. Nevertheless to ignore asymmetric risk is to ignore actual factors which drive risk and return relationships. Asymmetric risk should not be incorporated into CAPM via the asset beta as this variable is an indicator of non diversifiable symmetric risk. Asymmetric risk should be incorporated as a specific risk component outside the simple CAPM model.

Question

Please supply argument and figures to support the self insurance margin of 
0.0 - 0.5%.

Firms take out insurance against a range of risks for a number of reasons, usually relating to the costs of high volatility in earnings, the risk of bankruptcy and the importance of keeping the firm operating as a going concern. The cost of insurance is included in the operating expenditure of the firm and is a legitimate cost since it protects against substantial losses. Making an allowance for the cost of insurance is a way of reducing the exposure of the firm and its customers to large fluctuations in costs and prices. In the CAPM approach the cost of insurance is addressed in cash flows.

Where some types of risk are not easy to insure (whether because of informational problems or the perception that insurance is too expensive) a company may self insure. The CAPM approach does not directly address this occurrence.  Self insurance has the same objective as insurance purchased on the market in that it serves to reduce the need for price increases to cover occasional events where large losses are incurred. 

Obtaining full insurance for all diversifiable risks is problematic as these risks are:
•	not always completely and readily identifiable;
•	not always easily and fully insurable (various conditions and insurance limits may exist); or 
•	perceived as being over priced compared to the option of self insurance. 

The above is particularly the case in regards to infrastructure assets which can be exposed to a variety of unusual natural hazards which are not necessarily well reflected in actuarial tables or the experience of insurers. Therefore only a portion of diversifiable risks may be insured. In this situation the costs of self insurance should be allowed for either in the company’s returns or as a notional cost (to the company as its own insurer).

If self insured risk is ignored by the regulator then the regulator is making an implicit assumption that either:
•	self insurance is costless; or 
•	companies do not self insure (which in turn implies that any event not insured must be a non-diversifiable risk). 

If self insurance costs are not allowed and an event that could be expected to be self insured occurs then the regulator should allow for some form of cost pass through to reflect the costs involved; this may result in peaky pricing. 

If self insurance costs are not allowed then regulated firms are more likely to seek insurance for risks that are not readily identifiable, easily insurable or are over priced. By seeking to ensure all insurable risks are externally insured, insurance costs will be increased. Disallowance of self insurance costs will effectively force the contracting out of insurance services to third parties even though the firm can insure internally for less cost.

Neville Hathaway has noted that self insured risks “are inherently difficult to measure”. If these risks were easy to measure it is likely that either insurance would be readily available, or at the least insurance quotes would be observable.

Overall self insured risk is difficult to quantify and is often a company specific or infrastructure specific variable.  Actuarial analysis would be required to estimate such risks.  No actuarial firms have been identified which had a reasonable understanding of the gas industry and which would be prepared to undertake analysis of self insured risk. Given the relatively small size of the Central West Pipeline this issue was not pursued further in relation to this pipeline.

Verbal advice received from Oxera indicates that little academic study has been undertaken on the concept of self insurance undertaken by infrastructure owners. 

The self insurance values used by AGLP in the Revised Access Arrangement Information ranged from 0.0 to 0.5%.  AGLP believes these values prudently represent the facts that: 
•	self insurance occurs; and 
•	self insurance is difficult to measure.

Non-Tariff Questions

Services Policy
1.	Who is responsible for pressure reduction and metering at the delivery points?

The owner of the pressure reduction and metering equipment at those delivery points. 

2.	AGLP has not allowed any revenue from negotiated services.  Why does AGLP consider negotiated service revenue to be immaterial?  When does AGLP expect negotiated services to be demanded on the CWP? 

We assume this question has arisen from Section 2.6 “Other Revenue” in the Revised Access Arrangement Information.  The statement that “other revenue” is not considered material is made in the context that AGLP does not expect charges accruing from overruns, variances or imbalances to be material.

AGLP does not expect Negotiated Services to be sought on the CWP other than in relation to consumers of alternate fuels who will require tariffs that make it economical for them to convert to gas (ie. the Negotiated Service will be the Reference Service at a tariff less than the Reference Tariff).  However, whilst we expect some demand for such Negotiated Services during the Access Arrangement Period, the level of demand is unknown.  Accordingly,  the demand for Negotiated Services was not separately quantified and the throughput for these users was included in the overall forecasts for the CWP.

