Case Background
On February 12,
2016, St. Joe Natural Gas Company, Inc. (St. Joe) filed a request for approval
to restructure its rates to address a shortfall in revenues due to the
permanent loss of its largest and only industrial customer, the Arizona
Chemical Company. St. Joe is a gas utility subject to the regulatory
jurisdiction of the Commission pursuant to Section 366.06, Florida Statutes
(F.S.).
St. Joe filed
its petition as a request for a limited proceeding pursuant to Section 366.076,
F.S., and Commission Rule 25-7.0391, Florida Administrative Code (F.A.C.), and
requested that the petition be processed using the Commission’s proposed agency
action procedure pursuant to subsection 366.06(4), F.S. On March 10, 2016, St.
Joe agreed to waive the 60-day statutory file and suspend date for the proposed
tariff revisions submitted with its petition pursuant to subsection 366.06(3),
F.S.
The Commission
has approved rate restructurings for gas utilities in limited proceedings filed
using the proposed agency action procedure on prior occasions. In 1987, the
Commission approved the reallocation of West Florida Natural Gas Company’s
revenue shortfall resulting from reduced sales to interruptible industrial customers. In 2002, the Commission approved Indiantown
Gas Company’s rate restructuring to more closely align the rates of customers
with the costs to serve them, and to help ensure the retention of load
associated with two large industrial customers.
The Commission
approved St. Joe’s current rates in 2008. In the instant petition, St. Joe is not
requesting any changes to the total revenue requirement, operating expenses,
rate base, or cost of capital that were approved in the 2008 rate case
proceeding. Rather, St. Joe seeks only to have its rates restructured so that
it will be able to achieve the revenues that were authorized in that
proceeding. Specifically, St. Joe requests to reallocate the $285,011 annual
revenue deficiency sustained from the loss of Arizona Chemical Company
(Arizona) to the remaining customer classes according to the ratio that each
class’s revenues had to total revenues authorized in the 2008 rate case, minus
Arizona’s revenue contribution.
During its
evaluation of the petition, staff issued a data request to St. Joe for which a
response was received on March 24, 2016. On April 11, 2016, staff convened a
customer meeting in Port St. Joe to hear and respond to customer testimony and
questions related to the utility’s petition. Three customers provided comments
at the customer meeting. The Commission has jurisdiction over this matter
pursuant to Section 366.06, F.S.
Discussion
of Issues
Issue 1:
Should the Commission approve St. Joe's request for
rate restructuring?
Recommendation:
Yes, the Commission should approve St. Joe’s request
for rate restructuring and the associated rates as shown in Table 1-1 of this
recommendation. The restructured rates should become effective for meter
readings on or after August 7, 2016. Within 10 days of the Commission’s vote,
St. Joe should submit revised tariff sheets reflecting the changes to the gas
delivery service rates for administrative approval by staff. Pursuant to Rule
25-22.0406(8), F.A.C., customers should be notified of the revised rates in
their first bill containing the new rates. St. Joe should submit a copy of the
notice to staff for approval prior to its use. If in the future another
customer desires to take service under St. Joe’s FTS-5 rate schedule, St. Joe
should file documentation with the Commission Clerk (in Docket No. 160000-OT)
which shows that the tariff rate is adequate to recover the cost to serve the
new customer. (Rome, Draper)
Staff Analysis:
The proposed revenue neutral restructured rates are
intended to recover no more revenues than were approved in St. Joe’s 2008 rate
case proceeding. St. Joe seeks approval only for revisions to its residential
and commercial gas delivery service rates, which recover St. Joe’s costs to own
and operate its distribution system. Customers also pay a customer charge and a
purchased gas adjustment factor which are not affected by this proposal.
Background
St. Joe currently serves approximately 2,954 residential
and commercial customers in Port St. Joe, Mexico Beach, Wewahitchka, and
unincorporated areas of Gulf County, Florida. In St. Joe’s 2008 rate case
proceeding, the Commission identified industrial customer Arizona as being
potentially at risk regarding its ability to continue operations.
