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DATE: |
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TO: |
Office of Commission Clerk (Cole) |
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FROM: |
Office of the General Counsel (Brubaker) Division of Economic Regulation (Redemann, Rieger) |
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RE: |
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AGENDA: |
10/9/07 – Regular Agenda – Proposed Agency Action - Interested Persons May Participate |
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COMMISSIONERS ASSIGNED: |
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PREHEARING OFFICER: |
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SPECIAL INSTRUCTIONS: |
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FILE NAME AND LOCATION: |
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On July 6, 2007, the Peoples Gas System (Peoples) and the Florida Division of Chesapeake Utilities Corporation (Chesapeake) filed for approval of a Territorial Agreement, a Master Territorial Agreement, and a Gas Transportation Agreement, whereby Chesapeake will provide gas service to customers in two areas in Pasco County and receive gas transportation service from Peoples’ gas transmission line. Peoples operates a natural gas distribution system in the southern and eastern portions of Pasco County. Chesapeake does not currently have gas facilities in Pasco County.
According to the application, although Peoples has a large gas main in place, it is not cost effective for Peoples to serve the planned developments because of its main extension policy. Chesapeake’s main extension policy will, however, allow it to cost effectively serve the developments. The proposed agreements will allow Chesapeake to purchase capacity on the Florida Gas Transmission Company’s (FGT) line from Peoples. Chesapeake will tap into Peoples existing main along County Road 577 to serve one area. Peoples will extend its main across I-75 to the second area, and Chesapeake will tap into that main to serve the second area. The Commission has jurisdiction pursuant to Sections 366.04, 366.05, and 366.06, Florida Statutes.
Issue 1:
Should the Commission approve the Joint Petition for approval of the Territorial Agreement, the Master Territorial Agreement, and the Gas Transportation Agreement by the Peoples Gas System (Peoples) and the Florida Division of Chesapeake Utilities Corporation (Chesapeake)?
Recommendation:
Yes. The Territorial Agreement, the Master Territorial Agreement, and the Gas Transportation Agreement by Peoples and Chesapeake (Exhibits 1-4) are in the public interest and should be approved. The Agreements should become effective upon the expiration of the appeal period following the issuance of the Consummating Order in this docket. Peoples and Chesapeake should be required to file revised tariff sheets within 30 days following the Consummating Order which reflect the change in their service territories. (Redemann, Rieger)
Staff Analysis:
On July 6, 2007, Peoples and Chesapeake filed a petition, pursuant to Section 366.04(3)a, Florida Statutes, and Rule 25-7.0471, Florida Administrative Code, requesting an order approving the Territorial Agreement, the Master Territorial Agreement, and the Gas Transportation Agreement (Gas Agreement) that was filed as a special contract as provided under Rule 25-9.034, Florida Administrative Code. According to the application, Peoples operates a natural gas distribution system in Pasco County. Their current main extension policy includes a Maximum Allowable Construction Cost (MACC) equal to four years of projected revenue (less the cost of gas) from a given expansion project. Given the forecasted capital requirements to serve the planned developments and the anticipated build-out schedule, Peoples has determined that it cannot cost effectively extend its line to serve the two areas referenced in the Territorial Agreement.
The application states that Chesapeake has been evaluating propane service to several developing areas in Pasco County considered beyond the reach of natural gas due, in part, to the distance from the interstate pipelines. Propane distribution through Community Gas Systems is part of Chesapeake’s unregulated business. During Chesapeake’s discussions with the Pasco County developers, it became apparent that Peoples was not planning to extend gas service to the developments. Chesapeake investigated the possibility of providing natural gas service to the areas. Chesapeake’s current main extension policy provides for a six-year MACC which, along with its existing rates and Area Extension Program, could allow cost feasible extensions to the two areas.
Initially, an interconnect with the FGT’s interstate pipeline was evaluated; however, the closest FGT pipeline is over 15 miles from the service areas and was not an economically feasible alternative. In 2004, Peoples constructed a six-inch gas main along County Road 577 to loop their distribution system. This six-inch gas main was identified as the most cost effective means of transporting gas to the potential developments.
Gas Agreement
The parties executed a Gas Agreement in March 2007, as required by Rule 25-9.034, Florida Administrative Code, subject to approval by the Commission as a special contract (Exhibit 1). According to the Gas Agreement, Peoples will construct a 3.5 mile extension of its existing distribution system to allow interconnection with Chesapeake’s planned distribution facility just West of I-75 (Service Area A). In addition, Peoples will provide an interconnect with an existing gas distribution main on County Road 577 to the development planned East of I-75 (Service Area B). The Gas Agreement provides for receipt of gas at the Peoples interconnections with the FGT for transportation service across the Peoples distribution system to Chesapeake’s distribution facilities. Peoples is capable of providing gas service to Chesapeake under the terms of the Gas Agreement without adversely impacting Peoples existing or future customers.