Notwithstanding that AGLP has factored the throughput from users of the Negotiated Services into its overall forecasts, it has not sought to recover the amount of any discounts which are Prudent Discounts from users of the Reference Service.  It has done this as it believes that any increase in the Reference Tariff could limit its ability to develop the market for pipeline services. 

3.	When do overruns occur – upon exceeding MHQ (p.4 of AA) or MDQ (p. 28 of AA)? 

An overrun occurs upon exceeding either of the MHQ or MDQ.  However as the CWP operates on the basis of daily gas accounts, overruns are only charged when MDQ is exceeded.  

Whilst there is no charge incurred when MHQ is exceeded (up to the point of when MDQ is reached), AGLP is under no obligation deliver during any hour of any day a quantity of gas in excess of MHQ.

Terms and conditions
4.	Please supply a copy of the standard service agreement. (p7 of AA).

AGLP has not yet completed developing the standard Service Agreement for the CWP as this agreement must reflect the Access Arrangement.  In particular, the Service Agreement has to reflect the Reference Service and the terms and conditions in Schedule 2 of the Access Arrangement when it is approved.

5.	AGLP states the applicable terms and conditions include the items set out in schedule 2 of the AA.  Apart from the standard service agreement and schedule 2 of the AA, where are other terms and conditions located and brought to the attention of users and prospective users?

There are no terms and conditions other than those which will be contained in the standard Service Agreement.  That Agreement will, at a minimum include the matters set out in Schedule 2. 

A copy of the standard Service Agreement will be provided to any person on request, as has occurred in respect of AGL Gas Network Limited’s network and pipelines operated by AGL in Queensland.

6.	When does AGLP expect 85% of the pipeline capacity to be met and consequently when payment of overrun charges may be required?  How has the 85% been determined?

AGLP does not expect 85% of the pipeline capacity to be contracted during the Access Arrangement Period.

The 85% has been specified because once the pipeline has been contracted to this level, a reasonable pipeline operator would need to ensure that users managed their use of the pipeline since poor load management practices on the part of users could lead to deliveries to other users being constrained due to a lack of capacity.  The best way to achieve this is to provide, through reasonable pricing signals, additional incentive for users to manage their use of the pipeline.

Additionally, AGLP believes that it would be a strong disincentive for potential users of the CWP if they were to incur overrun charges for effectively spare capacity which can be provided at virtually no additional cost to AGLP and without impact on other users.  Whilst the pipeline is operating below the 85% capacity threshold, the only obligation on users regarding load management is that they nominate correctly.  

7.	Why does AGLP consider that gas pressure must be limited to 6350 kPa given the potential for non-Cooper Basin gas to use the CWP?

The range of pressures indicated in the Access Arrangement is based on the pressures existing in the Moomba to Sydney pipeline which is currently the only inlet to the CWP.  The limitation reflects reasonably expected operating pressures on that and other possible interconnecting pipelines since it is meaningless for AGLP to nominate a receipt point pressure that can’t be achieved in an interconnecting pipeline.

It would be unfair to allow any one user delivering gas through an interconnecting pipeline to be able to deliver gas into the pipeline at a pressure lower than users employing other interconnecting pipelines – thus the pressures in the Access Arrangement have been set to reflect the likely pressures in the Moomba to Sydney pipeline.

8.	Please give examples of the likely events that would constitute force majeure? (pp 19 & 25 of AA).

Earthquake, flood.

9.	Could AGLP clarify the differences between overrun, variance and imbalance.  When do these come into play?  When is payment required?  Why are the details of imbalance charges not included in the AA itself?

Overruns
An overrun occurs when either MHQ or MDQ is exceeded.  An overrun charge is only incurred when MDQ is exceeded (ie. when more gas is delivered to a user during a day than the MDQ contracted by that user).  Overruns are a long accepted pipeline capacity management mechanism employed to ensure that on any day the pipeline is capable of supplying all users their contracted MDQs.

Charges for overruns are accrued on a daily basis, and invoiced monthly.

