w geneva december, 2007 world meteorological organization simple heating degree day program
TRANSCRIPT
2 W
Weather and Natural Gas Distribution
Temperature and Gas Utilization are tightly correlated
Gas Distribution Company: HDDs and Residential Gas Volumes Sold
0.0
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
1,600.0
Jan
200X
Mar
200
X
May
200
X
Jul 2
00X
Sep 2
00X
Nov 2
00X
Jan
200Y
Mar
200
Y
May
200
Y
Jul 2
00Y
Sep 2
00Y
Nov 2
00Y
Jan
200Z
Mar
200
Z
May
200
Z
Jul 2
00Z
Sep 2
00Z
Nov 2
00Z
HD
Ds
ºF
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
mm
btu
HDD Total Non-Industrial Gas
3 W
Weather and Natural Gas Distribution
Gas Distribution companies have weather risk: - warm winters, which reduce volumes of gas utilized- residential and light commercial (e.g. shops, office buildings)
customers
There are two components in managing the gas distributor’s weather risk:
1. Weather• Protection in US usually based on Heating Degree
Days (ºF)
2. Company Commercial Economics
Weather Risk for Gas Utilities
4 W
Example Weather
Temperature and HDDs
Weather Station: City in Northeastern U. S.
HDDs (ºF) NE US City
2,500
3,000
3,500
4,000
4,500
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
HD
Ds
(ºF
)
Actual HDDs
Average November-March Tmin and Tmax NE US City
20
25
30
35
40
45
50
55
60
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
TºF
Avge Tmin Avge Tmax
HDDs = max([65ºF – {Daily Tmax + Daily Tmin}/2],0)
5 W
Example Weather
1. Understanding of weather environment in which company operates
2. Quantification of weather risk
3. Stochastic modeling for risk analysis and pricing purposes
Purpose of Weather Analysis
6 W
Example Weather
Weather Factors
City in Northeastern U. S. – Oct/Sept HDD Norms
– 30 Year Norm 1951-1980 4,179.0 HDDs
1961-1990 4,112.4 HDDs
1971-2000 3,994.2 HDDs
– Trailing Decade1981-1990 4,043.2 HDDs
1991-2000 4,042.8 HDDs
2001-2006 3,984.8 HDDs
7 W
Example Weather
Weather Factors
City in Northeast U. S. – HDD Trends
Oct/Sept HDDs (ºF) NE US City1961-2006
3,000
3,500
4,000
4,500
5,000
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
HD
Ds
(ºF
)
Actual Detrended
8 W
Example Weather
Other factors to establish a data series:
– Changes in instrumentation
– Changes in location
– Changes in reporting procedures
Weather Factors
9 W
Commercial Considerations
How does a change in temperature affect changes in volume of consumption?
– Segmentation of customer base.– Patterns of gas usage:
• Equipment (age, technology, efficiency)• Building practices (insulation, windows, etc.)• Local customs• Local topography
– Geographical relationship of customers in relation to the weather station
Result: establish change in volume of gas consumed per unit of change in temperature
Sensitivity to Weather - Volume
10 W
Commercial Considerations
What is the economic impact of changes in temperature (i.e. of changes in volumes)?
– Cost of natural gas to distributor• Contracted supply• Anticipated open market (spot) supply
– Price of sale to customer• Regulated: rate structure• Unregulated: contracted and market price
Result: Establish change in economics due to change per unit of temperature
Sensitivity to Weather - Cost
11 W
Commercial Considerations
What is the critical point at which weather adversely affects company economics?
– Volume and price – Cost of gas– Operating costs– Financial obligations – Regulatory constraints
Result: Determine trigger point for HDD program payments
Sensitivity to Weather – Critical Level of Risk
12 W
Commercial Considerations
1. Critical Point: 3,750 HDDs (Oct/Sept)
2. Value of Change in HDDs: $mm,mmm/HDD at critical point
3. Risk Coverage: to no more than 100 year return period
Commercial Conclusions
13 W
Example Program
Weather Probabilities
Combining Enterprise Factors and Weather Factors
HDDs Cumulative Probability DistributionCity in NE US: Oct/Sept HDDs
3,000
3,500
4,000
4,500
5,000
100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0%
Percentile
HD
Ds
(ºF
)
gas distribution company parameters
36.5%tile
1.30%tile
14 W
Example Program
Outline Example Program
Buyer Natural Gas Distribution UtilityCoverage Loss of Revenue resulting from adversely warm
weather.Weather Risk Total aggregate HDDs calculated during the PeriodWeather Station City Airport WBAN _____Period 1 October 200Q – 30 September 200RHDD Limit US$mm,mmmAttachment 3,750 HDDs Exit 3,100 HDDsPayment US$mm,mmm for every total aggregate HDD less than
the Attachment, subject to a maximum payment of (650 x US$mm,mmm)
Premium US$x,xxx,xxx
15 W
Example Program
Hypothetical Outcome Example Program
Example HDD ProgramActual Oct/Sept HDDs
3,250
3,750
4,250
4,750
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
HD
Ds
recoveries
16 W
Example Program
Weather Probabilities
Program Impact
HDDs Cumulative Probability DistributionCity in NE US: Oct/Sept HDDs
3,000
3,500
4,000
4,500
5,000
100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0%
Percentile
HD
Ds
(ºF
)
effect of program
17 W
Commercial Considerations
Settlement:
Rapid settlement: within x days (usually 5 days) of publication of preliminary data, subject to revision within 95 days (final data)
Final Commercial Point
18 W
Conclusions
1. Access to historical data• Identification of station(s)• Validation of data• Missing data• Validation of analysis• Fallback stations
2. Data about stations• Instrumentation history• Location history• Recording procedures
3. Access to current data• Monitor weather status• Efficient, effective settlement• Fallback as needed
4. More extensive requirements for Portfolio Management
19 W
Disclaimer
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