dominion east ohio merchant function exit transition plan working draft
TRANSCRIPT
Dominion East Ohio Merchant Function Exit Transition Plan
Working Draft
2
Plan Outline
Fundamental Issues
Transition Approach
Operational Features
Fundamental Issues
4
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
5
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
6
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
7
“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
8
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 implementationPhases I and II - Described in considerable detailPhase III - Provides direction with fewer detailsEnd 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
9
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
10
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
11
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
Transition Approach
13
Provider-of-Last-Resort Timeline Discussed at 3/30/04 Meeting
Hourly Daily <1 Cycle Monthly <2 Cycles• Intra-Day Balancing
• Daily Balancing
• Multi-Day Underdelivery
• Single-Day Underdelivery
• Supplier Default
• Monthly Balancing
DEO RESPONSIBILITIESSTANDARD SERVICE OFFER
>2 Cycles
• Interim Commodity Service
14
Incremental Transition ApproachDiscussed at 3/30/04 Meeting
1. Less insulation of GCR customers from market prices
2. Implement MBSSO for returning customers (EGC?)
3. Change handling of delinquent Choice customers – disconnect for nonpayment of supplier $ and return to prior supplier
4. Customer communication - Educate and motivate
1. CBP for initial service offer (fixed or variable rate) and MBSSO(*) (variable rate only)
2. Wholesale relationship between supplier & customer
3. Implement as 12 or 24-month pilot with intent to make permanent
4. Customer communication – Educate, motivate and comfort
(*) DEO for < 2 cycles? Single or multiple supplier?
1. CBP for more limited group(*) and MBSSO
2. Retail relationship between supplier & customer
3. Make transition permanent
4. Customer communication – Educate, comfort, consequences
(*) Intent may be to minimize pool size
Phase I Phase II Phase III
15
Transitional Issues Discussed at 3/30/04 Meeting
Standard Service Offer
Needed or not
Which customers qualify for it
Retail or wholesale relationship
Single or multiple supplier
Transition: Timing
Period
Type
Approach
Higher migration % “nice” or critical
Shorter transition period or longer
Pilot program or permanent change
Incremental or immediate
Customer Communication Transparent or highly visible change
Customer Exposure to Market Volatility
Minimize or maximize customer exposure to volatile gas prices
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Transitional Issue Decisions(*)
Standard Service Offer
Needed
Which customers qualify for it
Retail or wholesale relationship
Multiple suppliers
Transition: Timing
Period
Type
Approach
Higher migration % “nice”
Shorter transition period
Pilot program or permanent change
Incremental
Customer Communication Visible change
Customer Exposure to Market Volatility
Minimize or maximize customer exposure to volatile gas prices
(*) Bold-faced type reflect preliminary decisions
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Rationale for Transition Decisions
Standard Service Offer Many of DEO’s remaining 500,000 GCR customers won’t act even if given every reason to do so
# of Suppliers Multiple suppliers lessen risk and impact of default by single player
Transition Timing Near-60% migration provides adequate point of departure, no need to wait for more
Transition Period Once decision is made and steps are taken to inform customers/suppliers, delays or prolonged transitions serve no purpose and might even be harmful
Transition Approach Incremental approach serves best interest of customers and lessens implementation risk
Customer Communication Customers should be well-informed about the upcoming changes
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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
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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
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Standard Service Offer Structure
Presents the biggest challenge of all No strong preference regarding wholesale or retail
approach, but want multiple suppliers in either caseWholesale: 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
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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
22
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
Desired SSO attributes could be achieved by either approach, although in different ways
23
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
24
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 marketsRecommended 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
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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
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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
MBSSO
POLR
• 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
• 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
(*) New customers could be served by ISO or MBSSO
27
2-Tier Wholesale Approach
MBSSO
POLR
• Market-Based Standard Service Offer (variable price only) offered by several suppliers to:
• GCR customers at 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
• 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
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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
MBSSO
POLR
• 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
• 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
(*) New customers could be served by ISO or MBSSO
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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
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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
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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
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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
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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
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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
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Cost Recovery Issues
