Background Considerations, Special Efforts Scheduling Services for Natural Gas Pipeline Transportation
Date: July 20, 2016
Prepared by: Skipping Stone & EDF
Re: NAESB Business Practices Standards Request R16003
Filed by: Skipping Stone, Environmental Defense Fund
This memorandum provides some background thoughts in support of the above-referenced standards request.
For the most part pipelines sell three distinct but associated Transportation services. They are:
1)Receipt Capacity
2)Transmission capacity (moving gas instantaneously from location X to location Y); and,
3)Delivery capacity.
Those pipelines with Storage assets that sell Storage service also sell three distinct but associated Storage services. They are:
1)Injection (receipt capacity)
2)Storage Capacity (moving gas from time A to time B at location Z)
3)Withdrawal capacity (delivery capacity)
At present, with respect to Transportation services, most, if not all of the compensation a pipeline receives is related to the sales of #2 above, i.e., Transmission service or charges for location to location Transportation services. While there are some services on pipelines that explicitly provide non-uniform deliveries and value these services accordingly, such explicit permitted variations are the exception. With respect to Transportation service, in our view, this results in an understatement of the value of the other two services to both the pipeline and the shipper.
On the other hand, with respect to Storage services,pricing better reflects value. With Storage services, the rate of receipt (injection) is priced, as is the rate of delivery (withdrawal). In many cases, it is precisely the rates of these two services relative to the Storage “holding” or “capacity over time” service that is the most valuable service to different shippers. By way of example, for some shippers there is a different value accorded to 50 day, 100 day and 151 day withdrawal services. Likewise, for other shippers it is the injection service (relative to storage capacity) that is the most valuable. And, for still others it is both the relative injection and withdrawal rates relative to Storage capacity that combined, constitute the value of the service.
For Transportation service, the lack of specificity as to the pricing of the rate (i.e., quantity per hour or day) of receipt at locations as well as the rate (again quantity per hour or day) of delivery at locations leaves the pipeline with only one service to which it attaches a price, that being the Transmission service.
By way of example only, at present, many pipelines’ contractswith LDC’s provide for deliveries to those LDCs’ multiple locations that are aggregated into one virtual or “aggregation point” to which the Maximum Daily Transportation Quantity (MDTQ) applies. Implicit in this practice is the ability of the LDCs to take up to their MDTQ in total yet across a multitude of physical locations. This diversity of deliverability is implicitly an hourly variability at an individual physical location.
This diversity and locational hourly variability is a service that LDCs and pipelines have come to expect and rely on and is ultimately “bundled” in the service that the LDCs have been provided for decades and for which they have subscribed.
The proposal by EDF and Skipping Stone does not seek in any way to undo the diversity that many LDCs enjoy under many of their contracts; but rather to start the process of providing and deriving the benefits of variable flow, by means of the nominations and related processes under mutually agreeable terms on a short term transactional basis, to others. As we have stated, making that similar variability of service available to other parties on a short-term and priced transaction basis will bring forth both competition and innovation.
One example, and one of the simplest ways to provide suchvariable receipt and/or delivery service, would be under a type of Shaped PAL transaction. Just for illustrative purposes, for instance, a Shaped PAL or S-PAL could be a means of implementing a shipper’s requested shaped service. In this regard, it would be our recommendation that this shaping transaction be defined as”Mutuallyagreeable” and distinguished from more typical PAL service. As such, it (i.e., S-PAL) would be reported as a distinct type of transaction. Doing so, and distinguishing it from typical PAL,would provide market participants a means toassess the extent and timing of demand as well as availability and timing of supply for this type of service.
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