On 14 July 2017 the Commission published its final recommendations to reform the Victorian declared wholesale gas market (DWGM).

The Commission recommended that in the short term the DWGM be improved in the following ways:

1. Provide a cleaner wholesale market price by including the costs currently intended to be recovered by common and congestion uplift in the market price, while retaining separate pricing of temporal constraints.
2. Establish a forward trading exchange over the Victorian declared transmission system (DTS) while retaining the existing daily DWGM.
3. Improve pipeline capacity allocation and introduce capacity rights trading by:
   • introducing separate, tradable entry AMDQ rights and exit AMDQ rights
   • introducing an exchange to improve secondary trading of AMDQ rights (permanent transfer) and benefits (temporary transfer)
   • making AMDQ available for a range of different tenures.

These reforms to the existing DWGM will deliver benefits to Victorian customers and increase the consistency of the DWGM with the wider east coast market to make easier to buy and sell gas for those both inside and outside Victoria, while being relatively quick and low cost to implement.

Over the longer term, the Commission recommends further assessment of whether more significant market reform to the Commission’s target model (described below) is necessary to more fulsomely meet the objectives of this review.

Background

On 4 March 2015, the Victorian Government, with the agreement of the COAG Energy Council, asked the AEMC to conduct a review of the DWGM.

Terms of Reference

The Terms of Reference for the review required the AEMC to consider:

1. The ability of market participants to manage price and volume risk in the DWGM and options to increase the effectiveness of risk management activities.
2. Whether market signals and incentives are providing for efficient use of, and efficient and timely investment in, pipeline capacity on the DTS.
3. Whether producers and shippers are able to effectively operate across the different gas trading hubs on the east coast without incurring substantial costs.
4. Whether the DWGM arrangements continue to facilitate market entry and promote competition in upstream and downstream markets how this could be improved.

The AEMC was required to consider the National Gas Objective and the COAG Energy Council’s Gas Market Development Plan in conducting its review.

First Discussion paper – September 2015

On 10 September 2015, the AEMC published a discussion paper for the Review of the Victorian DWGM. The discussion paper identified and discussed possible gaps in the existing market design and market carriage model under the themes of risk management, market signals, market-driven investment, regulatory investment arrangements and exports.

Five high level packages for reform were developed and each package included one or more policy measures to address the gaps identified in the existing market design and regulatory framework in Victoria.

Consultation closed on 8 October 2015 and the Commission received 12 submissions.

Draft Report – December 2015

On 4 December 2015, the AEMC published a Draft Report for the Review of the Victorian DWGM. With a view to the longer term, the Commission developed a package of reform for the DWGM and associated market carriage arrangements which govern access to the Victorian DTS. This report focused on two key areas, and is known as the Commission’s ‘target model’:

• Trading gas at the Southern Hub: transitioning from the DWGM - where trading and balancing occurs on a mandatory, operator led-basis - to a new model where trading would occur on a voluntary, continuous basis but is underpinned by a mandatory residual balancing mechanism.
• Access to transportation capacity at the Southern Hub: to support this new form of trading, transitioning the market carriage model and associated limited pipeline transportation rights to a system of entry and exit rights for capacity allocation. This would allow network users to book firm transportation capacity rights independently at each entry and exit point to the DTS.

Consultation closed on 12 February 2016 and the Commission received 9 submissions.

Second Discussion paper – March 2016

On 3 March 2016, the AEMC published a discussion paper that was based around four key themes and focused on the key design issues relevant to the target model: managing capacity at the Southern Hub, capacity allocation mechanisms, capacity pricing and revenue and balancing.

Consultation closed on 29 March 2016 and the Commission received 12 submissions.

Project extension

On 13 May 2016, the Victorian Government responded to the DWGM Review draft report and extended the timeframes within which the AEMC must undertake its Review of the Victorian DWGM. The purpose of the extension was to enable the AEMC to prepare a more detailed design for the recommendations and enable further consultation with stakeholders.

Working group

The AEMC convened a technical working group to progress the detailed design of the target model proposed for Victoria in the Draft Report. The working group comprised of technical experts from market participants and other industry and consumer groups.

Four working group meetings were held over June to August 2016. These meetings were well attended by industry members.

The working group meetings were used to identify and work through issues identified by stakeholders to make sure there were no “showstoppers” and that issues were resolvable.

The working group discussed a number of key facets of the market design, including commodity trading, on-the-day balancing arrangements and capacity allocation. It also considered transitional issues.

The meetings were also used to educate and inform market participants on the detail of various aspects of the target model.

Draft final report

On 21 October 2016, the Commission published a draft final report that investigated the issues facing the current DWGM and set out the Commission’s recommendations to address these issues.

The recommendations involved describing the Commission’s target model for a Southern Hub across the DTS. This included more detail on the design and operation of the target model, incorporating feedback from the working group meetings and including detail on transitional options.

Consultation closed on 2 December 2016 and the Commission received 18 submissions.

Project extension

Given the complexity of this review, on 9 March 2017 the Victorian Government extended the timeframes and requested that a final report be provided by September 2017. The purpose of the extension was to allow additional consultation with stakeholders, with a particular focus on some of the incremental options to improve the DWGM and other alternatives.

Assessment of alternative market designs

On 30 March 2017 the Commission released an assessment of alternative market designs for stakeholder consultation. The paper examined a range of different options to reform the gas trading arrangements and the pipeline capacity allocation arrangements in the DWGM.

During the consultation period the Commission held two stakeholder meetings to explain the options and seek early stakeholder feedback.

Consultation closed on 11 May 2017 and the Commission received 12 submissions.