Discussion of Issues

Issue 1: 

 Should the Commission approve the amendment to the contract between Chesapeake and Orange?

Recommendation: 

 Yes, the Commission should approve the amendment because it allows Chesapeake to continue its relationship with Orange through December 2025, prevent bypass, and establish a rate that covers the incremental cost of service, thereby benefiting Chesapeake’s general body of ratepayers. (Ollila)

Staff Analysis: 

 Chesapeake seeks approval of an amendment to its contract with Orange. The proposed amendment extends the contract term to December 2025 and provides for what Chesapeake describes as a modest reduction in the negotiated transportation rate.

Chesapeake explains that the Orange facility is within 1,000 feet of FGT, and that Orange could construct an extension to interconnect with FGT for approximately $450,000, recoverable in three years. Chesapeake avers that although Chesapeake and Orange have had a lengthy business relationship, the economic incentive for Orange to remain with Chesapeake is marginal. In recent years Orange’s usage has decreased, resulting in a reduced incentive to remain on Chesapeake’s system; at the same time the initial installation costs associated with the facilities that Chesapeake installed to serve Orange have largely been recovered.

The proposed negotiated (confidential) rate is subject to a three percent annual increase over the term of the contract and fully covers the incremental cost of service after the second year of the proposed 10-year extension to the contract. The incremental cost of service study includes operations and maintenance expense, depreciation, taxes, and return on investment, resulting in an annual cost of $120,873, which is estimated to decrease after the first year of the contract. According to Chesapeake, the proposed rate properly recognizes the value of Orange as a Chesapeake customer, as well as the risk of harm to Chesapeake and its ratepayers if Orange were to bypass Chesapeake.

Conclusion

In its petition, Chesapeake states that the Commission has recognized:

Having industrial customers on the system greatly benefits all users, particularly the residential customers. Customers benefit because large load users are able to absorb a greater portion of the fixed cost necessary to provide the service; as a result, rates are lower, especially for small load users. Conversely, losing industrial customers who have alternative fuel sources or viable bypass options would pose a greater burden on all ratepayers, and could result in higher rates.[2]

Staff recommends that the Commission approve the amendment because it allows Chesapeake to continue its relationship with Orange through December 2025, prevent bypass, and establish a rate that covers the incremental cost of service, thereby benefiting Chesapeake’s general body of ratepayers.

Issue 2: 

 Should this docket be closed?

Recommendation: 

 If no protest is filed by a person whose substantial interests are affected within 21 days of the issuance of the order, this docket should be closed upon the issuance of a consummating order. (Villafrate)

Staff Analysis: 

 If no protest is filed by a person whose substantial interests are affected within 21 days of the issuance of the order, this docket should be closed upon the issuance of a consummating order.