Guide for Users: Principal Transmission System - Victoria
Transmission Pipelines Australia Pty Ltd
Transmission Pipelines Australia (Assets) Pty Ltd

and
VENCorp

VICTORIA

Transmission Pipelines Australia Pty Ltd
Transmission Pipelines Australia (Assets) Pty Ltd 
VENCorp
1 January 1999 
This document is intended as a Guide in relation to the tariffs, terms and conditions for third parties to access the Principal Transmission System.  Its creation has been required by the Australian Competition and Consumer Commission (ACCC) as part of its decision on Access Arrangements applying to the Principal Transmission System under the Victorian Third Party Access Code for Natural Gas Pipelines (the Code).  Its purpose is to clarify, not to substitute for, the tariffs, terms and conditions specified in those Access Arrangements.  It is emphasised that the actual tariffs, terms and conditions for access to the Principal Transmission System are those specified in the relevant Access Arrangements established under the Code, and in the event of conflict between those Access Arrangements and this Guide, the Access Arrangements take precedence.
In this Guide, key terms defined in the Code are italicised and terms which are further defined or explained in the Guide are highlighted in bold print.
1.	Introduction
Transmission Pipelines Australia (Assets) Pty Ltd as owner of the Principal Transmission System leases the Principal Transmission System under a short term operating lease to Transmission Pipelines Australia Pty Ltd.  The companies together are referred to as TPA.
Victorian Energy Networks Corporation (VENCorp) is the operator of the Principal Transmission System.
The Principal Transmission System is the system of transmission pipelines operated by the Gas Transmission Corporation (the predecessor of  TPA) immediately before the commencement of section 11 of the Gas Industry (Further Amendment) Act 1997, including extensions and expansions of that system in accordance with TPA’s Extensions/Expansions Policy and excluding any part of that system to which an Order under section 5(4) of the Gas Industry Act 1994 applies.  
An Order was made under section 5(4) of the Gas Industry Act 1994 on 9 December 1997 (published in the Victorian Government Gazette on 11 December 1997) which has excluded the Western Transmission System from the definition of the Principal Transmission System.
Pursuant to section 9.2 of the Code both TPA and VENCorp are Service Providers in respect of the Principal Transmission System and there has been an allocation between them of the obligations imposed on Service Providers by the Code.
Accordingly, this Guide in respect of the Principal Transmission System covers the Reference Services of both TPA and VENCorp.
2.	Reference Services
2.1	TPA
TPA’s Reference Service under the Code is making the Principal Transmission System available to VENCorp as User in accordance with TPA’s Access Arrangement for the Principal Transmission System (the TPA PTS Access Arrangement).
2.2	VENCorp
VENCorp’s Reference Service under the Code is to operate the Principal Transmission System made available to it by TPA and to operate and administer the market for Users in accordance with the Market and System Operation Rules (the MSO Rules), taking into consideration the market objectives contained in the MSO Rules. 
VENCorp’s Reference Service is made available to Users in accordance with VENCorp’s Access Arrangement for the Principal Transmission System (the VENCorp PTS Access Arrangement).
Users in the context of this Guide are retailers and other similar persons (for example, traders who sell, and arrange delivery of, gas to end users).
3.	Access Arrangement Terms and Conditions
3.1	TPA
TPA’s tariffs, terms and conditions in relation to its Reference Service to VENCorp are contained in the TPA PTS Access Arrangement which comprises -
•	the terms and conditions;
•	the Reference Tariffs and Reference Tariff Policy, which derive predominantly from the relevant sections of the Victorian Gas Industry Tariff Order (the Tariff Order);
•	the Capacity Management Policy;
•	the Extensions/Expansions Policy;
•	a description of the Principal Transmission System; and
•	the TPA Service Envelope Agreement which defines TPA’s service obligations to VENCorp.
3.2	VENCorp
VENCorp’s tariffs, terms and conditions in relation to its Reference Service to Users are contained in the VENCorp PTS Access Arrangement which comprises -
•	the terms and conditions;
•	the Reference Tariffs and Reference Tariff Policy, which derive from the relevant sections of the Tariff Order;
•	the Capacity Management Policy;
•	the Queuing Policy;
•	a description of the Principal Transmission System;
•	a pro-forma Gas Transportation Deed to be entered into between VENCorp and Users which defines VENCorp’s service obligations to Users; and
•	a description of the Initial Authorised MDQ Allocation Procedures.
In order to access the Principal Transmission System, a Prospective User is required to -
•	register with VENCorp as a Market Participant under the MSO Rules; and
•	enter into a Gas Transportation Deed with VENCorp, under which it shall agree to pay -
