4. DISTRIBUTION SERVICES

• An agreement with a wholesaler for the supply of gas; and
• An agreement with the owner of the transmission system to transport the gas from the wholesaler to the appropriate Receipt Point on WGL’s distribution system; and
• An agreement with WGL, (the Distribution Services Agreement), to transport the gas from its Receipt Point, through its distribution system to the Delivery Point, typically located at an End User; and
• An agreement with the End User.

4.2 Criteria for Provision of Distribution Services
Although typically the other party in each of the agreements outlined in 4.1 above would be a gas retailer, WGL will provide distribution services, ie access to transport gas through its distribution system, to any party where the following criteria have been achieved:

1. A Distribution Services Agreement has been agreed and signed by both parties; and
2. suitable arrangements have been made for the supply of gas for WGL to transport through the distribution system; and
3. suitable commercial and technical arrangements have been made to supply the End User; and
4. an appropriate performance bond has been posted or security provided; and
5. where the annual quantity is greater than or equal to 10 TJ, Time of Use Data is available; or
6. where the annual quantity is less than 10 TJ, a Usage Profile has been agreed for the gas being transported through the distribution system.

4.3 Receipt, Transportation and Delivery
WGL receives gas at various sales gates (Receipt Points), transports the gas through the distribution system and delivers it to System Users at Delivery Points.

While the System Users continue to own the gas, WGL takes control, possession and responsibility for the gas at the Receipt Point through to the Delivery Point at which stage control, possession and responsibility reverts back to the System User.

Due to the design and operation of the distribution systems it is neither possible nor feasible to deliver to the System User the precise gas which the system User supplied to WGL at its Receipt Point. WGL therefore contracts with System Users to receive energy from the System User at a Receipt Point and to deliver it to the System User at a nominated Delivery Point on the distribution system.

4.3.1 Ownership
WGL owns all equipment between the Receipt Point and the Delivery Point.

4.3.2 Access
The System User must ensure that WGL is allowed access at all times and free of charge to any premises of the System User and End User to install, inspect, maintain, repair or operate any equipment forming part of the Distribution System including check metering and telemetry equipment, and also for the purpose of reading or testing any meter installed at a Delivery Point.

4.3.3 New Receipt Points
Where either WGL or a System User requires a new Receipt Point to be constructed, the party requesting the new Receipt Point will advise the other party in order to discuss the reasons for the request and the implications resulting from its construction. As the result of the re-routing of gas it is likely that there will be financial implications on the System User from the upstream transporter and for this reason it is important that all System Users must be involved.

4.3.4 New Delivery Points
System Users may request WGL to construct a new Delivery Point. The process for requesting new Delivery Points is specified in Section 5.

4.3.5 Shared Receipt Points and Delivery Points
Where more than one System User is provided with Distribution Services on the same Distribution System, there will be a need to allocate the quantities of gas through the Receipt Point on that Distribution System to the appropriate System User. Monthly and annual quantities are quantified from the total metered volumes at all Delivery Points for each System User and hourly and instantaneous hourly flow rates from either Time of Use Devices or Flow Profiles.

Where the Delivery Point is shared by more than one System User, there will need to be an agreed method of allocating the metered volumes to the appropriate System User. Unless there is an agreement on how the quantities are to be allocated, WGL will facilitate negotiation between all affected System users.

4.4 Quantity
4.4.1 Agreed Quantities
The quantities to be received, transported and delivered by WGL will be agreed and specified in the Distribution Services Agreement. Quantities must be specified for the Maximum Hourly Quantity (MHQ) and Maximum Instantaneous Quantity (MIQ) for each Delivery Point, and where the pricing includes a variable component which is subject to volume throughput, the Nominated Monthly Quantity (NMQ) and/or the Nominated Annual Quantity (NAQ).

4.4.2 Units
Other than the MHQ and MIQ which are both quantified in cubic metres of gas at standard conditions (scmh), all other volumes are quantified in energy terms such as Gigajoules (GJ).

