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Dominion East Ohio Merchant Function Exit Transition Plan. Working Draft. Plan Outline. Fundamental Issues Transition Approach Operational Features. Fundamental Issues. Fundamental Issues. Why exit the merchant function? What are the objectives?

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plan outline
Plan Outline
  • Fundamental Issues
  • Transition Approach
  • Operational Features
fundamental issues1
Fundamental Issues
  • Why exit the merchant function?
  • What are the objectives?
  • What are the “guiding principles”?
  • How should we approach the task?
  • What does the end state look like?
  • What issues do we need to address:
    • Up front
    • At some point
why exit the merchant function
Why Exit The Merchant Function?
  • Groundwork for an exit has been laid by a successful transition out of the GCR business for nearly 60% of DEO’s customers
  • Although it has responded well to unpredictable market erosion thus far, DEO would prefer to exit its remaining GCR business in an orderly manner
  • GCR rates that are affected by large unrecovered gas cost distort the competitive market
  • By law, DEO cannot make a profit on its GCR service
    • Why remain in a business that at best breaks even?
  • Strategically, DEO recognizes that its fundamental role is to provide distribution service, not commodity service
objectives
Objectives
  • Foster a competitive market in which customers can make informed choices among expanded alternatives while ensuring reliable commodity service by suppliers
  • Address the commodity service needs of those customers that cannot or will not choose among those alternatives without disrupting the competitive marketplace
guiding principles
“Guiding Principles”
  • Leave no one worse off than before
  • Promote competitive yet reliable commodity service
  • Minimize customer confusion
  • Avoid damage to Energy Choice program
  • Minimize duplicative capacity costs
  • Appropriately allocate assets and costs
  • Support end state objectives

Make it “workable,” not theoretical

general approach
General Approach

Take a methodical and incremental approach that:

  • Builds on successful features of the current program
  • Identifies and resolves up front those issues that are absolutely essential to a merchant function exit
  • Doesn’t try to address every conceivable end state issue before implementation

Phases I and II - Described in considerable detail

Phase III - Provides direction with fewer details

End State - Outlined in intentionally broad terms

  • Keeps objectives and “guiding principles” in mind, yet recognizes that trade-offs may be needed
  • Strives for stakeholder consensus where possible
ideal end state
Ideal End State
  • A highly competitive market attracts suppliers that offer a wide range of pricing and service options
  • Customers experience no degradation of reliability
  • DEO’s only regulated commodity service role is to act as short-term back-up for default
  • All existing LDC services that can be unbundled are unbundled and offered competitively
  • The class of customers that cannot or will not choose is nonexistent or extremely small
  • Customers understand their options, the implications of their choices and the consumer protections that are available
issues to be addressed
Issues To Be Addressed:

UP FRONT

  • How to maintain reliable commodity service
  • Transition from GCR to Standard Service Offer
  • Implications of disappearing GCR class
  • Nonpayment of unregulated commodity service
  • Customer communications

AT SOME POINT

  • Eliminating/minimizing “default customer” class
  • Revenue cycle services (metering, billing, A/R risk, …)
  • Expanded unbundling beyond revenue cycle services
customer communications
Customer Communications

Intend to make use of lessons learned from Energy Choice expansion

  • Involve Staff and OCC up-front
  • Conduct market research
  • Review materials in draft form
  • Extensive employee training (call centers critical)
  • Key topics:
    • Communicate nature and rationale for change
    • Address safety and service concerns
    • Assist customer decision-making process
    • Refer to PUCO and OCC resources
provider of last resort timeline discussed at 3 30 04 meeting
Provider-of-Last-Resort Timeline Discussed at 3/30/04 Meeting

STANDARD SERVICE OFFER

DEO RESPONSIBILITIES

Hourly

Daily

<1 Cycle

Monthly

<2 Cycles

  • Intra-Day Balancing

>2 Cycles

  • Daily Balancing
  • Single-Day Underdelivery
  • Multi-Day Underdelivery
  • Supplier Default
  • Monthly Balancing
  • Interim Commodity Service
incremental transition approach discussed at 3 30 04 meeting
Incremental Transition ApproachDiscussed at 3/30/04 Meeting

