PIPELINE IMBALANCE ISSUES AND RESPONSES
| Jurisdiction | United States |
(2001)
PIPELINE IMBALANCE ISSUES AND RESPONSES
DUKE ENERGY GAS TRANSMISSION
[Page 2B-1]
I. GENESIS OF CURRENT ISSUES ON IMBALANCES
• PRIOR TO UNBUNDLING UNDER ORDER NO. 636, INTERSTATE GAS PIPELINES ACTED IN LARGE PART AS BUNDLED MERCHANTS OF GAS.
• IN THIS ROLE AS A PURCHASER AND SELLER OF NATURAL GAS, INTERSTATE PIPELINES AND THEIR CUSTOMERS DID NOT HAVE TO FACE THE TYPES OF ISSUES THAT ARE OF SIGNIFICANCE TODAY—PAYMENT RELATED TO IMBALANCES AWAITED RESOLUTION.
• TO THE EXTENT THAT PIPELINES WERE ENGAGED IN TRANSPORTATION OR EXCHANGE ARRANGEMENTS, IMBALANCES WERE, FOR THE MOST PART, DEALT WITH ON AN INDIVIDUAL CONTRACT BASIS (FOR EXAMPLE WITH PIPELINE-TO-PIPELINE EXCHANGES).
• IN THE PRE-ORDER NO. 636 DAYS, RESOLUTION OF IMBALANCES DID NOT OCCUR NECESSARILY AT THE END OF EACH MONTH.
• TO THE EXTENT THAT PIPELINES WERE ENGAGED IN TRANSPORTATION OR EXCHANGE ARRANGEMENTS, IMBALANCES WERE, FOR THE MOST PART, DEALT WITH ON AN INDIVIDUAL CONTRACT BASIS (FOR EXAMPLE WITH PIPELINE-TO-PIPELINE EXCHANGES).
[Page 2B-2]
• IN THE PRE-ORDER NO. 636 DAYS, RESOLUTION OF IMBALANCES DID NOT OCCUR NECESSARILY AT THE END OF EACH MONTH.
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II. A MAJOR CHANGE IN THE INDUSTRY—ORDER NO. 636
• WITH ORDER NO. 636, INTERSTATE NATURAL GAS PIPELINES WERE DIRECTED TO UNBUNDLE THEIR SALES, TRANSPORTATION, AND STORAGE FUNCTIONS AND PROVIDE OPEN ACCESS SERVICE UNDER EACH OF THESE FUNCTIONS.
• AMONG OTHER THINGS, THIS UNBUNDLING MEANT THAT PIPELINES HAD TO DEVISE NEW METHODS TO DEAL WITH THE FUNDAMENTAL FACT THAT INDIVIDUAL CUSTOMERS AND THEIR SUPPLIERS COULD AFFECT IN A SIGNIFICANT WAY BOTH PIPELINE OPERATIONS GENERALLY AND THE ABILITY OF OTHER CUSTOMERS TO RECEIVE THE SERVICES FOR WHICH THEY HAD CONTRACTED.
• EXAMPLES OF THE TYPES OF MECHANISMS THAT AROSE TO DEAL WITH THE IMBALANCE ISSUE INCLUDED:
o PREDETERMINED ALLOCATIONS ON THE SUPPLY SIDE
o CASHOUT MECHANISMS WHICH RESULTED IN RESOLUTION ON A MONTHLY BASIS.
o OPERATIONAL BALANCING AGREEMENTS.
o AGGREGATION BALANCING SERVICES, BOTH ON THE SUPPLY SIDE AND ON THE MARKET SIDE.
[Page 2B-4]
III. POST-ORDER NO. 636 ISSUES
• AS EVIDENCED BY COMMISSION ORDERS ISSUED IN THE POST-ORDER NO. 636 ERA, THE METHODS ORIGINALLY ADOPTED TO DEAL WITH IMBALANCES ON PIPELINES WERE NOT TOTALLY EFFECTIVE IN RESOLVING IMBALANCES.
• CASHOUT MECHANISMS THAT HAD BEEN ADOPTED IN ORDER NO. 636 CASES DID NOT DETER "GAMING OF THE SYSTEM" OR ARBITRAGE BASED ON THE PRICE OF GAS FROM TIME-TO-TIME.
• THE FERC ENTERTAINED AND APPROVED REFINEMENTS TO VARIOUS PIPELINE CASHOUT MECHANISM TO DETER ARBITRAGE AND AID PIPELINES IN AVOIDING IMBALANCES CAUSED BY CUSTOMER ACTIVITY.
[Page 2B-5]
IV. ORDER NO. 637
• IN ORDER NO. 637, THE COMMISSION ANNOUNCED AN INITIATIVE TO FURTHER ADDRESS ARBITRAGE AND PLACE RESOLUTION OF IMBALANCES ON A SERVICE-ORIENTED, RATHER THAN A COMMAND AND CONTROL APPROACH.
• UNDER ORDER NO. 637, PIPELINES ARE REQUIRED TO FILE THEIR INDIVIDUAL PROPOSALS.
• SOME OF THESE PROPOSALS HAVE NOW BEEN ADDRESSED AND APPROVED BY THE FERC; SOME ARE STILL TO BE RESOLVED.
• THE PROPOSALS TO ADDRESS THE NEED TO GO TO A SERVICE-ORIENTED APPROACH INCLUDE:
o CASHOUT WHICH IS BASED ON A TIME PERIOD SHORTER THAN A MONTH.
o A ROLL-IN PERIOD CASHOUT.
o CHANGES IN THE CASHOUT TIERING MECHANISM.
o CHANGES IN THE PRICE AT WHICH IMBALANCES ARE CASHED OUT.