For business reasons outside of St. Joe’s control, Arizona
closed its operations in 2009. Arizona was the only customer taking service
under St. Joe’s FTS-5 rate schedule and at the time of the 2008 rate case,
Arizona represented approximately 77 percent of St. Joe’s gas throughput and 20
percent of its total revenues.
Due to the closure of Arizona, St. Joe stated that it no longer has any
customers taking service under the FTS-5 rate schedule and has received no
revenues from this rate class since 2009. St. Joe stated that as a result of
Arizona’s closure, it receives annual revenues that are $285,011 less than the
revenues approved by the Commission in Order No. PSC-08-0436-PAA-GU.
As a result of general economic conditions since 2008, the
number of St. Joe’s residential and commercial customers and their therm usage has
not changed significantly. During the 2008 rate case, St. Joe provided
testimony that a proposed new development (Windmark II) had the potential to
lead to new customer growth.
However, in response to staff’s data request in the instant docket, St. Joe
stated that due to the recession, the Windmark II development has been scaled
back from approximately 1,500 residential units to a residential subdivision of
130 lots. St. Joe also stated that to date there are approximately 38
residential homes built in Windmark II, of which 30 are currently natural gas
customers of the utility. Finally, St. Joe further stated that it chose to
defer seeking rate relief until the instant docket due to the loss of jobs in
the community caused by the closing of Arizona and the loss of residential
customers’ homes as a result of the mortgage crisis.
Comparison of Limited Proceeding versus Standard
Rate Case Proceeding
St. Joe asserts that filing the instant petition as a
limited proceeding is advantageous because it offers the opportunity for
efficient resolution of a rate relief issue that is limited in scope and
benefits customers by avoiding the expenses associated with a full and lengthy
rate case. The Commission approved $55,003 in rate case expense in St. Joe’s
last rate case proceeding. In
its response to staff’s data request, St. Joe stated that it had incurred
approximately $10,000 in expenses to date in the instant limited proceeding. However,
staff notes that St. Joe is not seeking to recover any costs associated with this
filing from its customers. Therefore, St. Joe’s assertion that filing the
instant petition as a limited proceeding is preferable to a regular rate case
filing appears to be reasonable.
Customer Meeting
Staff conducted a customer meeting in Port St. Joe,
Florida, on April 11, 2016. Three customers provided comments for the record. The
first speaker expressed objections to the increased gas delivery service rates
that would result from the proposed rate restructuring; the customer suggested
that the proposed increase was inappropriate since returns on bank money market
accounts were so low. The customer also suggested that increases to gas rates
could cause customers to convert to all-electric homes. The second speaker
suggested that St. Joe take a more proactive role to solicit new customers to
help in recovering the revenue shortfall from the loss of Arizona. The third
speaker suggested that in general the increase appeared to be reasonable when
one considered that the last increase was eight years ago. Customers did not
state any quality of service complaints. No written comments were received in
the docket file.
Evaluation of Proposed Rate Restructuring
To recover the $285,011 annual revenue deficiency caused
by the loss of Arizona, St. Joe proposes to reallocate the revenue deficiency
to the remaining customer classes according to the ratio that each class’s
revenues had to total revenues authorized in the 2008 rate case, minus
Arizona’s revenue contribution. The proposed rate restructuring would result in
increases to the gas delivery service rates under residential rate schedules
RS-1, RS-2, and RS-3, and commercial rate schedules GS-1, GS-2, GS-4, FTS-1,
FTS-2, and FTS-4.
Restructuring Methodology
In schedules provided in support of the current petition,
St. Joe established its starting point for the rate restructuring presentation
by providing the Commission-approved rate base, revenues, expenses, and rate of
return from the 2008 rate case. St. Joe removed the revenues attributable to
Arizona and then determined the percentage that each rate schedule comprised of
the remaining system revenues. These percentages then were used to reallocate
the annual Arizona-related revenues of $285,011 proportionately among the other
rate schedules. To illustrate the calculation for one rate class, in the 2008
rate case the rates for the RS-1 rate schedule were set to provide 18.63
percent of total revenues excluding Arizona. Thus, the RS-1 rate schedule is
now allocated $53,099 ($285,011 x 18.63%) of the Arizona-related revenues. The
same methodology was used to reallocate the expenses and taxes associated with
Arizona proportionately among the other rate schedules; therefore, the proposed
post-restructuring rate of return on investment of 5.44 percent is equal to the
rate of return approved for St. Joe in the 2008 rate case.