Phase I

Phase II

Phase III

  • Less insulation of GCR customers from market prices
  • Implement MBSSO for returning customers (EGC?)
  • Change handling of delinquent Choice customers – disconnect for nonpayment of supplier $ and return to prior supplier
  • Customer communication - Educate and motivate
  • CBP for initial service offer (fixed or variable rate) and MBSSO(*) (variable rate only)
  • Wholesale relationship between supplier & customer
  • Implement as 12 or 24-month pilot with intent to make permanent
  • Customer communication – Educate, motivate and comfort
  • (*) DEO for < 2 cycles? Single or multiple supplier?
  • CBP for more limited group(*) and MBSSO
  • Retail relationship between supplier & customer
  • Make transition permanent
  • Customer communication – Educate, comfort, consequences
  • (*) Intent may be to minimize pool size
transitional issue decisions
Transitional Issue Decisions(*)

(*) Bold-faced type reflect preliminary decisions

transitional issue thoughts
Transitional Issue Thoughts

SSO Customer Qualifications

  • No fundamental reason to treat PIPP customers as separate pool (could be continued if desired)
  • GCR customers that don’t choose should be included
  • Need to minimize reversion of Energy Choice customers still under contract to a marketer
  • Traditional transportation customers should only be provided access to a market-based SSO (MBSSO)
  • Customer qualifications may also depend on the nature of SSO service to be offered
transitional issue thoughts1
Transitional Issue Thoughts

Pilot Program or Permanent Change

  • DEO prefers to make transition as a permanent change but recognizes that other stakeholders may prefer a pilot approach
  • DEO willing to conduct program as a pilot – preferably lasting no more than 2 years - with expectation that it be made permanent
    • In other words, DEO would approach a pilot as if it were exiting the merchant function on a permanent basis
  • If transition is undertaken as a pilot, a decision about permanency must be made in second year of a 2-year pilot
  • DEO will perform a review in the second year to determine what additional changes may be warranted and will file that report
  • Decisions about specifics of Phase III approach will have to await the review of Phase II results
    • Unlikely to reach consensus about thresholds that must be reached before advancing to next phase
standard service offer structure
Standard Service Offer Structure
  • Presents the biggest challenge of all
  • No strong preference regarding wholesale or retail approach, but want multiple suppliers in either case

Wholesale:

Supply responsibilities for SSO customers outsourced via an RFP or auction process, DEO still shown as the commodity provider on the bill (similar to PIPP)

Retail:

Customers are provided SSO by supplier(s) identified on the bill who obtain random customers in bulk (i.e., not one at a time) via an RFP or auction process

  • Major Objective: Ensuring a smooth transition
desired sso attributes
Desired SSO Attributes
  • Must be highly reliable service backed by 100% comparable capacity throughout entire year
  • Primary role is to replace GCR service, not compete with Choice supplier offers
  • Price must be market based, uniformly applied and initially subject to PUCO approval:
    • If Fixed: Reflect NYMEX strip and basis at time (*)
    • If Variable: Tied to relevant and verifiable index
  • Must anticipate inaction by large # of customers
  • Returning customers not necessarily entitled to receive fixed price SSO (if offered) unless determined otherwise
  • Must be clearly communicated in advance of asking customers to choose

(*) Could be fixed for quarterly, seasonal or annual period

wholesale vs retail approach
Wholesale

Comparable to PIP outsourcing, but on larger scale

Minimizes change from GCR service

Could be used as a stepping stone to retail approach

May not diminish size of SSO pool by much

Continues Gross Receipts Tax vs. Sales Tax disparity

Retail

Gets closer to end state result by minimizing size of SSO pool

Moves customers more effectively to “full retail mode”

Some form of opt-out process could be used to address concerns about allocation of customers

