Meaning
Service agreement that secures a fixed amount of throughput capacity in a pipeline or power grid. Pipeline operators grant priority to firm transportation contracts during times of peak demand to ensure delivery for industrial users. These agreements remain available even when the system is strained.
Payments for this service usually include a fixed monthly reservation charge regardless of the actual volume moved.
Service Reliability
Priority status ensures that the shipper is the last to be curtailed when the network reaches its physical limits. Under firm transportation contracts, the provider is legally obligated to deliver the specified volume unless a catastrophic failure occurs. This reliability allows power plants or factories to plan their operations with confidence.
Shippers who choose interruptible service instead pay lower fees but face the risk of being shut off during cold weather or high demand events.
Reservation Charge
Cost for the capacity is split between a fixed demand fee and a variable usage fee. The holder of firm transportation contracts pays for the space on the pipe even if they do not ship a single unit of gas or oil. This financial commitment guarantees that the infrastructure is funded and ready for use.
It represents a significant fixed cost in the logistics budget.
Operational Curtailment
Reduction in service only happens under extreme circumstances that threaten the integrity of the entire system. When an operator must reduce flow, holders of firm transportation contracts maintain their position while all other users are removed from the schedule. This hierarchy protects the most critical links in the energy supply chain.
The contract specifies the exact order of precedence for these rare events.
