Portfolio Approach to Natural Gas Procurement

Transcription

1 Portfolio Approach to Natural Gas Procurement Presented by: Juan Ontiveros, P.E. Director of Utilities and Energy Management University of Texas at Austin Mark F. Walsh Gas Portfolio Manager Texas General Land Office

2 Portfolio Approach to Natural Gas Procurement Gas Purchase History Procurement Issues General Land Office Responsibility Old Approach to Procurement New Approach 2

3 MMBTU 5,200,000 5,000,000 4,800,000 4,600,000 4,400,000 4,200,000 4,000,000 3,800,000 3 Gas Procurement History MMBTU Annual Cost $50,000, $45,000, $40,000, $35,000, $30,000, $25,000, $20,000, $15,000, $10,000, $5,000, $0.00

4 University Procurement Issue Constitution of the State of Texas (1876) ARTICLE XVI., General Provisions,SEC. 21. All stationery, and printing, except proclamations and such printing as may be done at the Deaf and Dumb Asylum, paper and fuel used in the legislative and other departments of the government, except the judicial department,. shall be performed under contract, to be given to the lowest responsible bidder below such maximum price and under such regulations as shall be prescribed by law. 4

5 Texas General Land Office As one of its first acts, the Texas Congress established the General Land Office (GLO) to determine land ownership in the wake of independence from Mexico in One of its primary responsibilities today is leasing the state's vast land holdings for energy and mineral development. The proceeds of these leasing activities are deposited into the state's Permanent School Fund (PSF), created to help finance public primary and secondary education in Texas. Since 1854, the PSF has grown through periodic GLO deposits and investments, totaling roughly $7.7 billion, to a market value of more than $18 billion (as of September 2001), one of the world's largest endowment funds for education. The GLO also manages an in-kind oil and natural gas program, as well as a state electric power program. In addition to their benefits to the PSF, these programs provide gas and electricity to state agencies and public school districts at a discounted cost. The GLO markets other Texas resources, such as wind and geothermal power. This sustainable energy is an area where the GLO is turning natural resources into money for public education. 5

6 Old Process General Land Office This RFB and bids submitted in response to this RFB are subject to: (a) Sections and , Texas Natural Resources Code; (b) Chapter 8, Volume 31, Texas Administrative Code; and (c) Review by the Texas General Land Office ( GLO ) prior to acceptance or rejection. The GLO must approve any contract entered into by University for the acquisition of an annual average of 100 MCF per day or more of natural gas used in the production of energy. [This approval process is required to take place every 6 months. See 31 TAC specifically 8.3, 8.8, and 8.10.] 6

7 Best Value Selection Process Evaluation Criteria 51% Pricing Access to our City Gate delivery points Proven track record no fly by night Good credit rating No Enron Had to agree to our State driven terms and conditions Non-funding issue GLO Last-Look 7

8 Old Process Very Specific Pricing A. B. C. D. E. F. G. Full Requirements gas supply, NYMEX Basis Differential Pricing, Austin City Gate Delivery Full Requirements gas supply, NYMEX Basis Differential Pricing, Ranchero Pipeline Receipt Point Delivery Full requirements gas supply service, Gas Daily First of the Month or Daily Price Survey, Waha Hub Index. Baseload only, (see Attachment A for Baseload Quantities) Gas supply, NYMEX Basis Differential Pricing, Ranchero Pipeline Receipt Point Delivery Baseload only, (see Attachment A for Baseload Quantities) Gas supply, NYMEX Basis Differential Pricing, Austin City Gate Delivery Swing Load gas supply, Gas Daily, Waha Index (daily) based price, Austin City Gate Delivery Swing Load gas supply, Gas Daily, Waha Index (daily) based price, Ranchero Pipeline Receipt Point Delivery 8 H. I. Firm Transportation service on the Kinder-Morgan Ranchero Pipeline from the Waha area to the Austin City Gate Gas storage service with transportation from the storage location to the Austin City Gate (priced separately or as one price delivered to the City Gate).

9 Old Process Optional Pricing Bidder s Choice In addition to the requested pricing, University is also accepting alternative pricing options as designed by Bidder. To be considered, alternative pricing options should: Clearly state all charges for natural gas supplies delivered to a City Gate; Include all costs associated with structuring the pricing alternative; and Include the duration for which the alternative pricing structure is valid. ALL PRICES SUBMITTED SHALL BE VALID FOR A PERIOD OF AT LEAST FIVE (5) BUSINESS DAYS AFTER THE SUBMITTAL DEADLINE 9

10 Old Gas Procurement Process Short Duration Contract Last Contract 2 years year extensions Not to Exceed $80 million Prepare RFP Select lowest bid respondent Flexible Procurement Options after Terms and Conditions Negotiated Annual Gas Volumes used to obtain optimum pricing Successful Negotiation Negotiate Terms and Conditions with lowest responsive bidder Pricing Changes Unsuccessful Negotiation Begin Risk Management Strategy (fixed price, triggers, etc) Purchasing Strategy limited by contract duration Not possible to unwind gas deals because of duration limitation 10

11 New Gas Procurement Process Ten Year Contract + up to 2 five year extensions Not to Exceed $400 million Flexible Procurement Options (all + storage) Annual Gas Volumes projected for 10 years (Not Essential for pricing) Transaction Request from UT to GLO GLO obtains Indicative Pricing (Competitive Bids) Volume Delivery Point Term Pricing Option Good Value UT Evaluates Indicative Pricing (Bids from suppliers plus GLO last look) Transaction Authorization from UT accepts pricing and purchases gas Transaction Summary tracks all purchases authorized Volume Delivery Point Term Pricing Option 11 Transaction Request Response from GLO to UT Pricing Not Acceptable No Action Repeat as Necessary

12 Natural Gas Procurement-Partnering with the General Land Office Establishes the GLO as our procurement entity and eliminates the problems associated with GLO last look Allows UT to focus on establishing a diverse procurement portfolio that minimizes risk associated with price volatility and establishes more stable a price/cost environment for the institution Able to utilize our consulting services for advice on effective procurement strategies rather than RFP development and contract negotiation as a team with the GLO Term of the agreement provides flexibility to minimize the impact of rapid price changes by lengthening the time associated with some of our agreements if needed as well as giving us the capability to take advantage of pricing in the out years that meets our budget requirements. 12

13 Transaction Summary Flow Month: Dec-06 HSC $7.070 Invoice Summary: MMBtu Price Amount Transaction # 1 220, $1,656, Transaction # 2 50, $353, Transaction # 3 Transaction # 4 30, $236, Transaction # 6 ADQ 8, $61, Transaction # 6 Overage 65, $458, Transaction # 6 Underage - $0.00 Transportation Charge Transaction #2 only $4, Transportation Charge Transaction Tracor Volume $1, Contract Maintenance Total MMBtu $11, Total Delivery Quantity 374,135 $ $2,781,961.03

14 3-Way Collar with Re-Opener 3.03% Fixed Price Strip 7.22% NYMEX Basis Lock with Trigger Rights 57.71% Swing 2.08% Untriggered 21.63% Other Fees 0.16% Unpurchased 8.17% 14

15 $50,000,000 $45,000,000 $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $- Total Cumulative Gas Budget Actual Cumulative Gas Cost $9.75 $6.89 $6.91 July June May April $8.00 $7.49 $8.00 September October November December January February March August 15

16 16 Questions?