Less chance of damage to Energy Choice program

May entice more suppliers

Wholesale vs. Retail Approach

Desired SSO attributes could be achieved by either approach, although in different ways

deo vs sso responsibilities
DEO vs. SSO Responsibilities
  • DEO is responsible for:
    • System dispatching and balancing
    • Back-up POLR service lasting less than two billing cycles using operational balancing assets:
      • Defaulting supplier’s on-system storage allocation also available
    • Curtailment plan execution (no fundamental changes needed)
  • Standard Service Offer is:
    • Treated much like any other Energy Choice pool
    • Responsible for deliveries into constrained areas (e.g., Cochranton, Woodsfield/Powhatan Point)
    • Subjected to 100% comparable capacity requirements all year
      • Will not count capacity if released on unrecallable basis
    • Provided by several suppliers through RFP or auction
    • Provided for an entire billing cycle
capacity contracting implications
Capacity Contracting Implications
  • To date, DEO has decontracted aggressively to eliminate stranded cost
  • Cannot sacrifice future reliability by premature/excessive decontracting or by leaving SSO supplier(s) ill-equipped to serve customers
  • ROFR issues important where capacity can be readily sold into other markets

Recommended Approach:

Recontract as if DEO were to remain in merchant function for remaining GCR customers and release capacity not needed for operational balancing to SSO supplier(s) at point of transition:

    • Reduces ROFR-related risks
    • DEO experience with capacity provides greater assurance of performance
    • Maintains ability to serve isolated areas (may need modification in Phase III)
    • Lack of on-system storage means reserve margin may be needed at West Ohio
revenue cycle issues
Revenue Cycle Issues
  • Enrollment sequence, file transfer process and billing options remain largely unchanged
    • DEO will establish marketer sub-group to address those issues, no changes required at transition point
    • Remittance of $ to suppliers to occur closer to bill due date than bill issue date
    • DEO considering prorated calendar month billing to accelerate enrollment process and synchronize billing & supply periods
    • Supplier consolidated billing issue put in “parking lot”
  • DEO given waiver to shut-off for non-payment of supplier commodity $ (No change in payment priority needed)
    • Marketer has option to take back customer under prior contract terms, otherwise customer must be reacquired as new enrollment
  • DEO continues to purchase A/R
    • 1% receivable discount revisited in light of shut-off option and bad debt tracker
3 tier wholesale approach
3-Tier Wholesale Approach
  • Initial Service Offer (fixed or variable price) provided by several suppliers selected via RFP and offered only to GCR customers(*) at the point of transition, price includes unrecovered gas cost (UGC)
  • No minimum stay obligation or true-up to actual price
  • If fixed, price will be adjusted at beginning of year 2

ISO

  • Market-Based Standard Service Offer (variable price based on first-of-month DTI-IF index + basis) offered by one or more suppliers and offered only to returning customers, with no UGC
  • MBSSO customers at beginning of year 2 can migrate to ISO

MBSSO

  • Provider of Last Resort for customers of defaulting supplier
  • MBSSO supplier(s) given option to serve immediately, with DEO as back-up for current and next billing cycle only using predetermined index-based pricing method

POLR

(*) New customers could be served by ISO or MBSSO

2 tier wholesale approach
2-Tier Wholesale Approach
  • Market-Based Standard Service Offer (variable price only) offered by several suppliers to:
    • GCR customersat the point of transition, price includes unrecovered gas cost (UGC)
    • Returning customers, with no UGC
    • New customers, with no UGC
  • Pricing likely to reflect value of storage for transitioning GCR customers due to greater certainty of requirements (unlike uncertainty associated with new and returning customers)
  • No true-up to actual price

MBSSO

  • Provider of Last Resort for customers of defaulting supplier
  • MBSSO supplier(s) given option to serve immediately, with DEO as back-up for current and next billing cycle only using predetermined index-based pricing method

POLR

retail variant
Retail Variant
  • Initial Service Offer (fixed or variable price) provided by several suppliers that successfully bid for GCR customers(*) at the point of transition, price includes unrecovered gas cost (UGC)
  • Customers provided opportunity to opt-out of service from selected supplier and receive MBSSO service instead
  • No minimum stay obligation or true-up to actual price

ISO

  • Market-Based Standard Service Offer (variable price only) offered on wholesale basis by one or more suppliers to:
    • GCR customers opting out of ISO, with UGC
    • Returning customers, with no UGC

