# Distrigas Corporation

Topics: Inventory, Public utility, Costs Pages: 3 (1217 words) Published: July 23, 2011
Q1. As per the provided information the Gas Utility companies pays a base commodity charge of \$.3359 plus a peak usage demand of charge that is \$4.63 per Mcf multiplied by the total demand during the maximum take day in the last 12 months which is 240 in this case. The cost per MCF can be derived by the below formula (Commodity Base Charge * Total Demand) + (Peak Usage Demand Charge* High Peak in 1 day* months in year) This will translate into

(\$ 0.3359*30,700,000 Mcf)+ (\$ 4.63*240*12) = \$ 23,646,530
By substituting the appropriate values in the formula we arrive at a cost of \$ 23,646,530. This cost is then divided by the total demand over 12 months of 30.7 Bcf or 30,700,000 Mcf to arrive at an average cost per Mcf of \$ 0.7702 which is a 125% increase over the base charge \$ 0.3359. Similarly in a scenario where the peak demand is equal to the average demand of 84109.59 Mcf we arrive at an average cost per Mcf of \$ 0.4881 which is a 45% increase over the base charge of \$ 0.3359. Q2. In order to determine the excess amount of gas that had to be bought from Distrigas we made an assumption that the demand was not normally distributed and in order to normalize it we removed the deviation of 18.66 from the average of the independent demands over the three months to arrive at a normalized value of 178 (rounded off). The assumption is that the gas Utility companies will buy gas from Distrigas only if the demand goes aboce 178. Following this methodology the gas utility company will need to purchase 1801 MMcf from Distrigas to fulfill the peak demand. Filtering days that had excess demand we arrived at 74 days that required the Utility gas company to purchase gas from distrigas. The first phase of that purchase has to be from December 7th to 25th January and the second phase of the purchase should be from 5th February to 28th of February. The annual cost of the policy is attained by the total excess demand ( 1801 MMcf) multiplied by the cost per MMcf of \$ 1660 to...