Supply, Storage, and Service Reliability Decisions by Gas Distribution Utilities: A Chance-Constrained Approach

This paper explores the trade-offs among purchases, storage, and service reliability decisions faced by natural gas distribution utilities. The short-term demand for natural gas fluctuates because of the weather. To encourage load leveling, the pipeline transmission companies that supply the utilities use a demand contract that charges utilities based on their peak day needs and often charge for a minimum daily purchase requirement whether that purchase is made or not. The policy variables available to the utility include increasing its storage capacity and providing interruptible service to some customers thereby lowering reliability of service. There are also technological constraints on the maximum storage gas flows. To explore these trade-offs, a chance-constrained cost minimization problem is formulated. Two decision rules for gas purchases and storage operation are examined. In these rules, an initial decision is made at the beginning of each month about either the level of purchases or the level of storage flow for that month. The two rules differ in that the supplier is assumed either to be able to adjust sales during the month up to the limit set by the demand contract or to be inflexible. In the latter case, storage must provide flexibility for meeting demand. Solutions have been obtained under the conditions that apply to the East Ohio Gas Company. A large number of cases have been considered for several levels of increased storage capacity, decreased reliability of service, and conversion capability from gas to oil for commercial and industrial customers. The results show the breakeven points in storage costs under which various policies become feasible and the savings that can be achieved.