OR-20-003 -- Quantifying Risk with Selection of the Natural Gas Maximum Daily Quantity

Many large-scale natural gas consumers are required toselect the Maximum Daily Quantity (MDQ) of natural gas theywill be able to consume at a “firm” rate as a part of their naturalgas contract; they are then charged a “capacity” fee thatis proportional to the MDQ selection. This charge is analogousto the capacity demand charge that electrical customers mayexperience, but differs in that the customer selects the valueahead of time instead of being billed on past usage. Selectionof the appropriate value of the MDQ represents an interestingmathematical and economic problem that can have significantfinancial implications for the customer. The work performed inthis study resulted in a savings of ~$600,000 annually (for a6 to 8 million dollar annual bill) for the customer and a betterquantification of risks related to selection of the MDQ. Thisarticle provides a detailed description of the problem and amathematical approach to quantifying the cost and risk tradeofffor a single large-scale natural gas user in the Midwest.