•	the transmission charges for TPA’s Reference Service, which VENCorp will direct Users to pay directly to TPA; and
•	the charges for VENCorp’s Reference Service, which are to be paid directly to VENCorp.
4.	Reference Tariffs
4.1	TPA 
In accordance with clause 5.3.1 of the TPA PTS Access Arrangement, TPA’s Reference Tariffs are -
•	the initial tariffs for Tariffed Transmission Services set out in Schedule 1, paragraph 1 of the Tariff Order, which apply at the start the initial 4 year price control period (the initial Access Arrangement Period); and
•	the tariffs noted above as varied during the initial Access Arrangement Period according to a CPI - X price path formula under TPA’s Reference Tariff Policy.
4.2	VENCorp
In accordance with clause 5.3.2 of the VENCorp PTS Access Arrangement, VENCorp’s Reference Tariffs are -
•	the initial tariffs for Tariffed VENCorp Services set out in Schedule 1, paragraph 4 of the Tariff Order; and
•	the tariffs noted above as varied according to the annual tariff approval procedure under VENCorp’s Reference Tariff Policy.
5.	Reference Tariff Policy
5.1	TPA
In accordance with clauses 5.3.2 to 5.3.8 of the TPA PTS Access Arrangement, TPA’s Reference Tariff Policy comprises -
•	the CPI - X price path approach set out in -
•	the administrative procedure for tariff changes in clause 6.1 of the Tariff Order; and
•	the CPI - X price path formula in part A of schedule 5 of the Tariff Order; 
•	the operation of a Speculative Investment Fund provided for in clause 5.3.4 of the TPA PTS Access Arrangement, which provides that -
•	New Facilities Investment that does not satisfy the economic feasibility test in section 8.16 of the Code (and as a result, is excluded from the Capital Base for the determination of Reference Tariffs);
•	may, in future, be included in the Capital Base (at a value adjusted for a rate of return) if the New Facility concerned commences to be used in providing Reference Services;
•	a policy on Redundant Capital set out in clause 9.2(a)(3) of the Tariff Order, whereby the Capital Base at the commencement of the next Access Arrangement Period may be reduced to take account of wholly or partially redundant assets;
•	principles of tariff methodology (Fixed Principles) set out in clause 9.2(a) of the Tariff Order, which are to apply to any review of the Access Arrangement and which cannot be changed without the agreement of the Service Provider.  The Fixed Principles include that -
•	the subsequent Access Arrangement Period is to apply for a period of 5 calendar years commencing from 1 January 2003;
•	the Reference Tariffs are to be designed on the basis of CPI-X a price path approach;
•	only one X factor is to apply over the subsequent Access Arrangement Period;
•	the Capital Base at the start of the subsequent Access Arrangement Period is to be determined on a basis consistent with the Code, in that it shall be the Capital Base at the start of the initial Access Arrangement Period varied by -
•	inflation;
•	New Facilities Investment;
•	Depreciation;
•	disposals; and
•	Redundant Capital,
over the course of the initial Access Arrangement Period; and
•	the sharing of the benefits of efficiency gains with users;
•	an Incentive Mechanism that permits TPA to retain a share of any returns that exceed the level of returns expected at the beginning of the initial Access Arrangement Period set out in the Tariff Order in -
•	the administrative process in clause 6.1 and the CPI - X price path formula in part A of schedule 5 which provide that the price path for Reference Tariffs is determined at the beginning of the initial Access Arrangement Period based on forecasts of all relevant variables and not adjusted to account for subsequent events until the commencement of the subsequent Access Arrangement Period; 
•	clause 9.2(a)(4), which provides for a sharing of the benefits of efficiency gains between TPA and users if, in the initial Access Arrangement Period, TPA has achieved efficiencies greater than the values implied by the value of X in the CPI-X formula; and
•	clause 9.2(a)(7), which provides that the benefits of efficiency gains may be shared in the subsequent Access Arrangement Period and in Access Arrangement Periods after the subsequent Access Arrangement Period;
•	the change in tax pass-through provisions set out in clause 7 of the Tariff Order which provide that the Reference Tariffs may be varied in conformity a change in certain taxes, including the effect of the introduction of a Goods and Services Tax (GST) or any such like tax within Australia. 
5.2	VENCorp
In accordance with clause 5.3.5 of the VENCorp PTS Access Arrangement, VENCorp’s Reference Tariff Policy comprises the administrative procedure for tariff changes set out in clause 6.1(a)(2) of the Tariff Order, which provides that tariffs for Tariffed VENCorp Services are to be adjusted annually in the light of actual outcomes to ensure that the tariffs recover only the actual costs of providing Tariffed VENCorp Services.
6.	Capacity Management Policy
A Capacity Management Policy as required by section 3.10 the Code is provided in -
•	clause 5.5 of the TPA PTS Access Arrangement; and