4.4.3 Energy Conversion
To determine the energy value for a given quantity of gas, the quantity of gas (in cubic metres at standard conditions) is multiplied by the calorific value (in Megajoules per cubic metre).

4.4.4 Maximum Hourly Quantity
The ability of the distribution system to supply gas to a specific Delivery Point is determined by the maximum quantity of gas which can be taken by the System User at the Delivery Point in any one hour, the MHQ. Through its obligations under the Distribution Services Agreement, WGL undertakes to receive at the Receipt Point, transport through its Distribution System, and deliver to the System User at the Delivery Point a quantity of gas up to the contracted MHQ.

This quantity is available to be taken by the System User on a 24-hour basis, subject to any specific provisions in the Distribution Services Agreement. The quantity is specifically reserved for a given Delivery Point which due to the complexity and design of Distribution Systems, cannot be transferred to another Delivery Point, either on the same or an alternative system. Where the System User requires a change to the MHQ at a specific Delivery Point, the System User is required to advise WGL in writing, of its request. Where the request is for an increase, WGL will determine its ability to receive, transport and deliver the new quantity and advise whether the change can be accommodated and of any additional cost to the System User where WGL is required to commit capital expenditure in order to satisfy the request.

4.4.5 Daily Quantity
To enable the party providing transportation services upstream of the Receipt Point to reconcile the quantities delivered to the Receipt Point for each System User, WGL will determine the Daily Quantity of gas delivered to each Delivery Point. Where this can be determined from monitoring equipment which can determine quantities delivered at any point in time, known as Time of Use, this precise method will be adopted. Otherwise, in agreement with all System Users, WGL will apply agreed flow profiles, known as Usage Profiles.

4.4.6 Usage Profile
At Delivery Points where the Annual Quantity is less than 10 TJ and where Time of Use Device is not installed, a Usage Profile, agreed between WGL and all System Users, will be applied across the total quantity of gas delivered to a Delivery Point in a given period to determine the quantity of gas delivered to the Delivery Point on each Day. WGL recognises that the application of Usage Profiles requires substantial effort by interested parties and the co-operation and constructive contribution by all involved parties to resolve the issues. Accepting this, WGL is committed to facilitating access to its distribution system and will assist and be proactive toward resolving the issues.

4.4.7 Time of Use Metering
At Delivery points where the Annual Quantity is greater than or equal to 10 TJ, or less than 10 TJ where a Usage Profile has not been agreed, a Time of Use Device will be installed at the Delivery Point.

4.4.8 Unaccounted for Gas
Unaccounted for Gas, or UFG, is the difference between the metered quantities of gas entering the Distribution System at the Receipt Points and the metered quantities of gas exiting the Distribution System at the Delivery Points.

The reasons for variations in the quantities of gas entering and exiting the system include;

1. Metering accuracy
2. System leakage
3. Unbilled gas accruals based upon estimated meter readings
4. Theft
5. Gas purged during commissioning of new pipes and maintenance activities

By definition, it is not possible to precisely define the contribution the various factors make toward UFG.

4.5 Disconnection
WGL will perform all disconnections of Delivery Points whether resulting from a request from the System User or where required by WGL as a result of an issue of safety or failure by the System User to meet the terms and conditions of the Distribution Services Agreement.

The System User may isolate a Delivery Point if required by the System User by turning and locking off the service valve located immediately upstream of the meter. This is the favoured method of isolating gas supplies to End Users for the purpose of non payment of accounts and does not incur a charge from WGL as a result.

The cost of disconnecting and reconnecting Delivery Points is specified in Appendix A.

4.6 Interruption of Distribution Services
In situations where for reasons of safety, emergency or in the normal course of operating the Distribution System there is a need for WGL to interrupt supply to one or more Delivery Points, WGL will notify the affected System Users as soon as is reasonably practical.

