Discussion
of Issues
Issue 1:
Should the Commission approve the Companies' joint amended
petition for approval of a swing service rider tariff and associated rates?
Recommendation:
Yes. Staff recommends approval of the proposed swing
service rider tariff and associated rates as shown in Attachment A. The
effective date of the proposed swing service rider tariff should be six months after
the date of the Commission’s vote. Beginning September 1, 2017, the Companies
should submit by September 1 of each year for each of the next four years
included in the stepped implementation period, revised swing service rider
tariffs for Commission approval. The Companies should incorporate the
calculated offset of revenues from the swing service rider as a credit into the
PGA proceeding for that concurrent year. (Rome)
Staff Analysis:
Florida’s LDCs incur intrastate capacity costs when
they reserve upstream capacity to transport gas on intrastate pipelines (i.e., pipelines operating in Florida
only). In contrast to interstate pipelines for which there are established
capacity release mechanisms approved by the Federal Energy Regulatory
Commission, intrastate pipelines and LDCs do not have tariff provisions or other
mechanisms that support the release of capacity to pool managers. Therefore,
LDCs must use other means to recover intrastate capacity costs, such as the
PGA, the OBA, or through other alternative methods such as the Companies’ Phase
I and Phase II proposals.
To evaluate the Companies’ Phase II proposal in this
docket, it is necessary to offer some background information regarding the
operational differences among the Companies as well as the Phase I proposal
filed in 2015 in Docket No. 150117-GU. Phase II would expand on the results of
Phase I and include transportation service customers who are not currently
being allocated intrastate capacity costs even though they share in the benefits
from projects such as infrastructure upgrades.
Background
Operational Differences among the Companies
Sales customers are primarily residential and small
commercial customers that purchase gas from an LDC and receive allocations of
intrastate capacity costs through the PGA charge. Only Florida Public Utilities
Company and Florida Public Utilities Company – Fort Meade have sales customers.
The Companies’ transportation customers can be categorized
as TTS (Transitional Transportation Service) or non-TTS. TTS program shippers
purchase gas for residential and small commercial customers in aggregated
customer pools who do not contract directly with a shipper for their gas
supply. Only Florida Public Utilities Company – Indiantown Division and
Chesapeake have TTS customers. TTS customers receive allocations of intrastate
capacity costs through the OBA mechanism, which allows Indiantown and
Chesapeake to assign intrastate capacity costs to TTS shippers, who then may pass
the costs on to the TTS customers for whom they purchase gas.
Non-TTS customers are primarily large commercial or
industrial customers who contract directly with a shipper for their gas supply.
Non-TTS customers are not currently paying a share of the intrastate capacity
costs.
Table 1-1 summarizes the number of customers for each of
the Companies and shows the mechanism by which each company currently recovers
intrastate capacity costs from its customers. Non-TTS customers would begin
paying a share of the intrastate capacity costs under the proposed swing
service rider, with a few exceptions that are specifically discussed later in
this recommendation.
Table 1-1
Summary of Differences among
Companies
|
Company / Customer
Category
|
Customers
|
Therms per Year
(000)
|
Cost Recovery
|
|
|
|
|
|
|
Florida Public Utilities Company / Sales
|
55,557
|
36,386
|
PGA
|
|
Fort Meade / Sales
|
666
|
128
|
PGA
|
|
Indiantown / TTS Transportation
|
693
|
196
|
OBA
|
|
Chesapeake / TTS Transportation
|
14,008
|
7,082
|
OBA
|
|
Subtotal for PGA and OBA Customers
|
70,924
|
43,792
|
|
|
|
|
|
|
|
Non-TTS Transportation Customers by Company:
|
|
|
|
|
Florida Public Utilities Company
|
1,677
|
36,717
|
None
|
|
Fort Meade
|
6
|
20
|
None
|
|
Indiantown
|
2
|
2,599
|
None
|
|
Chesapeake
|
2,502
|
163,471
|
None
|
|
Subtotal for Non-TTS Transportation Customers
|
4,187
|
202,807
|
|
|
|
|
|
|
|
Total for all Customers
|
75,111
|
246,599
|
|
Source: Companies’ responses to Staff’s First Data
Request; May 11, 2016.
Summary of Companies’ Phase I Proposal (Docket
150117-GU)
In 2015, the Companies proposed Phase I of an anticipated
two-phase process to change the way the Companies allocate intrastate capacity
costs. In Phase I, the Companies sought approval to aggregate the intrastate
capacity costs from the Companies and spread those costs across all customers
in the PGA and TTS pools. Benefits cited by the Companies in support of the
proposal included the ability to allocate the intrastate capacity costs across
a larger body of customers, thereby reducing the impacts to customers of
individual systems as a result of infrastructure upgrades. The Commission approved
Phase I in Order No. PSC-15-0321-PAA-GU and acknowledged that the modified cost
allocation methodology and resulting revisions to the PGA factor calculation
would enable the Companies to have the ability to better balance the costs of
individual projects across the entire Chesapeake Florida system, in contrast to
spreading such costs on a more limited system-by-system basis.