Variance
From the above, where an overrun is a mechanism to ensure that there is sufficient capacity to ensure all users can be supplied their MDQs on any day (which is AGLP’s obligation), the concept of variance ensures that all users can be supplied their nominated quantities during any day.  Looked at from another perspective, variances are an incentive for users to nominate their daily gas deliveries correctly.

Given the seasonal demand typical of most pipelines, on any particular day the pipeline may not be operating at or near its capacity.  As users nominate their requirements in advance, so as to enable the pipeline operator to schedule those deliveries (which may require starting compressors, planning of pipeline maintenance, opening or closing looped sections, and co-ordination with producers and interconnecting suppliers) it is important that the pipeline operator has some certainty that what is being nominated by users is likely to be actually required by those users.

Without some incentive to nominate correctly, users could simply nominate their MDQ for every day and take whatever quantity of gas they required as long as it was less than their MDQ, knowing that it is AGLP’s obligation to deliver this quantity (since it is less than the user’s MDQ).  Such a situation involving multiple users could make it difficult for the pipeline operator to both manage the operation of the pipeline and deliver the nominated quantities to users.

Charges for variances are accrued on a daily basis, and invoiced monthly.

Imbalance
Imbalance reflects the reality that on a pipeline it is impossible for a user on any day to have receipts equal to deliveries.  On the CWP we have used an “inventory” style gas accounting mechanism that means any user’s daily imbalance (positive or negative) will be added to that user’s share of linepack.  Then as long as the user’s share of linepack stays within the tolerance limits they are effectively “in balance”.  In the extreme, the imbalance mechanism provides an incentive for users to ensure that they receive out of the pipeline the same quantity of gas they have put in (ie all users are effectively being supplied with their “own” gas).

Regarding the placement of the details of imbalance charges in the Access Arrangement, they have been placed in Schedule 2 for consistency since imbalances are an intrinsic part of the overall balancing system on a pipeline.

Users imbalances are quantified on a monthly basis, with a charge being an option after three months of continued imbalance.

10.	Please clarify an apparent inconsistency concerning daily variance charges.  Page 9 of AA indicates a charge is applicable to all daily variances.  Page 23 of AA indicates the charge is not applicable to the first four daily variances in a month.

The information on page 23 of the Access Arrangement sets out when the Daily Variance Charges are payable, whereas page 9 sets out the calculation of the Daily Variance Charge once it becomes payable.  As variance charges are considered an incentive for users to correctly nominate and not as revenue, some latitude is afforded to users both in terms of the number of variances allowed in a month before a charge is incurred and the threshold of 10% between the nomination and the actual quantity delivered. 

11.	There is some confusion over the total liability of a user who incurs a daily variance.  Assume 200GJ/day is nominated and for five days in a month 250GJ is delivered.  Page 23 of AA indicates that the user would be liable to a daily variance charge for one of these days.  On this day would the user pay:  
a)	The reference tariff for 200GJ and 120% of the reference tariff for 50GJ;
b)	The reference tariff for 250GJ and 120% of the reference tariff for 50GJ; 
c)	120% of the reference tariff for 250GJ; or 
d)	some other amount?  
In part this confusion results from Section 3 of the AA not appearing to state whether the reference tariff is applied to the day’s nominated quantity or actual quantity.  The nature of this question is also applicable to overruns and imbalances.

To work through the example:

•	The 10% threshold has been exceeded, so a Daily Variance has occurred on each day.
•	Only the fifth day would be liable for a variance charge.
•	The variance charge is applied to the difference between the nomination and the actual delivery – in this case 250 – 200 = 50GJ.
•	On this day the user would pay the reference tariff for the 250GJ actually delivered and an additional 20% of the reference tariff for the variance quantity of 50GJ.

This same methodology applies to overruns.

A number of worked examples of variances, overruns and imbalances are attached to this document.

12.	Staff understand that the maximum of the permissible variation in heating value (currently 37.30 MJ/m3) should equal the minimum daily average (currently 37.45 MJ/m3).  Could AGLP please clarify this.  (p.34 of AA)

Given the current source of gas for the CWP is from the Moomba to Sydney pipeline, the gas specification for that pipeline has been (reproduced and) adopted for the CWP.

