COMPARING COMPETING BIDS
Having obtained the bids from the various mark0eters or brokers, compare the bids as follows:
- Ensure that the bidders have provided bids that comply with request specifications.
- Fixed Price Bids:
- The price bid per dekatherm at the local distribution company's ("LDC") city-gate and local market area represents the final bid price. The difference in competing bids reflect the bidders' markups, asset purchasing strategies, and operating efficiencies.
- Index Price Bids:
- The final per dekatherm bid price is the sum of the commodity's per dekatherm variable index price and the per dekatherm fixed component consisting of the supplier's markup and the basic charges associated with transmission and related ancillary services. The difference in the fixed components of the various bids reflects the bidders' markups, asset purchasing strategies, and operating efficiencies.
- Variable Price Bids:
- Compare the per dekatherm cost of the commodity to ensure use of the same index.
- Compare the charges for interstate transmission and any ancillary services that are not already reflected in the index price. This becomes especially important if the competing suppliers are contemplating the use of different interstate transmission pipelines or routes to render delivery of the gas to the specified LDC delivery point.
- Compare the cost of shrinkage and related costs associated with transmission.
- Compare the markup margins of the competing bidders for profit and costs.
- The sum of these costs represents the final bid price at the specified delivery point.
Due to competition for business, the supplier's price is also open to some negotiation. A fair, average, and reasonable market price may reduce the risk of transactions deteriorating during the contract term. On the other hand, an uncommonly low price may indicate that the bidder is hoping for the market to drop before hedging the bid price - a risky strategy that may increase the bidder's risk of default if the market moves unfavorably.
Many local distribution companies ("LDC") provide gas transportation customers with the choice to select ancillary services associated with distributing the gas from the city-gate to the facility, such as storage and bank balancing services. Storage and bank balancing services involve the LDC making space available on storage fields to inject the excess natural gas commodity delivered to the LDC for future withdrawal and consumption by the customer. Balancing services include sales of the natural gas commodity by the LDC to the end-user at predetermined prices for shortfalls in deliveries caused when the end-user's consumption exceeds both deliveries and gas available for withdrawal in the end-user's bank. Some of these unbundled services are mandatory, others are optional, and some services are available in varying quantities based on end-user needs. For example, Columbia Gas of Ohio requires gas transportation customers to select the size of their monthly bank tolerance less than the maximum permissible. A complete discussion of these services exceeds the scope of this writing; the purpose here merely is to indicate that such services exist as gas supply management tools and have an impact on energy costs. Further information concerning the ancillary services offered by the LDC may be obtainable from the LDC's representatives and gas suppliers.