In response to staff’s data request, St. Joe confirmed
that the total rate base associated with serving Arizona was $7,849 and that
this amount was retired from the company’s rate base in January 2010;
therefore, the company no longer earns a return on that amount. Staff believes
that the impact of this retirement on St. Joe’s rate base and its rate of
return on investment is de minimis. St. Joe further stated that it has not
realized any material savings in operation and maintenance costs as a result of
no longer serving Arizona. This is due to the close proximity of Arizona’s
facilities to St. Joe’s natural gas main and the fact that St. Joe provided
service to Arizona through only three meters with less than 50 feet of
dedicated pipeline.
St. Joe also provided schedules in support of its petition
indicating that in the absence of rate relief, the utility forecasts that it
will have a negative net operating income and negative return on common equity.
This assertion is consistent with information provided in St. Joe’s Earnings
Surveillance Report (ESR) for the twelve months ending December 31, 2015, in
which St. Joe reported a net operating income for the year of ($111,647).
Staff’s calculation of St. Joe’s return on common equity based on information
provided in the ESR is (11.03) percent.
Customer Impacts
All of St. Joe’s residential customers are retail sales
customers. Commercial customers may elect either sales or transportation
service. Commercial sales customers receive their gas supply directly from St.
Joe and take service under the GS rate schedules. Transportation customers
arrange for the purchase of the gas through a gas marketer and take service
under the FTS rate schedules. The base rate charges are the same for commercial
sales and transportation customers. At this time, all of St. Joe’s commercial
customers are retail sales customers with the exception of one transportation
customer that takes service under the FTS-4 rate schedule. A comparison of St.
Joe’s current and proposed gas delivery service rates is shown in Table 1-1
below. The rates shown in Table 1-1 do not include the cost of the gas itself.
Table 1-1
Comparison of Current and
Proposed Delivery Service Rates
|
Rate Schedule
|
Annual Usage
(Therms)
|
Current Delivery
Rate
(Cost per Therm)
|
Proposed Delivery
Rate
(Cost per Therm)
|
|
|
|
|
|
|
RS-1
|
Less than 150
|
$0.70441
|
$1.29614
|
|
RS-2
|
150 – 299
|
$0.56729
|
$0.87058
|
|
RS-3
|
300 or more
|
$0.50381
|
$0.72859
|
|
GS-1/FTS-1
|
Less than 2,000
|
$0.43981
|
$0.66605
|
|
GS-2/FTS-2
|
2,000 – 87,500
|
$0.31801
|
$0.42319
|
|
GS-4/FTS-4
|
87,500 – 1,000,000
|
$0.11749
|
$0.15840
|
Source: St. Joe Petition Schedule 5.
The impact to a typical customer bill of the proposed
rates is shown for each rate schedule in Table 1-2 below. For all rate
schedules shown with the exception of FTS-4, the bills listed include the
customer charge, gas delivery service charge, and St. Joe’s current gas cost of
$0.55 per therm. The bill for rate schedule FTS-4 does not include the cost of
gas because the customer is a transportation service customer. St. Joe does not
currently have any customers taking service under rate schedules GS-4, FTS-1,
or FTS-2. The bills do not include conservation costs, utility taxes, franchise
fees, or gross receipts taxes.
Table 1-2
Comparison of Typical Current
and Proposed Monthly Bills
|
Rate Schedule
|
Average Monthly
Usage (Therms)
|
Current Monthly
Bill
|
Proposed Monthly
Bill
|
|
|
|
|
|
|
RS-1
|
8
|
$23.04
|
$27.77
|
|
RS-2
|
18
|
$36.11
|
$41.57
|
|
RS-3
|
31
|
$52.67
|
$59.64
|
|
GS-1
|
34
|
$53.65
|
$61.35
|
|
GS-2
|
481
|
$487.51
|
$538.11
|
|
FTS-4
|
31,000
|
$5,642.19
|
$6,910.37
|
Source: St. Joe Petition Schedule 5.