It is acknowledged that the wording may be unclear, however we understand the intention of the limitation on the heating value is that over the course of the day the minimum daily average is to be 37.45 MJ/m3.  However, permissible variations of between 35.58 to 37.30 MJ/m3 for the periods specified are allowed as long as the daily average is no less than 37.45 MJ/m3.  There is no upper limit on heating value.

For example, if for 2 hours during a day the heating value was 36 MJ/m3, then the heating value over the remaining 22 hours of that day would need to be in excess of 37.58 MJ/m3 in order for the minimum of 37.45 MJ/m3 to be achieved for that day (the example assumes a constant hourly volume during the day).

13.	What incentive exists for AGLP to minimise system use gas? (p. 24 of AA)

AGLP operates the pipeline in accordance with good industry practise.  Such practise requires that system use gas is minimised.

As users will provide system use gas, it will be quantified so that users can verify that system use gas is kept to a practical minimum. 

Extensions and expansions
14.	AGLP has stated that an extension to Tamworth (if built) will form part of the CWP.  In addition, AGLP states that it will exercise its discretion in submitting revisions to the AA.  It is unclear how these statements relate to one another.  Could AGLP clarify what course of action it proposes to take if an extension to Tamworth is built, or, what options AGLP sees are available to it at such a point in time.

It is intended that if the Central Ranges Pipeline is built, it will form part of the Covered Pipeline, thus avoiding the need for a coverage application to the National Competition Council.  

Given the relationship between the CWP and the Central Ranges Pipeline, AGLP believes that rather than establish a separate Access Arrangement for the Central Ranges Pipeline, it would be preferable to establish a single Access Arrangement for the two “pipelines” given the connection between the capital bases for them and the services likely to be sought by the market.  This would be achieved through submitting revisions to the CWP Access Arrangement.

15.	AGLP has stated that no other geographical extension to the CWP will form part of the CWP for this access arrangement.  Why has this statement been made? 

AGLP has sought to establish the Access Arrangement for a period of five years from its approval.  It does not consider it appropriate to commit at this time to the manner in which it would address third party access for any extension undertaken during that time.

Worked Example for Variance, Imbalance, and Overrun Charges for Central West Pipeline
These examples consider a customer with an MDQ of 6 TJ/day at both Parkes and Dubbo (12 TJ/day total) and assume the Central West Pipeline is operating at >85% capacity.

Note that the quantities quoted below are net of line pack and system use gas contributions.

•	Customer Operates Within Access Arrangement Terms and		Conditions

Customer Usage Profile on a Given Day 
	TJ/day	
	Delivered to 	Received at	
Scenario	Parkes 	Dubbo 	Total	Marsden	
MDQ	6	6	12	12	
Nominated	5	5	10	10	
Actual	5.1	4.5	9.6	9.6	
User:
•	Delivers and withdraws the volumes that they nominated for that day (within +10% of MDQ).
•	Quantity delivered to pipeline = quantity withdrawn from pipeline.
•	Withdraws from the pipeline a quantity less than or equal to the MDQ.

User Pays:
1. 	Throughput charge on the actual throughput quantity delivered (9.6 TJ).
2. 	Zero variance charge.
3. 	Zero imbalance charge.
4. 	Zero overrun charge.

•	Variance - Under Delivered at Parkes 	

Customer Usage Profile on a Given Day 
	TJ/day	
	Delivered to 	Received at	
Scenario	Parkes 	Dubbo 	Total	Marsden	
MDQ	6	6	12	12	
Nominated	5	5	10	10	
Actual	4	5	9	9	
User nominated to take 5 TJ at Parkes but only took 4 TJ.
User pays: 	
1. 	Throughput charge on the actual throughput quantity delivered (9 TJ).
2. 	Variance charge on 1 TJ variance at Parkes, no charge is incurred for variance at receipt point.
3. 	Zero imbalance charge.
4. 	Zero overrun charge.

•	Variance - Over Delivered at Dubbo	

Customer Usage Profile on a Given Day 
	TJ/day	
	Delivered to	Received at	
Scenario	Parkes	Dubbo	Total	Marsden	
MDQ	6	6	12	12	
Nominated	5	5	10	10	
Actual	5	6	11	11	
User nominated to take 5 TJ at Dubbo but took 6 TJ.
User pays: 	
1. 	Throughput charge on the actual throughput quantity delivered (11 TJ).
2. 	Variance charge on 1 TJ variance at Dubbo, no charge is incurred for variance at receipt point.
3. 	Zero imbalance charge.
4. 	Zero overrun charge.