•	clause 5.5 of the VENCorp PTS Access Arrangement,
in the form of a statement that the Principal Transmission System is a Market Carriage Pipeline. 
The Code definition of Market Carriage is contrasted with the corresponding Code definition of Contract Carriage as follows -
“Market Carriage is a system of managing third party access whereby:
(a)	the Service Provider does not normally manage its ability to provide Services primarily by requiring Users to use no more than the quantity of Service specified in a contract;
(b)	Users are normally not required to enter into a contract that specifies a quantity of Service;
(c)	charges for use of Services are normally based on actual usage of Services; and
(d)	a User normally does not have a right to trade its right to obtain a Service to another User.”
“Contract Carriage is a system of managing third party access whereby: 
(a)	the Service Provider normally manages its ability to provide Services primarily by requiring Users to use no more than the quantity of Service specified in a contract;
(b)	Users normally are required to enter into a contract that specifies a quantity of Service;
(c)	charges for use of a Service normally are based at least in part upon the quantity of Service specified in a contract; and
(d)	a User normally has the right to trade its right to obtain a Service to another User.”
Application of the definition of Market Carriage to the Principal Transmission System permits Users to transport gas almost any time (subject to system security constraints) even if they do not possess authorised MDQ.  
Pursuant to section 9.2(c) of the Code, responsibility for operating the Capacity Management Policy has been allocated to VENCorp.  Under the Capacity Management Policy, VENCorp is to allocate authorised MDQ in accordance with the following -
•	where a transmission constraint gives rise to Users having to make ancillary payments, additional payments (uplift charges) are allocated between Users in a manner which penalises Users that have contributed to the cause of the constraint (for example, by taking gas in excess of their authorised MDQ) - representing the mechanism by which Market Carriage provides authorised Users with financially firm transportation rights; and
•	where a transmission constraint is sufficiently serious to require an interruption of gas supply VENCorp will, wherever practicable, seek to curtail Users taking gas in excess of authorised MDQ before curtailing authorised Users - representing the mechanism by which Market Carriage provides authorised Users with physically firm transportation rights.
VENCorp’s allocation of initial authorised MDQ is governed by clause 5.3.2(a) of the MSO Rules and by the Initial Authorised MDQ Allocation Procedures.
7.	Queuing Policy
Pursuant to section 9.2(c) of the Code, responsibility for complying with the obligation imposed by sections 3.14 to 3.17 of the Code to include a Queuing Policy in an Access Arrangement has been allocated to VENCorp. 
As provided by clause 5.6 of the VENCorp PTS Access Arrangement, clause 5.3.4 of the MSO Rules constitutes VENCorp’s Queuing Policy which incorporates -
•	a register of applications for allocations of authorised MDQ; and
•	an open auction of unallocated authorised MDQ, with the allocation made in the order of highest bids received. 
8.	Extensions/Expansions Policy
Pursuant to section 9.2(c) of the Code, responsibility for complying with the obligation imposed by section 3.18 of the Code to include an Extensions/Expansions Policy in an Access Arrangement has been allocated to TPA.
The Extensions/Expansions Policy is set out in clause 5.7 of the TPA PTS Access Arrangement.
TPA’s extensions or expansions to the Principal Transmission System are Covered by the TPA PTS Access Arrangement.  TPA may give written notice to the ACCC that a significant extension not be Covered, except that -
•	a party may successfully seek Coverage of the extension under section 1 of the Code; or
•	an extension expected at the beginning of the initial Access Arrangement Period and included in the initial Capital Base of the Reference Tariffs is automatically covered.
A significant extension is defined in clause 5.7.1(e) of the TPA PTS Access Arrangement as an extension - 
•	involving capital investment greater than $5 million; or
•	exceeding 10 kilometres in length.
Notwithstanding the above provisions relating to significant extensions, the extension representing the natural gas Pipeline extending from Barnawatha (Vic) to Culcairn (NSW) (“the Interconnect”) is to be treated as a Covered Pipeline in terms of TPA’s Extensions/Expansions Policy.
New Facilities Investment that satisfies the economic feasibility test in section 8.16(b) of the Code, subject to section 8.16(a), is able to included in the Capital Base of the Reference Tariffs and is consequently charged at the prevailing Reference Tariffs;
New Facilities Investment that does not satisfy the economic feasibility test in section 8.16 of the Code may be -
•	included in a Speculative Investment Fund in accordance with clause 5.3.4 of the TPA PTS Access Arrangement;
•	recovered by a Capital Contribution; or
otherwise