MBSSO

  • Provider of Last Resort for customers of defaulting supplier
  • MBSSO supplier(s) given option to serve immediately, with DEO as back-up for current and next billing cycle only using predetermined index-based pricing method

POLR

(*) New customers could be served by ISO or MBSSO

recommendation wholesale vs retail
Recommendation: Wholesale vs. Retail
  • If stakeholders prefer incremental approach, wholesale model minimizes change from existing GCR service
  • Should recognize that retail model gets us closer to desired end state where suppliers have the customer, not merely the load
  • If wholesale model chosen, plan must include a date certain for the transition to a retail model
    • Avoids leaving the market with impression that GCR is simply being replaced with another LDC-supplied commodity service
  • 2-year time frame for wholesale approach preferred
    • Permits “tweaking” after year 1 prior to next transition phase
    • Gives suppliers greater certainty about progress toward end state
  • Retail variant could serve as potential Phase III approach if MBSSO pool doesn’t appreciably shrink by that time
recommendation 2 tier vs 3 tier
Recommendation: 2-Tier vs. 3-Tier
  • 2-Tier approach preferred over 3-Tier
    • Reduces complexity of transition for customers
    • Does not introduce another competitor into market
    • Single MBSSO less disruptive to Choice market
    • Smoother transition from GCR/EGC pricing
  • Issues/Challenges of single MBSSO approach
    • Consistency of CBP bids
      • Could use 1st of Month DTI Appalachian price as reference price
    • No fixed “price to compare”
    • Exposure to market volatility

No different than today’s GCR

possible rfp process
Possible RFP Process
  • Process could be similar to that used to outsource PIPP supply for last four years:
    • RFP terms and conditions developed in conjunction with Staff and OCC
    • Bid term could be for both one and two years
    • RFPs sent to both Choice and non-Choice marketers
    • DEO reserves right to reject any and all bids
    • Bids provided to Staff and OCC along with DEO recommendation
    • Selection of supplier(s) subject to PUCO approval
  • Electric CBP rules provide good starting point
    • If 2-tier wholesale approach taken, there would be no fixed-price offer
possible auction process
Possible Auction Process
  • DEO considering combination of PIPP Supply RFP and NJ BGS Auction processes as follows:
  • Use single-round PIPP-style RFP to solicit bids for full requirements slices or “tranches” of MBSSO load (EOG & WOG)
    • PIPP load - 10 Bcf (break into 2 tranches of 5 Bcf each)
    • GCR load - 80 Bcf (break into 16 tranches of 5 Bcf each)
    • Cap # of tranches awarded any one supplier (one-third of total or 6)
  • No need to treat PIPP class separately, but could award bid for first 10 Bcf to lowest price supplier(s) if desired
  • Could bid out half of load for 1-year term and other half for 2-year term to spread pricing risk
    • Specify reference index price and request bids in form of index-to-burner-tip basis with no true-up
    • Refresh bid for half of load prior to second year
  • Award in form of X% of remaining SSO load
    • Uniform price set at the market-clearing level
    • Migration and pricing risk borne entirely by supplier
background information new jersey auction process
Background Information: New Jersey Auction Process
  • NJ “reverse clock” auction for basic generation service (BGS) cited as possible approach for DEO exit process
    • Pre-qualified bidders compete to sell slices of full requirements SSO load or “tranches”
      • Maximum # of tranches per supplier specified in advance
    • Multiple-round auction begins at high end of price range as specified by regulator
    • As the price descends in subsequent rounds, # of tranches bid by suppliers decline (the lower the price, the lower the # of tranches bidders are willing to supply)
    • Auction ends when there are just enough bids remaining to supply entire SSO market at the going price for that round
    • Uniform price paid by SSO customers equals the final market-clearing price
rates and charges
Rates and Charges
  • Current operational balancing capacity cost $0.08-$0.10/Mcf
    • Compares to $0.099/Mcf for non-Choice transport
    • Offset by 91.75% comparable capacity requirement
  • Retention of year-round FTNN to make firm injections would increase rate by $0.02-$0.03/Mcf
  • Will have to reinstate Transportation Migration Rider at $0.021 level for estimated 12-24 months to cover customer education, computer system modifications and other costs
  • Will charge standard service offer supplier(s) $0.035/Mcf pooling fee and $5 switching fee after initial “switch” like other Energy Choice suppliers
  • Uncertain coverage of operational balancing inventory cost by cash outs, storage sales, etc. makes it impossible to estimate additional cost – net figure could be a credit after those offsets
operationally oriented timeline
Operationally Oriented Timeline(*)