The Companies’ Phase I filing envisioned a separate subsequent filing (i.e., Phase II) in which the Companies
would request to expand the allocation of intrastate capacity costs to
transportation customers who are not part of the PGA or TTS pools.
Evaluation of Companies’ Phase II Proposal
The proposed new swing service rider would expand the
allocation of intrastate capacity costs and assess an appropriate portion of
these costs to customers that are not currently subject to either the PGA or
the OBA mechanism, consistent with the regulatory principle that the cost
causer should pay its fair portion of the costs incurred. The Companies’ rate
schedules that would be subject to the proposed swing service rider and the
proposed swing service tariff rates for each applicable rate schedule are shown
in Attachment A.
The Companies noted that customers subject to the proposed
swing service rider would include TTS pool customers that currently receive an
allocation of the intrastate capacity costs through the OBA mechanism. However,
this does not mean that the TTS pool customers would be assigned an additional
allocation of costs. As is discussed in greater detail later in this
recommendation, the Companies’ Phase II proposal would allocate costs to these
customers directly through the swing service rider rather than through the OBA
mechanism.
Allocation Methodology
The Companies asserted that the proposed cost allocation
methodology would function similar to the swing service charge used by Peoples
Gas System to allocate system-wide balancing costs among the rate classes based
on relative consumption. The proposed three-step methodology would be used to
determine the appropriate cost allocations by transportation rate schedule.
Step one consists of compiling the throughput volumes for
each affected transportation and sales rate schedule to determine the
percentage split between transportation and sales service customers relative to
the Companies’ total throughput for the affected rate schedules. This step
would be performed annually based on the most recent 12-months’ usage data.
Based upon information provided in response to a staff data request, the initial
appropriate split for allocating the annual total intrastate capacity costs of
$5.3 million is 64.39 percent ($3.4 million) to transportation customers and
35.61 percent ($1.9 million) to sales customers.
In step two, the transportation customers’ share of $3.4
million would be allocated to the affected transportation rate schedules in
proportion to each rate schedule’s share of the Companies’ total throughput for
the affected transportation rate schedules. The costs allocated to each rate
schedule would then be divided by the rate schedule’s number of therms to
calculate the cost recovery factor (i.e.,
rider) to be billed by rate schedule directly to the transportation customers.
In step three, the aggregate of the swing service revenues
received would be credited to the PGA, thereby reducing costs recovered from
customers subject to the PGA. Sales customers’ proportionate share of the intrastate
capacity costs would remain embedded in the Companies’ PGA. Any over-recovery
or under-recovery of intrastate capacity costs allocated to the PGA by the
Companies would continue to be subject to the annual PGA “true-up.”
Stepped Implementation for Non-TTS Customers
The Companies expressed recognition that the
implementation of the proposed swing service rider could have a significant
financial impact on non-TTS transportation customers because they do not
receive an allocation of intrastate capacity costs through the current Phase I
mechanism. Non-TTS transportation customers comprise the largest volume user
groups on the Companies’ systems.
The Companies proposed a stepped implementation process
for the swing service rider to better allow these large volume customers to
plan and adjust to the new cost allocation. Specifically, the Companies proposed
to implement the swing service rider in stages over a period of five years for
non-TTS transportation customers. The Companies’ amended petition requested
approval to have the swing service rider applied annually at a rate of 20
percent of the total allocation for the first year, and thereafter increase by
an additional 20 percent annually so that the total allocation of 100 percent
would be reached in year five.
Treatment of TTS Pool Customers
The Companies’ TTS pool customers would not be subject to
the stepped implementation process and would receive their full Phase II allocation
beginning in the first year. To clarify, TTS pool customers would not receive a
larger allocated portion of the intrastate capacity costs upon implementation
of Phase II. A procedural change from the current Phase I allocation process is
that the allocated costs would henceforth be charged directly to the TTS pool
customers through the swing service rider rather than being charged by the
Companies to shippers who then pass the costs through to TTS pool customers.
The Companies stated that assessing the charge directly to TTS pool customers
would provide consistency across the Companies’ service platform regarding the
method by which the allocated costs are recovered from transportation service
customers.
As discussed above, non-TTS customers would begin to
receive allocations of intrastate capacity costs under the Companies’ Phase II
proposal. Therefore, beginning in the first year, the implementation of Phase
II would result in lower allocations of intrastate capacity costs to TTS pool
customers than those customers currently receive. The Companies’ TTS pool rate
schedules are designated by an asterisk in Attachment A to this recommendation.