4.7 Quality
4.7.1 Specification Gas
To ensure consistency of gas quality received from and delivered to System Users, WGL offers distribution services for Specification Gas; that is gas which meets NZS 5442: 1990.

In the event that the System User wishes WGL to deliver Non-Specification Gas, the System User is required to:

1. give WGL written notice of its wishes for WGL to receive, transport and deliver Non-Specification Gas; and
2. be able to demonstrate that the Non-Specification Gas will not cause safety or operational problems within WGL’s distribution system; and
3. obtain written consent from all other System Users WGL is contracted with to provide distribution services on the specific distribution system. Subject to WGL’s satisfaction that a) and b) have been achieved, WGL can provide assistance if required.

4.7.2 Odorisation
Gas is required to be readily detectable at concentrations greater than 1/5th of the concentration at which it will burn in air, which equates approximately to a concentration of approximately 1% gas in air. As natural gas is odourless, an odour is added to enable its detection and as there are a number of factors which can influence the level of odorant in the gas, it is important that the amount of odorant in the gas and the concentration of gas at the stage at which it can be readily detected are monitored.

In providing distribution services, WGL requires that Gas delivered to a Receipt Point be odorised in compliance with the “New Zealand Code of Practise for Odorisation of Gas: NZGCP 3”. Having received Gas which complies with this code, WGL then undertakes to ensure the gas within its distribution system and delivered to the System user at a Delivery Point continues to meet the requirements of the code.

In instances where either WGL or a System User becomes aware that a situation may exist where gas could be over or under odorised it is important that the other party be made aware of such instances as soon as practically possible in order that the appropriate response can be taken. Over odorised gas can result in an increase in the incidence of reported gas leaks which by their sheer numbers could result in a significant leak not being attended to as quickly as it would normally be and under odorised gas can result in significant leaks going undetected.

4.8 Capacity Management
The capacity of a notional pipeline can be defined in terms of the rate at which gas is received at one end and delivered at the other end. However WGL’s Distribution systems are much more complex, typically having one Receipt Point and many Delivery Points.

The Capacity of WGL’s system is therefore defined as the Maximum Instantaneous Quantity (MIQ) at each Delivery Point, this being the combined total potential offtake of all the installed gas plant receiving gas from the Delivery Point. The units used for design purposes are standard cubic metres per hour (scmh) and meters are sized on this basis. WGL’s Distribution System is physically controlled to maintain constant pressures, with the result that the rate of gas input into the system is determined by the rate at which it is being drawn from all the Delivery Points connected to the System. Due to this there is no significant linepack storage available.

The System User’s obligations as set out in the DSA, include not drawing gas at a greater rate than the agreed Delivery Point Capacity as this could result in damage to the Distribution System and prevent WGL from meeting its contractual obligations to other System Users.

The right of a System User to be able to draw gas at a specific Delivery Point at an agreed MIQ is part of the Distribution Services package. As such, it is not a tradeable commodity in its own right and therefore WGL does not facilitate a tradeable Capacity market.

4.9 Investment Criteria for Developable Capacity
Upon receipt of a request from a System User, a design and costing analysis will be completed to establish the cost of the facilities required to supply the nominated Delivery Point within the requested parameters.

If the Distribution System does not have sufficient Capacity to meet the specific parameters of the request, the design and costing analysis will incorporate the reinforcement of the existing system, sometimes referred to as "Developable Capacity".

In carrying out this analysis, the future revenue stream that will be generated from the Delivery Point is determined, based upon the applicable Posted Price. A financial analysis is then carried out based upon receiving an appropriate return on the proposed capital expenditure, recovering the relevant operating costs and comparing it with the predicted future revenue stream.

This analysis also takes into account, an assessment of the risk of the project not returning the predicted revenue stream to establish whether the revenue expected to be generated from the Posted Price is sufficient to compensate WGL for the risks of the proposed investment. If it is then the offer from WGL to the System User will be based on the applicable Posted Price, otherwise the offer will be based on a Negotiated Service.