•	Variance - Under Delivered at Parkes and Over Delivered at Dubbo	
Customer Usage Profile on a Given Day 
	TJ/day	
	Delivered to	Received at	
Scenario	Parkes	Dubbo	Total	Marsden	
MDQ	6	6	12	12	
Nominated	5	5	10	10	

Actual	4	6	10	10	

User nominated to take 5 TJ at Parkes and Dubbo, but took 4 TJ at Parkes and 6 TJ at Dubbo.
User pays: 	
1. 	Throughput charge on the actual throughput quantity delivered (10 TJ).
2. 	Variance charge on 1 TJ variance at Dubbo and 1 TJ variance at Parkes.
3. 	Zero imbalance charge.
4. 	Zero overrun charge.

•	Imbalance - Under Supply at Receipt Point -Nominated

Customer Usage Profile on a Given Day 
	TJ/day	
	Delivered to	Received at	
Scenario	Parkes	Dubbo	Total	Marsden	
MDQ	6	6	12	12	
Nominated	5	5	10	8	
Actual	5	5	10	8	

10 TJ delivered to user at delivery points, but only 8 TJ received at receipt point. User nominates accurately the delivery and receipt quantities.

User pays: 	
1. 	Throughput charge on the actual throughput quantity delivered (10 TJ).
2. 	Zero variance charge.
3. 	Imbalance charge on 2 TJ - only if the imbalance still exists after 2 months. AGLP will assist the customer in trying to rectify the imbalance before any imbalance charges are due.
4. 	Zero overrun charge.

Note that in an under-supply situation (user delivers less than they take) the nominated quantities delivered to the delivery points will be subject to AGLP’s ability to actually deliver those quantities.  For example, if the under supply is to such an extent that pipeline pressure is likely to drop below the levels required at each delivery point, AGLP reserves the right to limit supply to the responsible user in order to maintain appropriate pressure in the pipeline.

•	Imbalance - Under Supply at Receipt Point - Not Nominated

Customer Usage Profile on a Given Day 
	TJ/day	
	Delivered to	Received at	
Scenario	Parkes	Dubbo	Total	Marsden	
MDQ	6	6	12	12	
Nominated	5	5	10	10	
Actual	5	5	10	8	

10 TJ delivered to user at delivery points, but only 8 TJ received at receipt point. User nominates accurately the delivery quantities, but not the receipt quantities.

User pays: 	
1. 	Throughput charge on the actual throughput quantity delivered (10 TJ).
2. 	Variance charge on 2 TJ (at receipt point).
3. 	Imbalance charge on 2 TJ- only if the imbalance still exists after 2 months. AGLP will assist the customer in trying to rectify the imbalance before any imbalance charges are due.
4. 	Zero overrun charge.

•	Imbalance - Over Supply at Receipt Point -Nominated

Customer Usage Profile on a Given Day 
	TJ/day	
	Delivered to	Received at	
Scenario	Parkes	Dubbo	Total	Marsden	
MDQ	6	6	12	12	
Nominated	5	5	10	12	
Actual	5	5	10	12	

10 TJ delivered to user at delivery points, but 12 TJ received at receipt point. User nominates accurately the delivery and receipt quantities. 	

User pays: 	
1. 	Throughput charge on the actual throughput quantity delivered (10 TJ).
2. 	Zero variance charge.
3. 	Imbalance charge on 2 TJ - only if the imbalance still exists after 2 months. AGLP will assist the customer in trying to rectify the imbalance before any imbalance charges are due.
4. 	Zero overrun charge.

•	Imbalance - Over Supply at Receipt Point - Not Nominated

Customer Usage Profile on a Given Day 
	TJ/day	
	Delivered to	Received at	
Scenario	Parkes	Dubbo	Total	Marsden	
MDQ	6	6	12	12	
Nominated	5	5	10	10	
Actual	5	5	10	12	

10 TJ delivered to user at delivery points, but 12 TJ received at receipt point. User nominates accurately the delivery quantities, but not the receipt quantities.

