Chicago's Peoples Energy Uses Complex Model To Save Ratepayers $50 Million Yearly, Journal Reports

January 04, 1999

LINTHICUM, MD, January 4 -- A complex operations research model that generates 10 different weather scenarios to anticipate customer requirements has been saving the customers of Chicago's Peoples Energy's utilities $50 million a year since 1995, according to a study in a journal published by the Institute for Operations Research and the Management Sciences (INFORMS®).

The study used a familiar operations research tool -- an optimization model -- to consider multiple weather scenarios in determining, among other things, how much natural gas supply, transportation, and storage the utility should reserve over a ten-year planning period. The portfolio optimization model (POM) helps Peoples Energy's utilities balance the costs of staying prepared for cold winter days when gas demand is high and warm days when having too much supply adds unnecessary expense.

Peoples Energy's utilities originally developed the model in 1989 to aid in preparing a least cost supply plan to be filed in compliance with the Illinois Commerce Commission's requirement that energy companies statewide file least-cost-supply plans aimed at treating energy conservation measures and incremental gas supplies on an equal footing. The company expanded its application of the model to generate many avenues toward efficiency.

"Besides significant annual cost savings, POM provided a framework for us to test the cost effectiveness of new contracting terms and rates, proposed new operating procedures, and potential operational and cost impacts of proposed regulatory requirements," according to William E. Morrow, Vice President, Gas Supply and Charles M. Blachut, Manager, Gas Supply Planning, Peoples Energy, who are quoted in the study.

The paper, "The Peoples Gas Light and Coke Company Plans Gas Supply" was co-authored by Thomas W. Knowles, Illinois Institute of Technology, and John P. Wirick Jr., Peoples Energy. It appears in the current edition of INTERFACES: An International Journal of the Institute for Operations Research and the Management Sciences.
The Institute for Operations Research and the Management Sciences (INFORMS®) is an international scientific society with 12,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work primarily in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, the stock market, and telecommunications.

Institute for Operations Research and the Management Sciences

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