Rather than paying distribution charges for transportation service based on the quantity of gas actually transported by Peoples, Chesapeake will pay a reservation charge similar to the capacity reservation charge paid to a FERC-regulated interstate pipeline for transportation service. The rates, shown in Exhibit 1 to the Gas Agreement, consist of a Reservation Quantity of 5,000 Therms per Day when the first development (Service Area B) is connected, and a total Reservation Quantity of 20,000 Therms per Day when the second development (Service Area A) is connected. The Reservation Charge is $0.028125 multiplied by the Reservation Quantity multiplied by the number of days in that month. Chesapeake will not incur a Reservation Charge prior to achieving the ability to transport gas to its Pasco County facilities and Peoples will begin to recover its capital investment for any facility construction upon the in-service date of such facilities. The Reservation Charge rate design is appropriate because the majority of Peoples’ cost to provide service are fixed. Chesapeake has exited the gas supply merchant function and provides only transportation service. The Gas Agreement recognizes that all Chesapeake gas customers receive gas service from third party gas suppliers (shippers). Chesapeake’s tariff allows Chesapeake to assign its shippers the distribution capacity Reservation Charge in the proposed Gas Agreement for Pasco County. The Gas Agreement complies with Section 366.06, Florida Statutes, and Rule 25-9.034, Florida Administrative Code.
Territorial Agreement
The parties entered into an Amended and Restated Pasco County Territorial Agreement (Territorial Agreement) dated July 2007. The Territorial Agreement allows Chesapeake to serve these areas which are in close proximity to Peoples’ service area. This will allow as many persons and businesses as possible to receive economic and reliable natural gas service and avoid unnecessary duplication of facilities. A copy of the Territorial Agreement is attached as Exhibit 2. On July 26, 2007, Peoples and Chesapeake filed a joint letter clarifying and amending the Gas Agreement and Territorial Agreement (Exhibit 3).
The agreement does not provide for or involve the transfer of any customers or facilities. It is estimated that over the next twenty years approximately 15,000-20,000 residences and several new businesses could be built in the proposed areas. The nearest existing Chesapeake facilities are about 45 minutes away and another office is located about one hour away from the proposed service areas. Subsequent to activating a distribution system, Chesapeake typically handles operational and maintenance activities with internal resources until customer growth reaches a level that would support a third party agreement for services. Chesapeake is not aware of any operational issues that would negatively impact its ability to provide safe, reliable gas service to consumers in Pasco County.
Master Territorial Agreement
Since the parties have entered into previous territorial agreements regarding other areas of the state, and they may enter into other agreements in the future, they have entered into a Master Territorial Agreement (Exhibit 4) dated March 26, 2007. This Master Territorial Agreement contains terms and conditions that will govern all territory agreements entered into by Peoples and Chesapeake. Peoples and Chesapeake represent that approval of these agreements will not cause a decrease in the availability or reliability of natural gas by either existing companies or future customers.
The Territorial Agreement and the Master Territorial Agreement will not become effective until the Commission approves them. Any modification of the service areas must be reviewed and/or approved by the Commission. In addition, prior to the second anniversary of the Commission’s approval of the agreements, and no less frequently than every five years thereafter, the parties will meet to review the status of the agreement and will provide a written status report to the Commission. The Territorial Agreement and the Master Territorial Agreement comply with Section 366.04, Florida Statutes, and Rule 25-7.0471, Florida Administrative Code.
Based on the above, the Territorial Agreement, the Master Territorial Agreement, and the Gas Transportation Agreement by Peoples and Chesapeake (Exhibits 1-4) are in the public interest and should be approved. The Agreements should become effective upon the expiration of the appeal period following the issuance of the Consummating Order in this docket. Peoples and Chesapeake should be required to file revised tariff sheets within 30 days following the Consummating Order which reflect the change in their service territories.
Issue 2:
Should this docket be closed?
Recommendation:
Yes. If no protest is filed, this docket should be closed upon the issuance of a Consummating Order. If a protest is filed by a person whose substantial interests are affected within 21 days of the Order approving this amendment, the docket should remain open. (Brubaker)
Staff Analysis:
If no protest is filed, this docket should be closed upon the issuance of a Consummating Order. If a protest is filed by a person whose substantial interests are affected within 21 days of the Order approving this amendment, the docket should remain open.