(*) Process could be stretched out until 2005-Q4 at the latest

communications oriented timeline
Communications Oriented Timeline(*)

(*) Process could be stretched out until 2005-Q4 at the latest

timing issues
Timing Issues
  • Operationally oriented timeline would target April 1 exit to coincide with beginning of storage injection season
  • Communications oriented timeline would consider ability of call centers to handle customer inquiries
    • Would avoid customer communications during winter months, leading to Q2 or Q3 communications effort prior to actual exit 90-120 days later
  • Recommend communications oriented timeline to ensure ability to handle customer inquiries
    • Storage issues can be addressed in same manner as done for system-wide expansion of Energy Choice that occurred in 2000 Q4
operational issues
Operational Issues
  • Current State Summary
  • Future State Issues
  • Proposed Operation
current state supply timing
Current State - Supply Timing
  • Monthly enrollment deadline is 14th
  • Customer confirmation file posted next day
  • Comparable capacity requirements e-mailed following day
  • Comparable capacity assessed last few days of Oct-Feb (for Nov-Mar period)
  • Supply targets posted 2-4 days before 1st of next month (standard time frame)
  • Bills rendered beginning with Cycle 1 of the month following supply
  • Imbalance trading occurs 15-17th of following month
current state comparable capacity
Current State - Comparable Capacity
  • DEO verifies 91.75% comparable capacity
  • Assessed monthly during Nov-Mar period
  • Adjusted each month based on supplier’s enrollments
  • Sources include:
    • Interstate (DEO primary delivery point)
      • Only examine DEO city gate capacity
      • Non-recallable releases or FT-backed supply
    • Storage (ECPS allocation + any purchased)
      • Adjusted based on storage inventory
    • Local production (Dedicated or LPPS)
current state balancing
Current State - Balancing
  • Choice pools are daily balanced
  • Targets posted 2-4 days in advance, less if OFOs
    • Targets based on equations developed for each pool’s customers
    • DEO open to supplier forecasting suggestions
  • Annual true-up if comparing supply to billed use
  • Monthly true-up available using “unbilled volumes”
    • Long/short positions available for imbalance trading with ECPS and FRPS pools
    • Adjust storage inventory within contractual limits
    • Cash out using DTI South Point plus variable cost
current state default protection
Current State - Default Protection
  • DEO does not retain a reserve margin in anticipation of potential default
  • DEO’s on-system storage enables it to quickly react to supply shortfalls, but within limits
  • In event of supplier default, DEO can utilize:
    • On-system storage assigned to that supplier
    • Operational balancing capacity held for that supplier’s customers
    • Operational balancing capacity held for other pools/customers
    • Idle GCR capacity (if any)
  • DEO views OFO as measure of last resort
current state balancing assets
Current State - Balancing Assets

(*) 15.5% of design day usage, 25% on-system/75% GSS/FSS

Potential storage overrun commitment equals 110 MDt/d

operational issues1
Operational Issues
  • How do we maintain system reliability with DEO no longer in the GCR business?
  • What capacity does DEO need to retain in its role as system operator?
  • Is a reserve margin needed?
  • Does anything change in Energy Choice?
  • How does DEO recover the costs it incurs as system operator?
    • Operational balancing capacity, Storage inventory, UFG, Unrecovered gas costs, Cash outs
future state lack of gcr class
Future State – Lack of GCR Class
  • No system-supply assets to redeploy if pools don’t nom gas to right locations in right quantities at the right time (e.g., Cochranton)
  • GCR class cannot act as “sponge” to absorb daily imbalances beyond operational balancing capabilities
  • No GCR class available to “fund” certain activities:
    • Unrecovered gas cost remaining from prior periods
    • Procurement of operational balancing inventory
    • Purchases/sales of storage-in-place, cash outs
    • Difference between estimated and actual UFG
    • Storage migration
future state balancing assets
Future State - Balancing Assets