•	TPA may make a submission to the ACCC to effect that the New Facilities Investment is to be included in the Capital Base on grounds that it -
•	has system-wide benefits; or
•	is necessary to maintain the safety, integrity or contracted capacity of the Reference Services,
such that higher Reference Tariffs for all Users are justified.
9.	Description of the Principal Transmission System 
A description of the Principal Transmission System is provided as Appendix 1 to both the TPA PTS Access Arrangement and the VENCorp PTS Access Arrangement.
10.	TPA Service Envelope Agreement
The TPA Service Envelope Agreement between TPA and VENCorp (as User) defines the level of transportation Capacity to be provided by the Principal Transmission System made available by TPA to VENCorp.
The level of transportation Capacity defined by the TPA Service Envelope Agreement is consistent with VENCorp’s obligations to allocate authorised MDQ in accordance with its Capacity Management Policy.
11.	Gas Transportation Deed
A pro-forma Gas Transportation Deed is provided as Appendix 2 of the VENCorp PTS Access Arrangement.
The Gas Transportation Deed is entered into between Users and VENCorp and secures payment from Users in respect of TPA’s and VENCorp’s Reference Services.  Specifically, the Gas Transportation Deed requires Users to pay -
•	transmission charges for TPA’s Reference Service, which VENCorp directs Users to pay directly to TPA; and
•	charges for VENCorp’s Reference Service, which are to be paid directly to VENCorp.
12.	Initial Authorised MDQ Allocation Procedures 
The Initial Authorised MDQ Allocation Procedures are provided as Appendix 3 of the VENCorp PTS Access Arrangement.  The procedures were developed by an Independent Review Panel appointed by VENCorp to review the provisional allocation of Authorised MDQ based on the principles in clause 5.3.2(a) of the MSO Rules, being that -
•	a User is to be allocated authorised MDQ in respect of all quantities of gas which it withdraws at a tariff V withdrawal point; and
•	a User is to be allocated authorised MDQ in respect of gas which it withdraws at a tariff D withdrawal point on the basis of past and/or existing contractual arrangements, or on some other basis that VENCorp reasonably considers to be appropriate in all the circumstances.
The recommendations of the Independent Review Panel include the requirement for an increase in the provisional allocation of Authorised MDQ and, in particular cases prior to market start, the transfer of Authorised MDQ between sites.
VENCorp’s subsequent allocations of authorised MDQ are governed by clause 5.3.4 of the MSO Rules which is constitutes the details of VENCorp’s Queuing Policy as provided by clause 5.6 of the VENCorp PTS Access Arrangement and which is summarised in section 7 above.
13.	Revisions to Access Arrangement
Consistent with the requirements of section 3.19 of the Code, clause 5.8 of the TPA PTS Access Arrangement specifies -
•	a date on which it is to submit revisions to the TPA PTS Access Arrangement - being 31 March 2002; and
•	a date up which the revisions to the TPA PTS Access Arrangement are intended to commence - being 1 January 2003.
The Revisions Commencement Date of 1 January 2003 is consistent with -
•	the CPI - X price path approach set out in clause 6.1 and part A of schedule 5 of the Tariff Order, which applies for the duration on the initial Access Arrangement Period (being a period which expires on 31 December 2002); and
•	that in accordance with clause 9.2(a)(2), and the definition in clause 10.1, of the Tariff Order, the subsequent Access Arrangement Period is to commence from 1 January 2003 and apply for a period of 5 calendar years. 
14.	Access Arrangement Information
Access Arrangement Information in respect of the Principal Transmission System has been submitted to the ACCC by TPA and VENCorp in accordance with section 2.2 of the Code. 
15.	Further Information
If you want further information on these matters, please contact the following:
General Counsel and Regulatory Manager
Transmission Pipelines Australia Pty Ltd
180 Greens Road
Dandenong 
VICTORIA 3175

Tel:   (03) 9797 5222
Fax:  (03) 9797 5189

Company Secretary
VENCorp
433 Smith Street
North Fitzroy
VICTORIA 3068

Tel:   (03) 9481 9222
Fax:  (03) 9481 9269

Pursuant to section 5.1 of the Code, TPA and VENCorp are required to make available to Prospective Users an Information Package which includes the Access Arrangement and Access Arrangement Information for the PTS. 

In the case of TPA this will include Access Arrangement Information submitted to the ACCC on 3 November 1997, Supplementary Access Arrangement Information submitted on 13 and 16 March 1998 and Final Access Arrangement Information submitted on 30 November 1998.  In the case of VENCorp this only includes the Access Arrangement Information submitted to the ACCC on 3 November 1997.  The Market and System Operation Rules and Tariff Order (referred to in TPA’s and VENCorp’s Access Arrangements) are gazetted in the Victorian Government Gazette, however updated copies may be obtained as part of  the Information Package.

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