Ontario Energy Board releases decision on natural gas storage allocation

June 26, 2008

On April 29, 2008, the Ontario Energy Board (OEB) released its decisions on Natural Gas Storage Allocation Policies for Enbridge Gas Distribution Inc. and Union Gas Limited (EB-2007-0724 and 0725). An oral hearing had taken place December 17-20, 2007.

The hearing addressed certain issues arising from the OEB's 2006 Natural Gas Electricity Interface Review (NGEIR) decision, in which the OEB had ordered Union and Enbridge to submit new storage allocation policies on the basis that existing rules, in particular Union's policy of applying the aggregate excess method for semi-unbundled customers, were not consistently applied. The aggregate excess method permits customers with seasonal loads to balance constant supply, allowing them to inject storage all summer and then withdraw all winter.

Enbridge had only nine unbundled customers at the time of the hearing, and there was no opposition by intervenors to its proposal. Enbridge proposed following the aggregate excess method for most customers, but that large-volume unbundled customers should be free to choose an allocation of cost-based storage based on a method originally designed for gas-fired power generators that was part of a June 13, 2006 settlement proposal in the NGEIR proceeding.

The OEB ordered a different methodology for Union. At the time of the hearing, Union had 51 customers taking semi-unbundled service (T1 and T3 rates). The majority of Union's T1 customers on one-year renewable contracts have allocations that are higher than their allocations under the aggregate excess method, primarily because 22 of the T1 customers have "grandfathered" allocations based on an OEB-approved June 7, 2000 settlement agreement.

Customers whose allocations have been grandfathered since 2000 will now have those allocations reviewed upon contract renewal, which in most cases will occur within one year. The allocations of the small number of customers with long-term contracts will also be reviewed on contract renewal.

The Board agreed with Union that the storage allocation should not be based entirely upon a customer's past use, as that is not always indicative of "reasonable needs". The Board found that the maximum level of deliverability available to a T1 or T3 customer at cost-based rates should equal the greater of DCQ and (CD - DCQ). DCQ is "Daily Contract Quantity," the amounts that T1 and T3 contracts require customers to arrange for equal daily deliveries of natural gas to Union's system over a year. (CD - DCQ) is the customer's "Contract Demand," the maximum amount of gas that Union is obligated to deliver to a customer in any one day, less the DCQ.

The Board also agreed with Union's modifications to the aggregate excess method. The revisions include a 50% weighting for one year of forecast data in the calculation, forecast only for new customers and customers undergoing significant operational changes, and a new aggregate excess calculation for each contract renewal.

Union further proposed a 10 × DCQ formula for customers with process loads as opposed to seasonal storage patterns because the customers receive very small storage allocations under the aggregate excess method. The 10 × DCQ method would allow process load customers to elect to follow a method that would provide a storage allocation more reflective of their reasonable needs. Intervenors argued that more storage is required for process load customers, and the Board ordered that a 15 × DCQ method be applied.

The Board ordered that Union and Enbridge are to file draft rate orders reflecting this decision.

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