(*) 15.5% of design day usage, 25% on-system/75% GSS/FSS

Potential storage overrun commitment equals 180 MDt/d

what can stay the same
What Can Stay The Same

Supply Timing and Balancing

  • Customer enrollment and initial supply timing
    • May need to stagger deliveries for large enrollments
  • Use of individual pool usage equations
    • DEO still open to supplier forecasting suggestions
  • Daily balancing to target with monthly true-up
  • Opportunity for daily/monthly imbalance trading
    • Including monthly true-up options
what can stay the same1
What Can Stay The Same

Supply Sources and Comparable Capacity

  • “No fee” access to on-system storage
    • Operating parameters will be updated
  • Ohio production nom & true-up procedure
    • 6-week production period issue has been addressed
  • Interaction with other pools
  • Comparable capacity approach
    • Linked to operational balancing capacity
    • DEO concerned about Apr/Oct and lack of pre-winter assessment of heating season capacity
what can stay the same2
What Can Stay The Same

Default Protection and Cost Recovery

  • Ability to access on-system storage assigned to defaulting supplier
  • Ability to access operational balancing capacity in event of default
  • OFO viewed only as last resort
  • Continued collection of Choice program cost via rider
    • New customer communication costs will be incurred
    • Other implementation costs are highly likely
      • Primarily billing and EBB systems
what might have to change
What Might Have To Change

Supply Timing and Balancing

  • 2-4 day lead-time for posting targets
    • Can DEO afford such a long lead-time?
    • Should a rolling temperature true-up feature be added?
  • Annual true-up if comparing to billed volumes
    • Can imbalances be carried for 12 months?
what might have to change1
What Might Have To Change

Supply Sources and Comparable Capacity

  • Lack of point-specific nom requirements
    • Can DEO continue to rely on “requests?”
    • Would a default provider have the assets needed to avoid such requirements?
  • Allocation of constrained points
    • Will current or future changes in base load usage require changes to % allocations?
  • Comparable capacity evaluations
    • Should the months or % be changed?
    • Should DEO require a winter capacity plan?
what might have to change2
What Might Have To Change

Default Protection and Cost Recovery

  • Does DEO need to consider maintaining a reserve margin since it won’t have as many assets to back-stop a potential supplier default?
  • Should we use another method to address remaining unrecovered gas cost if DEO exits the merchant function entirely?
what has to change
What Has To Change
  • On-system storage operating parameters need to be adjusted because flexibility provided by GCR class is no longer available
  • Cost recovery mechanisms must change to reflect elimination of GCR class, e.g.
    • Fuel retention
    • Operational balancing inventory cost, including interest
    • Cash outs (including storage buy/sell)
    • Storage migration
provider of last resort timeline
Provider-of-Last-Resort Timeline