WGL will own all Capacity constructed as a result of a request by an Applicant or System User, whether or not the Applicant or System User has incurred any cost whatsoever in the process.

4.10 Measurement
4.10.1 Receipt Point Measurement
At each of the six Receipt Points at the Sales Gates, the quantity of energy received is determined by measurement equipment installed immediately upstream. This equipment is presently owned and operated by Natural Gas Corporation. Check metering facilities are installed at the Wanganui Sales Gate only although WGL has the right to install such equipment at the other Receipt Points if WGL considers it necessary.

4.10.2 Delivery Point Measurement
The quantity of energy received, transported and delivered by WGL to the Delivery Point is determined by measurement equipment owned and operated by WGL at the Delivery Point, unless otherwise agreed between the System 15 User and WGL. The System User has the right to have equipment installed to check WGL’s measurement equipment should it so wish.

4.10.3 Meter Reading
WGL reads all meters with a Nominated Annual Quantity of greater than or equal to 1200 GJ on a monthly basis and all others on a two monthly basis, in addition to providing daily meter readings where a Time of Use Device is installed.

The meter readings are then forwarded to the System User for conversion to energy and for subsequent billing of their customers as appropriate. Such readings will be supplied on a weekly basis stating the meters that have been read in the preceding week, the meter reading, the Fixed Factor, and the date of each reading.

Where a System User wishes to cease Distribution services to a Delivery point, WGL will read the meter at that Delivery Point. This reading will be used as the final account for that Delivery Point for the exiting System User, and where another User is to commence Distribution Services to the same Delivery Point at the same time, the reading will also be used as the initial reading for the incoming System User.

4.10.4 Unbilled Gas
Where a Delivery Point meter is not read on the last Day of the Billing Period, the System User will be required to estimate the Quantity of gas which has been delivered by WGL to the Delivery Point and provide this information to WGL.

4.10.5 Accuracy of Measurement Equipment
The accuracy of either the Receipt Point or Delivery Point measurement equipment may be verified following a request from either the System User or WGL but at periods no more frequently than one year, unless the party requesting the verification is prepared to meet the costs.

4.11 Fees and Charges
4.11.1 Posted Prices
The current Fees and Charges are stated in Appendix A.

4.11.2 Non-Specification Gas
In instances where Non-Specification Gas is accepted at a Receipt Point for transportation and delivery to a Delivery Point, the Fees and Charges which are applicable are the same as if it were Specification Gas.

4.11.3 Bond/Deposit
WGL may request a System User to either post a bond, or pay a deposit, equivalent to the total fees and charges payable for two Billing Periods.

4.11.4 Redetermination and Adjustment of Fees
WGL may redetermine the fees on an annual basis with effect from 1 October in each year.

In order to achieve this, the System User must notify WGL by 1 July in each year, of the Quantities for delivery during the following contract year commencing 1 October.

WGL will then advise the System User by 1 September of the new fees. In the event that the System User does not accept the new fees and WGL has been unable to resolve the matter to the satisfaction of the System User, the System User may then initiate the dispute resolution process, as outlined in Section 7.3 and Appendix F.

4.11.5 Negotiated Prices
WGL recognises that there are likely to be requests by System Users for Negotiated Prices which varies from the Posted Prices. Where the System User requests a Negotiated Price WGL will consider the request providing the following conditions are met:

1. The System User must provide WGL with evidence that demonstrates the reasons for the request;
2. All other parties involved in the supply of gas to the System User agree to lower their rates (where the request from the System User to WGL is for a reduction in rates);
3. The Negotiated Price is for a specified period;
4. The Negotiated Price is not likely to have a destabilising effect on other market prices;
5. The Negotiated Price, if accepted by the System User, will be made contemporaneously available to all System Users.

A request for a Negotiated Service may be for a variation to an existing service, provision of a new service or based purely on price. Such instances include, but are not necessarily limited to:

4.11.5.1 Bypass
This occurs when it is economically viable for the System User to construct its own pipeline or distribution system from the transport system upstream of the Receipt Point through to the Delivery Point location.