Balancing of Impacts among Customer Classes
The Companies asserted that the implementation of Phase II
would enable the Companies to appropriately recover intrastate capacity costs,
while allocating the costs in a more equitable manner across customer classes. The
Companies acknowledged that the stepped implementation would extend the
unbalanced cost allocation to the PGA and TTS pool customers for a longer
period of time. However, given: (a) the significance of potential financial
impacts to large volume (i.e.,
non-TTS) transportation customers, and (b) that unlike PGA and TTS pool
customers, non-TTS customers have never been allocated any portion of the
intrastate capacity costs, the Companies suggested that the proposed stepped
implementation process represents a reasonable approach to achieving an
appropriate allocation of these costs across all customer classes.
In response to a staff data request, the Companies stated
that they had considered a 10-year implementation period. However, the
Companies stated in the amended petition that the proposed five-year period with
the 20 percent per year stepped allocation was an effort to strike a reasonable
balance between finding the earliest and largest benefit to PGA and TTS pool
customers, while not overburdening the non-TTS transportation customers. The
Companies further stated that efforts to resolve inequities in the current
allocation process included consideration of the benefits to the utility and
the general body of ratepayers of retaining the non-TTS customers due to the
large gas volumes typically used by customers in those rate classes.
Rate Schedules Excluded from Proposed Swing
Service Rider
In response to a staff data request, the Companies stated
that in general, they are proposing that the swing service rider exclude transportation
rate schedules historically excluded from other billing adjustments made by the
Companies, such as the Conservation Cost Recovery adjustment clause. The
Companies’ rate schedules that would be excluded from the swing service rider
are listed in Table 1-2, below.
Table 1-2
Rate Schedules Excluded from
Swing Service Rider
|
Company
|
Rate Schedule
|
|
|
|
|
Florida Public Utilities Company
|
Interruptible Transportation Service
|
|
|
Natural Gas Vehicle Transportation Service
|
|
|
Gas Lighting Service Transportation Service
|
|
|
|
|
Florida Public Utilities Company – Fort Meade
|
Natural Gas Vehicle Transportation Service
|
|
|
|
|
Florida Public Utilities Company – Indiantown
|
Natural Gas Vehicle Transportation Service
|
|
|
|
|
Chesapeake (Florida Division)
|
Firm Transportation Service-13
|
|
|
Natural Gas Vehicle Transportation Service
|
Source: Companies’ responses to Staff’s First Data
Request; May 11, 2016.
The Companies excluded Florida Public Utilities Company’s Interruptible
Transportation Service (ITS) rate schedule because the nature of service is
substantially different from that of a firm transportation customer inasmuch as
it is available to be interrupted at the discretion of the utility. The
Companies are not proposing to apply the swing service rider to this rate
schedule because the non-firm nature of ITS customers’ loads does not demand
that the Companies acquire additional firm capacity to support their
consumption.
Each of the four Companies has a Natural Gas Vehicle
Transportation Service (NGV) rate schedule. The Companies stated that these
rate schedules were designed as incentive mechanisms. As such, the Companies
excluded the NGV rate schedules so as to maintain the full incentive nature of
these schedules and to continue to encourage the development of natural gas
vehicle opportunities.
The Companies excluded Florida Public Utilities Company’s Gas
Lighting Service Transportation Service (GLSTS) rate schedule because the
actual data for this initial period showed no therm usage for this rate
schedule. If there is therm usage for this rate schedule in the future, the
Companies anticipate that they then would propose that it be included in the
calculation of the swing service rider.
The Companies excluded Chesapeake’s Firm Transportation
Service-13 (FTS-13) rate schedule because it is a closed schedule with one
remaining customer taking service. This remaining customer has approached the
utility in an effort to negotiate a special contract in order to avoid a bypass
situation.
Customer Impacts
The proposed Phase II allocation methodology would result
in a reduction of costs assigned to sales (PGA) customers and transportation customers
in the TTS pools. The increased costs that would be borne by non-TTS
transportation customers would be mitigated by the stepped implementation of
the swing service rider factors.
PGA Customers
Under the proposed Phase II allocation methodology, PGA
customers would receive reduced allocations of the intrastate capacity costs of
approximately $0.014 per therm in the first year of the stepped implementation period
and $0.028 per therm by year two of the program. At the end of the stepped
implementation in year 5, the full estimated reduction would be approximately
$0.07 per therm for PGA customers. For a typical residential customer using 20
therms per month, this would represent a monthly bill savings of about $1.40.
