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Index-based Capacity Release – Parameters and Examples

Index-based Capacity Release – Parameters and Examples. William M. Griffith El Paso Western Pipelines August 2007. Index-Based Capacity Release. The release of capacity may be based on an identified index price (a posted gas or electric value)

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Index-based Capacity Release – Parameters and Examples

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  1. Index-based Capacity Release – Parameters and Examples William M. Griffith El Paso Western Pipelines August 2007

  2. Index-Based Capacity Release • The release of capacity may be based on an identified index price (a posted gas or electric value) • The releasing shipper must specify an index-based release • Minimum rate (not less than TSP min rate) • Maximum rate (not more than TSP max rate) • Index Price(s) to be used (may include a formula) • Index prices are usually the value of the commodity • Natural Gas – $/Dth or $/MMBtu • Electricity - $/MWH

  3. Index-Based Capacity Release • Index Prices • More than seven gas and electric index sources • Three of the more common gas index price sources • Natural Gas Intelligence (NGI) • Inside FERC (IF) • Gas Daily (GD) • Price Terms (general usage) • Natural Gas - $/Dth or $/MMBtu (Index Price) • Electricity - $/MWH (Spark Price) • Spark Price (less ops costs)/Heat Rate = Index Price • Spark Spread – The difference in a Spark Price and an Index Price • Basis (B) – the difference between an Index Price and the Henry Hub Index Price

  4. Index-Based Capacity Release • Index Releases – common usage • A single Index Price or Basis Price • A percentage of an Index Price or Basis Price • The difference (or “spread”) between two (or more) Index Prices • A percentage of the spread between two (or more) Index Prices • Index/Basis Price references (low, high, average, etc.) • First of the month • Bid Week Average (BW) • Mid-point averages • Daily (D , for example GDD)

  5. Index-Based Capacity Release – Example 1 • Index Release Parameter Examples (Limited to TSP min/max rate) • Monthly Release Index Pricing • ((NGIBW (California Southern Border, Socal) – IFBW (NWP Rocky Mts)) – ((TSP Fuel Percent * IFBW (NWP Rocky Mts)) + TSP commodity charge + TSP commodity surcharge )) * 100%

  6. Index-Based Capacity Release – Example 1 • Parameters • NGIBW (California Southern Border, Socal) =$5.49 • IFBW (NWP Rocky Mts)= $3.71 • TSP Fuel Percent * IFBW (NWP Rocky Mts)= 1.2% * $3.71 = $0.0445 • TSP commodity charge = $0.25 • TSP commodity surcharge = $0.05 • Calculation ($5.49 – $3.71) - ($0.0445 + $0.25 + $0.05) = $1.4155

  7. Index-Based Capacity Release – Example 2 • Monthly Release with Basis Pricing • (NGBWB (Iroquois zone 2) - (TSP Monthly Fuel Rate * IFBWB (Henry Hub) + TSP Commodity Chg + TSP ACA) - $0.05/Dth • Optional minimum floor will be $0.00/Dth

  8. Index-Based Capacity Release – Example 2 • Parameters • NGBWB (Iroquois, zone 2) = $0.692 • TSP Monthly Fuel Rate * IFBWB (Henry Hub) = 2.1% * 6.11 = $0.1283 • TSP Commodity Chg = $0.33 • TSP ACA = $0.03 • Calculation $0.692 – ($0.1283 + $0.33 + $0.03) - $0.05 = 0.1537

  9. Index-Based Capacity Release – Example 3 • Index Release with Daily Pricing (August 30, 2007) • (((GDD (Socal Gas - midpoint) – GDD (Kern River, Opal Plt - midpoint)) - ((TSP Fuel Percent * GDD (Kern River, Opal Plt -midpoint)) + TSP commodity charge + TSP commodity surcharge))-0.05)*50%

  10. Index-Based Capacity Release– Example 3 • Parameters • GDD (Socal Gas - midpoint) = $5.49 • GDD (Kern River, Opal Plt - midpoint) = $3.37 • TSP Fuel Percent * GDD (Kern River, Opal Plt -midpoint) = 1.9% * 3.37 = $0.0640 • TSP commodity charge = $0.29 • TSP commodity surcharge = $0.0307 • Calculation for 8/30/07 (($5.49 - $3.37) – ($0.0640 + $0.29 + $0.0307) - $0.05) * 50% = $0.8427

  11. Index-Based Capacity Release– Example 4 • Original Contract • Shipper ABC • Capacity from Permian Basin (A) to California Border • Entitlement – 50,000 Dth/d • Rates: full tariff rate (daily) • Reservation – $0.3650 (Tariff Max) • Commodity • San Juan - $0.0260 • Permian - $0.0435 • Fuel • San Juan – 3.59% • Permian - 3.59%

  12. Index-Based Capacity Release– Example 4 • Release Terms • ABC releases a portion of contract based on index prices • Offer Minimum/Award • Quantity: 10,000 Dth • Rate: 100% max reservation (net) • Term: One Month

  13. Index-Based Capacity Release– Example 4 • Release Terms (continued) • Value to be trued up based on a 100% load factor rate • The difference between NGIBW (SoCal Border) posted in Natural Gas Intelligence and • Prices of Spot Gas delivered to Pipelines posted in Inside FERC Gas Market Report’s first issued each month for • SJ Basin • Permian Basin • Less variable costs (commodity) and fuel

  14. Index-Based Capacity Release– Example 4 • Release Terms (continued) • Rate adjustment to include • 70% SJ Basin price • 30% Permian price • Replacement shipper pays any positive result • Releasing shipper reimburses any negative amount up to demand charge • Other requirements • Total reservation rate not to exceed the monthly maximum tariff rate • Total reservation rate not to be less than the monthly minimum tariff rate

  15. Index-Based Capacity Release– Example 4 Release Terms (continued) • Special Terms – continued • Releasing Shipper • Perform the determination of the monthly reservation rate for the release based on the release formula • Determination must be complete and provided to the TSP by the 5th business day of the following month • Releasing Shipper is solely responsible for the accuracy of the calculated rate • Replacement shipper disputes regarding rate issues should be resolved with the releasing shipper

  16. Index-Based Capacity Release– Example 4 • Index details (as posted for the appropriate day) • SoCal Border $2.95 • San Juan $2.69 • Permian $2.79

  17. Implementation of Index Prices Terms

  18. Index-Based Capacity Release • Summary • Index/Basis Prices • Choice of multiple sources • Index postings are proprietary (access issues for TSP) • Nearly infinite Index/Basis Price formula requirements • Combinations (index prices, basis prices, spark spreads) • Percentages and/or formulae • Index/Basis Price reversals • Release issues • Terms are administratively feasible • Terms are non-discriminatory • Settlement issues • Reservation determination available prior to TSP invoicing date • Daily Index releases require a weighted average invoice price • Calculated rate disputes – responsibility for rates/billing amounts

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