Component Current Recovery Current Rate Future Recovery Future Rate
Operational Balancing Capacity
Transportation Migration Rider (TMR)
$0.08-$0.10/Mcf Same Increase $0.02-$0.03/Mcf
Operational Balancing Inventory
GCR & ECPS storage sales
LIFO rate (GCR),
DTI index-based rate (ECPS)
Off-system sales, cash outs, ECPS storage sales
DTI index-based rate
UFG GCR and fuel retention %
3.1% Fuel retention % plus tracker
No impact on rate from exit
UGC AA/BA/RA & TMR for 12 months
Varies with each GCR filing
Fixed rate for 12 months to former GCR customers
Capped at +/- $1.00, reconcile after 12 months
Cash Outs $ credited to GCR DTI index-based rate
$ credited to oper. balancing
Same
Storage Migration
GCR & balancing rates
1.2 Bcf per year Treat as company use in UFG
No impact on rate from exit
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Operationally Oriented Timeline(*)
2004-Q2 Complete development of “road map” Commence consumer benefit study
2004-Q3 Complete consumer benefit study Perform operational studies as needed Assess implementation hurdles/capabilities Obtain “road map” feedback and make filing at PUCO Perform customer communication market research
2004-Q4 Complete outstanding implementation requirements Finalize customer communication and choice plan Obtain Commission Order Finalize and issue RFP
2005-Q1 Receive, evaluate and request approval of RFP results Implement customer communication and choice plan
2005-Q2 Exit merchant function
(*) Process could be stretched out until 2005-Q4 at the latest
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Communications Oriented Timeline(*)
2004-Q2 Complete development of “road map” Commence consumer benefit study
2004-Q3 Complete consumer benefit study Perform operational studies as needed Assess implementation hurdles/capabilities Obtain “road map” feedback and make filing at PUCO Perform customer communication market research
2004-Q4 Complete outstanding implementation requirements Finalize customer communication and choice plan
2005-Q1 Obtain Commission Order Finalize and issue RFP
2005-Q2 Receive, evaluate and request approval of RFP results Implement customer communication and choice plan
2005-Q3 Exit merchant function
(*) Process could be stretched out until 2005-Q4 at the latest
38
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 Features
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Operational Issues
Current State Summary
Future State Issues
Proposed Operation
Current State Summary
42
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
43
Current State - Supply Sources
Interstate
No mandatory assignment, option if available ANR, DTI, NCGT, PEPL, TCO, TGP, TETCO Constrained points allocated based on MDQ No point-specific noms required
Ohio Production Nominated “real time” with lagged true-up Btu conversion applied to determine pool mcfs No derating for comparable capacity
Storage Assignment at no cost to supplier based on MDQ Demand ratchets based on inventory level Follows customer (buy/sell inventory if needed)
Other Pools Limited to other Choice pools, storage inventory transfers and Local Production Pooling Service
44
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)
45
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
46
Current State - Cost Recovery
Unrecovered Gas CostRecovered or passed-back over first 12 months
Fuel RetentionRecovered through annually adjusted fuel % and through GCR
Operational Balancing Capacity cost thru rider, inventory sold to GCR customers, interest cost thru GCR
Cash OutsSet up as neutral (storage buy/sell) or beneficial to GCR class (daily)
Choice Program CostCollected via rider (currently set at $0.000/Mcf)
Storage MigrationFunded through balancing service rates and monthly charge to GCR
47
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
48
Current State - Balancing Assets
Customer Class
Storage Source
Basis for Allocation
Volume (MDt/d)
Traditional Transport
On-System Base Rates 180
GSS/FSS Migration Rider 90
Energy Choice(*)
On-System Base Rates 50
GSS/FSS Migration Rider 150
Total 470
(*) 15.5% of design day usage, 25% on-system/75% GSS/FSS
Potential storage overrun commitment equals 110 MDt/d
Future State Issues
50
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
51
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
52
Future State - Balancing Assets
Customer Class
Storage Source
Basis for Allocation
Volume (MDt/d)
Traditional Transport
On-System Base Rates 180
GSS/FSS Migration Rider 90
Energy Choice(*)
On-System Base Rates 90
GSS/FSS Migration Rider 260
Total 620
(*) 15.5% of design day usage, 25% on-system/75% GSS/FSS
Potential storage overrun commitment equals 180 MDt/d
53
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
54
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
55
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
56
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?
57
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?
58
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?
59
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
Proposed Operation
61
Provider-of-Last-Resort Timeline
Hourly Daily <1 Cycle Monthly <2 Cycles• Intra-Day Balancing
• Daily Balancing
• Multi-Day Underdelivery
• Single-Day Underdelivery
• Supplier Default
• Monthly Balancing
DEO RESPONSIBILITIESSTANDARD SERVICE OFFER
>2 Cycles
• Interim Commodity Service
62
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
63
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
64
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
65
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)
66
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
67
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
68
Cost Recovery Changes
Fuel Retention Establish tracking mechanism like interstate pipelines:
1. Adjust UFG % - affects cost of supplies2. Surcharge - affects cost of transportation3. 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
69
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)
70
Cost Recovery Changes
Storage Migration Establish tracking mechanism to recognize
changing volume and price associated with storage migration
1. Implement storage fuel retention % to recover storage compression and migration
2. 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
71
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
72
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
73
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
