14. Supply and Demand Forecast and OFOs

As surely as weather drives energy demand, weather forecasts drive gas demand forecasts, and CGT's supply and demand forecast is no exception. While CGT uses the most up-to-date information available for all its plans, CGT cannot obtain the day's new weather forecasts, among the most significant drivers of forecast demand, any earlier. The first forecast of the day incorporates fresh, robust input that often results in dramatic changes to the supply and demand forecast.

Since energy is an inherently volatile commodity, the supply and demand forecast can be similarly {volatile}. Large swings in supply and demand are to be expected from time to time.

CGT's Senior Transmission Coordinators update the pipeline inventory forecast five times per day. Plan 5 is typically posted at 5:30 a.m., Pacific time, and plan 1, the first plan of the next day, by 7:45 a.m. Because many of the forecast's biggest drivers are simply not available prior to plan 1, the difference between these two forecasts can be substantial.

Plan 1 incorporates a huge amount of new information not available before 7 a.m., Pacific Time. This information includes:

• New temperature and weather forecasts
• Output from CGT's demand forecast models
• Actual sendout volumes from the previous gas day
• Demand forecasts from electric generators
• Supply and demand forecasts from third party storage providers
• Supply information from interconnecting pipelines

As described in the prior answer, CGT must wait for critical weather, supply, demand and generation data before having a reliable forecast on which OFO decisions can be made. CGT strives to provide this data as early as possible, and normally provides OFO notice before 7:30 a.m.

Also, the OFO Settlement states:

PG&E will continue its current practice of determining the need for and issuing of an OFO by 7:30 a.m. on the day before the Gas Day, or as soon as possible thereafter. This practice is intended to allow parties whose imbalances exceed the OFO tolerance band to use all five nomination cycles.

As stated in the OFO Settlement, Paragraph C.2.e:

PG&&E may elect not to issue an OFO for a Gas Day if the forecast of pipeline inventory for the day following that Gas Day indicates the pipeline inventory will return to within the Pipeline Inventory Limits without the assistance of an OFO.
If the supply and demand forecast released at about 7:30 a.m. indicates that pipeline inventory for the next day will exceed limits and will not recover the following day, CGT will always issue an OFO.

When an OFO is required, CGT calculates how much additional (or less, in the low inventory case) inventory the pipeline could absorb to remain within operating limits. CGT chooses a tolerance band that will return inventory to within operating limits.

During an OFO, each balancing entity's supply must remain within the percentage of usage defined by the tolerance band in order to avoid noncompliance charges. For example, during a high inventory OFO with a ten percent tolerance band, supply may not exceed usage by more than ten percent.

Tolerance bands apply only to overdeliveries during high inventory OFOs and underdeliveries during low inventory OFOs. In the example of a high inventory OFO, usage may exceed supply by more than ten percent without incurring noncompliance charges.

Section 2.c of the OFO Settlement describes the relationship between OFO stages, tolerance bands, and noncompliance charges.

When an OFO is required, CGT refers to real-time market pricing data to determine a noncompliance charge. The charge must be sufficient to give customers incentive to balance their loads without being onerous. CGT reviews customer response to each OFO, comparing the tolerance band and noncompliance charge to the response.

CGT strives to make an OFO determination by 7:30 a.m. and issue plan 1 by 7:45 a.m. the day prior to the gas day. However, Pacific Gas and Electric Company tariffs and the OFO Settlement allow CGT to call an OFO at any time, although noncompliance charges will not be imposed if notice is given after 6:00 p.m. the day prior to the OFO event.

CGT never toys with the market. As described above, each supply and demand forecast relies on a variety of weather, supply and demand inputs, nearly all of which CGT has no control over. On September 17, 2002, CGT received new information after 7:30 a.m. that revealed action would be necessary to protect pipeline integrity. In this uncommon situation, CGT chose to call an OFO immediately rather than wait for later in the day when it would be less effective and also risk the need for receipt point capacity allocations.