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IUP Natural Gas Cost Avoidance

The Indiana University of Pennsylvania Natural Gas Cost Avoidance table summarizes the avoided costs realized from competitively bidding for natural gas commodity rather than buying retail gas directly from the gas utility.

Below are descriptions of each account as well as assumptions made and limits required for the analysis.

Natural Gas Accounts

  1. S. W. Jack Cogeneration Plant. For the period July 2010 through December 2011, this account was served by gas utility T.W. Phillips Gas & Oil Company (TWPGOC) via explicit agreement between TWPGOC and the university. The agreement term was October 25, 1996, through December 2011. During the agreement term, gas supplier T. W. Phillips Energy Corporation was the sole commodity provider due to limitations imposed by the TWPGOC tariff rate structure. Because of the complexity of the agreement and non-competitive commodity procurement, avoided costs (if any) are not included in this evaluation during the TWPGOC tenure. On January 1, 2012, Peoples Natural Gas Company became the gas utility for the account. Avoided cost of $830,597 were calculated using Peoples’ tariff rates for the period January 2012 through October 2013.
  2. Kovalchick Convocation and Athletic Complex. During 2010 and into early 2011, the Complex was in the final stages of construction, during which time gas consumption and costs are not comparable to the Complex’s intended use periods. The ramifications of this are realized in FY 2010–2011, where the data shows that avoided cost was negative ($1,652.25); that is, retail tariff rate gas service is calculated to be less expensive than competitively-bid service. When included with later years from FY 2011–2013 to FY 2014–2014, a net-positive cost avoidance of $14,188 is realized.
  3. Robertshaw Building. Cost avoidance during the period FY 2010–2011 through FY 2013–2014 to date is negative at ($7,807). To award a commodity contract or go with the utility retail rate for this account has always been a borderline decision. For example, in the November 2013 bidding event, the commodity contract was awarded even though avoided cost calculated by the PSFEI Energy Risk Management Application (ERMA) showed a negative avoided cost ($60) for the one year contract going from December January 1, 2014, through December 31, 2014. The university and PSFEI made the decision that switching from the Peoples Gas transportation tariff rate to a retail rate would mean being charged with a tariff migration fee after 12 months. Migration fees are charged when an account on a transportation rate switches to a utility retail rate or vise-versa. Migration fees can go up or down, which adds even more price risk into the decision. Currently the migration fee is negative at ($0.2529/Mcf) while the migration fee in 2011 was a positive $0.6978/Mcf. In the FY 2012–2013, this account showed a positive $633.99 in avoided cost. Towards the end of 2014, PSFEI will again work with IUP to decide on a low-risk and cost-effective method of natural gas service.
  4. Northpointe. This account is served by gas utility Equitable Gas Company. Historical tariff data from this utility is not readily available. In calculating retail tariff rate cost the current delivery charge, tariff riders, and monthly customer cost were used. Historical data for utility purchased gas cost was available from the Pennsylvania Public Utility Commission website. This allows for a conservatively-fair cost avoidance calculation of $8,815.

The total cost avoidance for the four accounts over various terms spanning July 2010 through October 2013 is calculated to be $845,794.

Assumptions and Limits

  1. Historical purchased gas costs and monthly customer charges were obtained from Peoples Natural Gas Company for the periods July 2010 through October 2013. There were 19 rate changes during that period.
  2. Currently published retail tariff rates were used when historical tariff rates were not available.
  3. Actual natural gas cost data provided by the university is up to date through October 2013 for all but the Northpointe account, which is up to date through September 2013.
  4. Due to the variability of utility tariff rates and natural gas commodity costs, avoided cost calculations may not be exact, but do provide a reasonably accurate representation of actual savings.
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