Indexbased Capacity Release Parameters and Examples

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 Reports 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