• THE CASHOUT ISSUE IS INTERRELATED WITH OTHER ISSUES RAISED BY ORDER NO. 637, INCLUDING SEGMENTATION, PENALTIES, AND OPERATIONAL FLOW ORDERS.
[Page 2B-6]
Rocky Mountain Mineral Law Foundation
Pipeline Imbalance Issues and Responses
Richard J. Kruse
Sr. Vice President
Duke Energy Gas Transmission
December 6, 2001
[Page 2B-7]
Theory
"Pipeline shall transport and deliver for Customer's account, .................... such daily quantities tendered up to such Customer's MDQ"
[Page 2B-8]
Reality
Imbalances Happen !
| 100 Nominated———— > | 100 Nominated |
| 95 Received———— > | 105 Delivered |
[Page 2B-9]
How are Imbalances Allocated?
• Single Shipper at the Point
— Easy Allocation
• Challenge is when you have Multiple Shippers
[Page 2B-10]
How are Imbalances Allocated?
Tools Used to Allocate Imbalances Among Multiple Shippers
— Pre-Determined Allocations
— Rankings
— Operational Balancing Agreements
[Page 2B-11]
PDA Example
PDA: Prorata
Date: 12/5/01
Operator Name Big Oil & Gas Co, Inc
Receipt Location 50002 Stella #1
| Contract | Shipper | Schedule Qty | Allocated Qty |
| 888881 | ABC Co. | 200 | 211 |
| 888883 | DEF Co. | 300 | 317 |
| 888885 | GHI Co. | 100 | 106 |
| 888886 | JKL Co. | 500 | 528 |
| Meter Total | 1100 | 1162 |
PDA: Contract Swing
Date: 12/5/01
Operator Name Big Oil & Gas Co, Inc
Receipt Location 50002 Stella #1
| Contract | Shipper | Schedule Qty | Allocated Qty |
| 888881 | ABC Co. | 200 | 200 |
| 888883 | DEF Co. | 300 | 300 |
| 888885 | GHI Co. | 100 | 100 |
| 888886 | JKL Co. | 500 | 562 |
| Meter Total | 1100 | 1162 |
[Page 2B-12]
OBA Allocation Example
Point Imbalance Example
Imbalances with an OBA
Date: 12/5/01
Operator Name Big Oil & Gas Co, Inc
Receipt Location 50002 Stella #1
| Contract | Shipper | Schedule Qty | Allocated Qty |
| 888881 | ABC Co. | 200 | 200 |
| 888883 | DEF Co. | 300 | 300 |
| 888885 | GHI Co. | 100 | 100 |
| 888886 | JKL Co. | 500 | 500 |
| 100000 | OBA | 0 | 62 |
| Meter Total | 1162 |
[Page 2B-13]
Imbalances at Virtual Points
[Page 2B-14]
New Tools to Manage Imbalances
Netting and Trading
Park and Lend
[Page 2B-15]
[Page 2B-16]
Park and Loan (Park)
[Page 2B-17]
[Page 2B-18]
How are Imbalances Resolved?
In-Kind Resolution
Monetary Resolution
[Page 2B-19]
Resolution of Imbalances at Virtual Points
[Page 2B-20]
Resolution of Imbalances at Virtual Points — Force Balanced
[Page 2B-21]
Monetary Resolution
• Benefits of Monetary Resolution
— Certainty
— Timeliness
— Accuracy
• Challenges with Monetary Resolution
— Arbitrage
[Page 2B-22]
Cash-Out
• Monetary Resolution of Imbalances
— Imbalance Volumes are cashed-out after the end of the month
— Cash-out Prices are based on an Index Price that is published in trade publications.
Imbalance Volume (Dth)×Average of the Daily Index Index=Cash-out Price
• Cash-out may be Due Pipe or Due Shipper
• If Imbalance Volume exceeds threshold the Shippers Cash-out exposure can increase.
• Opportunity for Arbitrage exists.
[Page 2B-23]
Alternatives to Current Cash-Out
Daily
Weekly
??
[Page 2B-24]
Monthly Cash-out Pricing
| Date | Imbalance | Mid Point Index Price |
| Feb 1, 2001 | $ 6.275 | |
| Feb 2, 2001 | $ 7.035 | |
| Feb 3, 2001 | $ 7.035 | |
| Feb 4, 2001 | $ 7.035 | |
| Feb 5, 2001 | $ 6.200 | |
| Feb 6, 2001 | $ 5.955 | |
| Feb 7, 2001 | $ 6.110 | |
| Feb 8, 2001 | $ 6.655 | |
| Feb 9, 2001 | $ 6.659 | |
| Feb 10, 2001 | $ 6.659 | |
| Feb 11, 2001 | $ 6.659 | |
| Feb 12, 2001 | $ 6.105 | |
| Feb 13, 2001 | $ 6.065 | |
| Feb 14, 2001 | $ 6.375 | |
| Feb 15, 2001 | $ 5.855 | |
| Feb 16, 2001 | $ 5.855 | |
| Feb 17, 2001 | $ 6.110 | |
| Feb 18, 2001 | $ 6.110 | |
| Feb 19, 2001 | $ 6.110 | |
| Feb 20, 2001 | $ 6.110 | |
| Feb 21, 2001 | $ 5.700 | |
| Feb 22, 2001 | $ 5.890 | |
| Feb 23, 2001 | $ 5.635 | |
| Feb 24, 2001 | 100 DP | $ 5.540 |
| Feb 25, 2001 | 100 DP | $ 5.540 |
| Feb 26, 2001 | 100 DP | $ 5.540 |
| Feb 27, 2001 | 100 DP | $ 5.560 |
| Feb 28, 2001 |
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