User pays: 	
1. 	Throughput charge on the actual throughput quantity delivered (10 TJ).
2. 	Variance charge on 2 TJ (at receipt point).
3. 	Imbalance charge on 2 TJ- only if the imbalance still exists after 2 months. AGLP will assist the customer in trying to rectify the imbalance before any imbalance charges are due.
4. 	Zero overrun charge.

•	Authorised Overrun 

Customer Usage Profile on a Given Day 
	TJ/day	
	Delivered to	Received at	
Scenario	Parkes	Dubbo	Total	Marsden	
MDQ	6	6	12	12	
Nominated	7	5	12	12	
Actual	7	5	12	12	

User takes an authorised overrun of 1 TJ at Parkes and nominates accurately receipt and delivery point quantities (total of 12 TJ nominated and delivered).

User pays: 	
1. 	Throughput charge on the actual throughput quantity delivered (12 TJ).
2. 	Zero variance charge.
3. 	Zero imbalance charge.
4. 	Authorised overrun charge on 1 TJ at Parkes.

•	User takes More than Authorised Overrun	

Customer Usage Profile on a Given Day 
	TJ/day	
	Delivered to	Received at	
Scenario	Parkes	Dubbo	Total	Marsden	
MDQ	6	6	12	12	
Nominated	7	5	12	12	
Actual	8	5	13	13	

User takes an authorised overrun of 1 TJ at Parkes plus an unauthorised overrun of 1 TJ at Parkes.  User nominates 12 TJ to be delivered, with 13 TJ actually delivered.

User pays: 	
1. 	Throughput charge on the actual throughput quantity delivered (13 TJ).
2. 	Variance charge on 1 TJ variance at Parkes.
3. 	Zero imbalance charge.
4. 	Authorised overrun charge on 1 TJ at Parkes.
5. 	Unauthorised overrun charge on 1 TJ at Parkes.

•	User takes Less than Authorised Overrun	

Customer Usage Profile on a Given Day 
	TJ/day	
	Delivered to	Received at	
Scenario	Parkes	Dubbo	Total	Marsden	
MDQ	6	6	12	12	
Nominated	8	5	13	13	
Actual	7	5	12	12	

User takes only 1 TJ of the authorised 2 TJ overrun at Parkes, and nominates to take a total of 13 TJ, but takes only 12 TJ.

User pays:	
1. 	Throughput charge on the actual throughput quantity delivered (12 TJ).
2. 	Variance charge on 1 TJ variance at Parkes.
3. 	Zero imbalance charge.
4. 	Authorised overrun charge on 1 TJ at Parkes (overrun quantity actually delivered).

•	Unauthorised Overrun 

Customer Usage Profile on a Given Day
	TJ/day	
	Delivered to	Received at	
Scenario	Parkes	Dubbo	Total	Marsden	
MDQ	6	6	12	12	
Nominated	5	5	10	12	
Actual	7	5	12	12	

User takes an unauthorised overrun at Parkes of 1 TJ, having nominated a delivery of 5 TJ, but actually takes 7 TJ.

User pays: 	
1. 	Throughput charge on the actual throughput quantity delivered (12 TJ). 
2. 	Variance charge on 2 TJ variance at Parkes.
3. 	Zero imbalance charge.
4. 	Unauthorised overrun charge on 1 TJ at Parkes (overrun quantity actually delivered).

System for Approving Overruns
1.	Users submit, in advance of the start of the month, nominations for each day of the following month.
2.	Gas controllers use these nominations to assess the pipeline operating conditions likely to be required for each day during the month.
3.	Any nominations that exceed the user’s MDQ are noted and treated as an “Overrun Request”.  The gas controllers analyse the ability of the pipeline system to deliver the requested overrun on the requested day.
4.	If the system is capable of delivering the overrun on the given day the nomination is accepted and the user is liable to be charged for an “Authorised Overrun” for any gas delivered up to the Authorised Overrun quantity (in excess of MDQ).  Should the user take in excess of the Authorised Overrun quantity, the excess will be treated as an “Unauthorised Overrun”.
5.	If the system is not capable of delivering the overrun on the given day, the gas controller assesses the quantity above the MDQ that the system is capable of delivering.  The user is then notified that the system is not capable of delivering their requested overrun and that a reduced overrun has been authorised.  The user’s nomination for that day is then reduced to reflect this authorised quantity.