WGL considers the duplication of assets to be an inefficient use of resources and will therefore undertake to resolve any issues relating to bypass such that duplication does not occur. Consideration will be given to offering a Negotiated Service where it can be demonstrated that bypass is economically viable and where there is benefit to other System Users.

4.11.5.2 Inter-fuel Competition
This occurs when, through competition from other fuels, it is economically viable for the End User to change to an alternative fuel. In such instances where it can be shown by the System User that this could occur and where it does not disadvantage other System Users, WGL may offer a Negotiated Service.

4.11.5.3 Fixed Term
There are a number of reasons why downstream contracts extend for terms greater than one year and price redeterminations do not in all instances mirror upstream contracts such as the Distribution Services Agreement.

WGL offers distribution services on a pricing basis which will result in lower average prices as system use increases. There is a risk however that with a reduction in system usage the average prices may increase.

WGL is sympathetic to the downstream market needs and will consider offering a Negotiated Service which is based upon acceptable levels of risk sharing and which is beneficial to other System Users.

4.12 Allocation and Reconciliation
Where WGL is providing distribution services to more than one System User on the same Distribution System, allocation and reconciliation of metered quantities is necessary. The Reconciliator, as the person or organisation acting on behalf of the System Users, must be acceptable to all System Users prior to the commencement of a new Distribution Services Agreement. As this may potentially offer a barrier to entry for a new System User, WGL undertakes to provide whatever reasonable assistance is required to resolve any differences.

To facilitate trading on the Distribution System, WGL - Distribution can offer allocation and reconciliation services to any existing or prospective System User, with the complexity of the process customised to suit the needs of the System Users. However WGL recognises that the issue of reconciliation can in many instances be open to debate and dispute and for this reason offers as guidance, the industry agreement which is presently in preparation.

4.13 Payment
4.13.1 Invoicing
On a monthly basis WGL will invoice the System User for Distribution Services provided by WGL based upon meter readings and any accruals for meters not read at the end of the Month.

4.13.2 Payment
Payment for services invoiced are to be made by direct credit to WGL’s bank account no later than the 20th day of the month or within 10 days of receiving the invoice, whichever is the later.

4.13.3 Disputed Invoices
In the event of a dispute concerning an invoice, the System User must notify WGL of the details within 10 days of receipt of the invoice. WGL and the System User will then resolve the dispute in accordance with Section 7.3 and Appendix F.

4.14 Ceasing Distribution Services at a Delivery Point
4.14.1 Supply No Longer Required
Where a System User wishes to cease Distribution Services to a specific Delivery Point where the supply is no longer required, that is where the provision of Distribution Services to the specific Delivery Point will cease, the System User is required to advise WGL, in writing, a minimum of 30 days in advance. The request must specify the Delivery Point details and the date and time at which the service is to cease.

WGL will isolate the Delivery Point from the system and initiate amendment to the Distribution Services Agreement.

The details of the cessation of services to the specific Delivery Point will be included with the monthly invoice for Distribution Services which will include any Exit Fee charges as specified in Appendix A.

4.14.2 Transfer to Another System User
Where a System User wishes to cease Distribution Services to a specific Delivery Point and another System User enters into an agreement with WGL for the provision of services to the same Delivery Point, WGL will require notice from both exiting and incoming System Users a minimum of 10 Business Days in advance of the date of transfer. At which time WGL will initiate the process to amend the Distribution Services Agreement. In this instance the Exit Fee will be waived.

On the transfer date and at the appropriate time, WGL will read the meter at the Delivery Point at which point the Distribution Services will be deemed to have ceased for the exiting System User and commenced for the incoming System User.

4.14.3 Termination
The System User may give 30 days notice to terminate the Distribution Services Agreement in addition to termination resulting from a default by either WGL or the System User.