For purposes of comparison, Table 1-3 below shows the
dollar and percentage increases in typical bills proposed in the instant
petition for each rate schedule, as compared to the increases approved by the
Commission in St. Joe’s 2008 rate case. As the table shows, the resultant bill increases
proposed in this docket would be less than the increases approved in the 2008
rate case for all rate schedules.
Table 1-3
Comparison of 2016 vs. 2008
Increases in Typical Monthly Bills
|
Rate Schedule
|
2008 Increase
|
2008 Percentage
Increase
|
2016 Increase
|
2016 Percentage
Increase
|
|
|
|
|
|
|
|
RS-1
|
$6.59
|
34.54%
|
$4.73
|
20.55%
|
|
RS-2
|
$10.36
|
32.70%
|
$5.46
|
15.12%
|
|
RS-3
|
$14.81
|
30.82%
|
$6.97
|
13.23%
|
|
GS-1
|
$13.00
|
25.08%
|
$7.70
|
14.34%
|
|
GS-2
|
$83.56
|
14.87%
|
$50.60
|
10.38%
|
|
FTS-4
|
$2,133.98
|
60.83%
|
$1,268.18
|
22.48%
|
Sources: St. Joe Petition Schedule 5, and Order No.
PSC-08-0436-PAA-GU, Schedule 5.
St. Joe’s FTS-5 Rate Schedule
The rates in the FTS-5 rate schedule under which Arizona
formerly took service were established in the 2008 rate case based on Arizona’s
estimated cost to bypass St. Joe’s system. This proposed target revenue for the
FTS-5 rate schedule enabled St. Joe to retain Arizona as a customer, who even
at reduced rates, made contributions to the recovery of St. Joe’s fixed costs. The
FTS-5 rate schedule is applicable to transportation customers whose annual
volumes are 1 million therms or more; there are no customers taking service
under this rate schedule at the present time. St. Joe did not request any
changes to its FTS-5 rate schedule in its current petition and staff is not
recommending any changes at this time. However, in the event that a new
customer desires to take service under the FTS-5 rate schedule, staff
recommends that St. Joe file documentation with the Commission to illustrate
that the tariff rate is adequate to recover the cost to serve the new customer.
Conclusion
The proposed revenue neutral restructured rates are
intended to recover no more revenues than were approved in St. Joe’s 2008 rate
case proceeding. The proposed post-restructuring rate of return on investment
of 5.44 percent is equal to the rate of return approved for St. Joe in the 2008
rate case. Based on staff’s review of the 2008 rate case proceedings and the
information provided in this docket, St. Joe’s proposed rate restructuring
appears to be reasonable.
Staff recommends that the Commission approve St. Joe’s
request for rate restructuring and the associated rates as shown in Table 1-1
of this recommendation. The restructured rates should become effective for
meter readings on or after August 7, 2016. Within 10 days of the Commission’s
vote, St. Joe should submit revised tariff sheets reflecting the changes to the
gas delivery service rates for administrative approval by staff. Pursuant to
Rule 25-22.0406(8), F.A.C., customers should be notified of the revised rates
in their first bill containing the new rates. St. Joe should submit a copy of
the notice to staff for approval prior to its use. If in the future another
customer desires to take service under St. Joe’s FTS-5 rate schedule, St. Joe
should file documentation with the Commission Clerk (in Docket No. 160000-OT) which
shows that the tariff rate is adequate to recover the cost to serve the new
customer.
Issue 2:
Should this docket be closed?
Recommendation:
No. If no person whose substantial interests are
affected by the proposed agency action files a protest within twenty-one days
of the issuance of the order, a consummating order will be issued. The docket
should remain open for staff’s verification that the revised tariff sheets and
customer notice have been filed by the utility and approved by staff. When the
tariff and notice actions are complete, this docket may be closed
administratively. (Mapp)
Staff Analysis:
If no person whose substantial interests are
affected by the proposed agency action files a protest within twenty-one days
of the issuance of the order, a consummating order will be issued. The docket
should remain open for staff’s verification that the revised tariff sheets and
customer notice have been filed by the utility and approved by staff. When the
tariff and notice actions are complete, this docket may be closed
administratively.