TTS Pool Customers
As stated earlier in this recommendation, the Companies’
TTS pool customers would not be subject to the stepped implementation process and
would receive their full Phase II allocation through the swing service rider
beginning in the first year. Under the proposed Phase II allocation
methodology, TTS pool customers would receive a reduced allocation of the intrastate
capacity costs of approximately $0.07 per therm. For a typical residential
customer using 20 therms per month, this would represent a monthly bill savings
of about $1.40.
Non-TTS Transportation Customers
Under the proposed Phase II allocation methodology,
non-TTS transportation customers would begin to receive a proportionate
allocation of the intrastate capacity costs through the stepped implementation
process. The swing service rider rates included in Attachment A that are
applicable to non-TTS transportation customer rate schedules represent the
Companies’ proposal to assess 20 percent of the full swing service rider
allocation for the first year of stepped implementation. As is discussed in
greater detail later in this recommendation, the Companies anticipate separate
annual tariff filings over the next four years seeking approval to accomplish
the stepped increases in swing service rider rates necessary to achieve the
proportionate cost allocations that are appropriate for each non-TTS
transportation customer rate schedule.
Transportation Customers under Special Contracts
The Companies noted that as special contracts come up for
renewal over time, the allocation of some appropriate portion of the intrastate
capacity costs would be included as a topic in the contract negotiations. Any
such negotiated special contracts would result in an additional credit to the
PGA. Such discussions also would take into consideration the market conditions
at the time of the negotiations and the recognition that retention of customers
subject to special contracts is beneficial to the utility and the general body
of ratepayers due to the very large gas volumes typically contracted for by
these customers. In the aggregate, customers under special contracts consume
nearly half of the total system throughput.
Outreach to Affected Parties
During the evaluation of how to address the allocation of
intrastate capacity costs, the Companies hosted a meeting in May 2015 to which
all interested parties, including OPC and Commission staff, were invited. At
the meeting, the Companies provided an opportunity for attendees to engage in
an open dialogue. Subsequent to the meeting, the Companies communicated
directly with interested parties, including shippers, regarding potential
plans, options, and areas of concern. The Companies also have developed a
communication strategy that will include direct communication with the largest
transportation customers, as well as notices issued via bill inserts for all
non-TTS transportation customers. At present, the Companies are having
discussions with appropriate internal groups regarding the best means of
disseminating information to impacted customers.
Companies’ Future Filings
To complete the proposed five-year stepped implementation
process, the Companies would submit filings each year for the next four years (i.e., 2017 through 2020) requesting
Commission approval of the revised swing service rider rates. In response to a
staff data request, the Companies proposed that procedurally, the annual update
of the tariff amounts be filed in the same general time frame and handled in a
manner similar to the Gas Reliability Infrastructure Program.
The Companies would calculate the prospective swing
service rider rates annually based on the most recent 12 months of actual data.
Thus, as a hypothetical example, the Companies would use actual data from June
2016 through May 2017 to calculate the rates to be in effect from January 2018
through December 2018. The filing would be submitted to the Commission by
September 1, 2017. This proposed time line would allow the Companies sufficient
time to calculate the swing service rider in advance of the annual PGA
projection clause, thereby facilitating the incorporation of the calculated
offset into the PGA proceeding for that current year. In essence, the amount
calculated and billed, in the aggregate, to the transportation customers would
be reflected as a credit to the PGA balance at the time of its calculation.
Proposed Delayed Implementation Date
The Companies expressed their belief that non-TTS
transportation customers should bear their fair portion of intrastate capacity
costs. However, the Companies also recognized the potential impacts to large
customers that historically have not received allocations of these costs. Therefore,
the Companies requested that the effective date for implementation of the swing
service rider tariff be delayed for six months from the date of the Commission’s
approval to mitigate impacts to non-TTS customers and to better facilitate the
communication efforts with affected customers. All proposed swing service rider
rates included in Attachment A would become effective six months after the date
of the Commission’s approval and would be applicable through the last billing
cycle for December 2017.
Conclusion
Based on its review of the information provided in the
joint petition, amended petition, and in response to staff’s data requests,
staff believes that the Companies’ proposed swing service rider is reasonable.
Staff believes that the implementation of the proposed swing service rider
would enable the Companies to recover their costs while allocating the costs in
a more equitable manner across customer classes.
Staff recommends approval of the proposed swing service
rider tariff and associated rates as shown in Attachment A. The effective date
of the proposed swing service rider tariff should be six months after the date
of the Commission’s vote. Beginning September 1, 2017, the Companies should
submit by September 1 of each year for each of the next four years included in
the stepped implementation period, revised swing service rider tariffs for
Commission approval. The Companies should incorporate the calculated offset of
revenues from the swing service rider as a credit into the PGA proceeding for
that concurrent year.
