Large industrial and institutional customers have the option of contracting for firm or interruptible distribution service from their natural gas utility. Typically it is those customers with the ability to shut down a process or switch to an alternative fuel, such as fuel oil, who elect to contract for interruptible distribution service. Since the service is not firm and the utility has the right to interrupt the delivery of gas to the customer’s site, interruptible distribution service is less expensive than firm service. The opportunity for cost savings may be attractive, but the impact of being interrupted also brings some costs, and gas users must understand the trade-offs.
When the utility interrupts the flow of gas to an interruptible customer, the utility is said to have “called curtailment”. The utilities typically have two reasons for calling curtailment, namely, for distribution reasons or for gas supply reasons. Under extreme cold conditions, the utility may not have sufficient capacity on its local network of gas lines to deliver gas to all of its firm service customers. In order to ensure that the utility can meet its delivery obligation to firm customers, the utility will give notice to interruptible customers that they must curtail the use of natural gas for a specified period of time. Curtailment under these circumstances is for distribution reasons.
There are situations, under similar weather conditions, where the utility has no distribution capacity constraints but does not have sufficient gas supply flowing into its system to meet the peak day needs of its firm customers. In this case, the utility would call curtailment for gas supply reasons.
When the utility calls curtailment it must notify the customer that they need to stop consuming gas within a certain time period, known as the notice period. The Enbridge system has two interruptible distribution services. Rate 170 requires a four hour notice and Rate 145 (a higher cost rate) requires 16 hours. On the Union Gas system, the M5 interruptible rate requires a minimum notice period of four hours.
When a customer is given notice to curtail for gas supply reasons, they may have the option of purchasing an incremental supply of natural gas for the term of the curtailment, in order to remain on gas. Enbridge calls this Curtailment Delivered Supply (CDS). The utility is calling curtailment because it does not have enough gas arriving at its system to satisfy all of the load. If the customer can arrange its own incremental supply for the load that would have been curtailed, the utility is kept whole, so the load can stay on gas.
Since curtailment is called when supply is tight, buying incremental supply during a curtailment can be expensive. Before a customer rushes off to purchase CDS, it is necessary to calculate what a breakeven for the incremental gas is. If curtailment means a switch to fuel oil, shutting down a process, or not generating electricity, then what is it worth paying in order to get the gas needed to stay on gas?
If purchasing CDS is more attractive than the alternative, the next decision the customer must make is how much additional gas to purchase. This decision requires knowledge of the customer’s consumption for the facilities that would otherwise be curtailed, under current conditions (for example, weather conditions would affect expected gas use). If the customer delivers too little gas to match its actual consumption during the curtailment period, then the shortfall will be classified as Unauthorized Overrun Gas (UOG) and will be subject to a penalty. Conversely, if the customer delivers more CDS gas than what is consumed, the excess will be credited to the customer’s Banked Gas Account (BGA). To avoid having to pay UOG charges, the customer must ensure that it purchases the appropriate amount of CDS or possibly err slightly on the high side. Since CDS gas is usually expensive, no one wants to buy too much more than they need.
Buying CDS effectively demands that consumers have multiple gas suppliers. During curtailment situations there are usually several parties seeking to purchase a limited amount of CDS, sometimes at trading points that are not all that liquid. As a result, there could be a wide variation in pricing for CDS, and some suppliers may simply have none to sell.
When Enbridge calls curtailment, they purchase the gas supply associated with the customer`s distribution contract over the curtailment period. This is referred to as Curtailment Gas Purchase. During a similar situation on the Union Gas system, Union does not purchase the gas supply but rather credits gas deliveries to the customer's BGA.
While there are benefits to contracting for interruptible distribution service, customers must be prepared to be interrupted and have an action plan in place to respond to any curtailment so they minimize the financial impact.
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