STANDARD SERVICE OFFER

DEO RESPONSIBILITIES

Hourly

Daily

<1 Cycle

Monthly

<2 Cycles

  • Intra-Day Balancing

>2 Cycles

  • Daily Balancing
  • Single-Day Underdelivery
  • Multi-Day Underdelivery
  • Supplier Default
  • Monthly Balancing
  • Interim Commodity Service
deo vs sso responsibilities1
DEO vs. SSO Responsibilities
  • DEO is responsible for:
    • System dispatching and balancing
    • Back-up POLR service lasting less than two billing cycles using operational balancing assets:
      • Defaulting supplier’s on-system storage allocation also available
    • Curtailment plan execution (no fundamental changes needed)
  • Standard Service Offer is:
    • Treated much like any other Energy Choice pool
    • Responsible for deliveries into constrained areas (e.g., Cochranton, Woodsfield/Powhatan Point)
    • Subjected to 100% comparable capacity requirements all year
      • Will not count capacity if released on unrecallable basis
    • Provided by several suppliers through RFP or auction
    • Provided for an entire billing cycle
features retained with minor changes
Features Retained With Minor Changes
  • 91.75% comparable capacity requirement for Nov-Mar period
    • Linked to operational balancing capacity
    • Will add pre-winter review for Nov-Mar period
    • Will add April and October assessments
  • 2-4 day lead-time for posting targets
    • Will consider updating targets on weekends
  • No point-specific noms required outside West Ohio
    • May need modification in Phase III
features requiring further review
Features Requiring Further Review
  • Lack of any reserve margin
    • Linked to operational balancing capacity
    • None contemplated for East Ohio at this time
    • Will consider need at West Ohio
  • Operational balancing requirements
  • Constrained point allocation
  • On-system storage injection/withdrawal operation
    • Injection limitations
    • Inventory levels (summer & winter)
    • Ratchet provisions
supply related changes
Supply-Related Changes
  • Require pro rata deliveries in first month following large enrollment (>10,000 customers)
  • Require monthly true-up once imbalance exceeds a predetermined level (>100,000 Mcf)
storage related changes
Storage-Related Changes
  • Update parameters (e.g., 35% ratchet point)
  • Eliminate flexibility to buy/sell within range
    • Sell to DEO only to high-end of range (*)
    • Buy from DEO only to low-end (*)
  • Summer-period operation
    • Require purchase-in-place if new interim targets not met (1st of month DTI S. Point + variable cost)
  • Winter-period operation
    • Introduce 11/30 required inventory range
  • Provide for operational sales of storage

* Exceeded only at DEO’s discretion

cost recovery changes
Cost Recovery Changes

Unrecovered Gas Cost

  • Continue same approach (i.e., bill for 1st 12 months) upon transition to SSO
  • Bill at fixed rate based on remaining balance and estimated 12 month volumes at point of transition
    • No GCR means no quarterly adjustments to UGC
  • Cap UGC rate ($1.00 max?) and bill/credit remaining balance 12 months after transition to entire SSO/Choice class through Transportation Migration Rider
cost recovery changes1
Cost Recovery Changes

Fuel Retention

  • Establish tracking mechanism like interstate pipelines:
    • Adjust UFG % - affects cost of supplies
    • Surcharge - affects cost of transportation
    • Fixed UFG % + reconciliation mechanism
  • Last option preferred because it provides greater certainty for supplier operations while ensuring adequate cost recovery
    • Update rate prior to issuing RFP for SSO
    • Consider differentiating rate by class
cost recovery changes2
Cost Recovery Changes

Operational Balancing Capacity

  • Continue to collect capacity cost via rider
  • Expand rider coverage to include inventory-related cost
  • Inventory cost collection must recognize carrying cost currently recovered via GCR
  • Offset cost of purchases with ECPS storage sales, cash-out proceeds and operational sales of storage inventory (subject to audit)
cost recovery changes3
Cost Recovery Changes

Storage Migration

  • Establish tracking mechanism to recognize changing volume and price associated with storage migration
    • Implement storage fuel retention % to recover storage compression and migration
    • Include proportionate amount in:
      • Operational balancing cost rider
      • Fuel retention treatment (as company use)
  • Prefer last option until full unbundling since storage migration is similar in nature to company use
summary possible operational changes
Summary: Possible Operational Changes

Features Retained With Minor Changes

  • Comparable capacity assessment
  • Target posting timing and process
  • Nom flexibility

Features Requiring Further Review

  • Reserve margin
  • Operational balancing requirements
  • Constrained point allocation
  • On-system storage requirements
summary required operational changes
Summary: Required Operational Changes

Supply-Related

  • Pro rata deliveries after large enrollments
  • Monthly true-up if large imbalance

Storage-Related

  • Update parameters
  • Less buy/sell flexibility
  • Summer/winter inventory targets
  • Operational sales option
summary required cost recovery changes
Summary: Required Cost Recovery Changes

Unrecovered Gas Cost

  • 12-month billing at fixed rate
  • Bill out remainder to SSO/Choice class

Fuel Retention

  • Fixed UFG + reconciliation mechanism

Operational Balancing Capacity

  • Include inventory and cash out related costs

Storage Migration

  • Treat as company use
contacts
Contacts
  • For more information contact:

Jeffrey A. Murphy

216-736-6376

[email protected]

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