DISTRIGAS CORPORATION CASE Harvard Case Solution & Analysis

DISTRIGAS CORPORATION Case Solution

 Suppose the daily peak in December 1967 had been 240 MMcf. What would have been the bill for the utility in 1968?

In order to compute the total bill for the utility in the year 1968 using the above scenario, each of the twelve months are taken and calculations are done on the monthly basis. As from the provided scenario, it can be seen that there is base commodity charge that is paid each month and in addition to that there is a demand charge which is applied to the peak usage. So for a single month, the total cost is computed in this manner:

(Daily Peak * Days in month) + (Demand Charge * Demand Peak) + Base Commodity Charge

With the help of the above formula, the total cost for each of the twelve months is computed and the overall bill for the year 1968 is computed to about $ 99,979.

By assuming that the total demand annually to be approximately equals to 30.7 BCF or 30700 MMCF, the average cost per MCF would be approximately equals to $ 18.16 as per the below given exhibit. In order to compute the total savings in the case when the peak demand is equal to the average demand, the average demand is computed using the total annual demand of 30.7 BCF and dividing it by 360 (total days in a year) which gives the total value of 85 MMCF. In the case if the peak demand which is 240 MMCF in this case becomes equal to the 85 MMCF, the total savings for each day would be approximately equals to 155 MMCF. With this savings, the company could be in a better position to meet the entire demands more efficiently and in addition to this could focus on other strategic alternatives to further expand the business. The overall computation for this part is given below:

Jan $  8,311.54    
Feb $  8,315.83
Mar $  8,551.20
Apr $  8,311.20
May $  8,311.20
Jun $  8,311.20
Jul $  8,311.20
Aug $  8,311.20
Sep $  8,311.20Commodity Charge $ 0.3359
Oct $  8,311.20Demand Charge $    4.63
Nov $  8,311.20Daily Peak240
Dec $  8,311.20
Total Bill $     99,979
b)
Total Demand30700
Total Cost $  1,690.29
Average Cost $      18.16
Average Demand85
Savings155

 In each of the other months assume that the daily send-out does not exceed 120 MMcf.  How should the utility use this LNG (which days)? What is the annual cost of such a policy?.......................

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