Case Background
On May 6, 2016,
Peoples Gas System (Peoples or Company) filed a petition for approval of tariff
modifications to its Natural Choice Transportation Service Rider (Rider NCTS),
the Firm Delivery and Operational Balancing Agreement (Firm Delivery
Agreement), and the cash-out price for negative imbalances in Rider NCTS and
the Individual Transportation Service Rider (Rider ITS).
Rider NCTS
allows certain customers to be part of a customer pool that uses a third party
supplier or pool manager to meet their natural gas requirements. The pool
manager assumes the responsibility for supplying the natural gas for its
customer pool. Peoples receives the gas delivered by the pool manager and
redelivers the gas to the customer’s site. Rider ITS is available for larger
commercial customers who choose their own pool manager and are not part of a
customer pool. The Firm Delivery Agreement is required to be signed by pool
managers selling gas to an NCTS pool and is a standard form in Peoples’ tariff.
The Office of
Public Counsel (OPC) requested interested party status in this docket on June
7, 2016. Peoples responded to staff’s first data request on June 22, 2016. On
June 24, 2016, a noticed informal meeting was held with participation by staff,
representatives from Peoples, OPC, and other interested persons, including pool
managers. The purpose of the meeting was for Peoples
to provide an overview of their filing, explain the calculations, and allow
staff and interested persons to ask questions. Prior to the June 24 informal meeting,
Tiger Natural Gas, Inc. filed comments expressing concerns regarding certain
aspects of Peoples’ petition and Infinite Energy, Inc. sent an email (which is
in the docket file), also expressing concerns. On July 15, 2016, Peoples filed
an amended petition and tariff, stating that the amended petition resulted in
part from comments received at the informal meeting.
In both filings
Peoples waived the 60-day suspension deadline pursuant to Section 366.06(3),
Florida Statutes (F.S.). The proposed tariff pages are contained in Attachment
1. The Commission has jurisdiction over this matter pursuant to Sections
366.03, 366.04, 366.05, and 366.06, F.S.
Discussion
of Issues
Issue 1:
Should the Commission approve Peoples' tariff
modifications filed in the amended petition?
Recommendation:
Yes, the Commission should approve Peoples’ tariff
modifications filed in the amended petition, effective October 11, 2016.
(Ollila, Rome)
Staff Analysis:
Peoples’ proposed modifications to Rider NCTS, the
Firm Delivery Agreement, and the cash-out price of Riders NCTS and ITS are
discussed below.
Rider NCTS
Rider NCTS was approved by the Commission in 2000,
following the Commission’s adoption of Rule 25-7.0335, Florida Administrative
Code (F.A.C.). Rule
25-7.0335, F.A.C., requires local distribution companies, such as Peoples, to
make gas transportation service available to non-residential customers. Rider
NCTS is a voluntary program that allows residential customers with an annual
consumption of 2,000 or more therms and non-residential firm customers to use a
pool manager to meet their natural gas requirements. There are currently 18
pool managers qualified to serve Peoples’ NCTS customer pools. Peoples stated
that the number of NCTS customers has grown from 3,398 in October 2000 to
23,584 in April 2016. NCTS customers consume about 17 percent of system
throughput and are not subject to Peoples’ purchased gas adjustment (PGA)
charges, whereas sales customers who buy their gas from Peoples are subject to PGA
charges.
For 2016, Peoples’ total capacity cost (i.e., the
reservation charges Peoples pays pipeline companies, based on how much capacity
Peoples reserves) is $95 million. Peoples provides a monthly release of
upstream pipeline capacity to the NCTS pool managers and charges the pool
managers for released capacity at the weighted average cost of capacity (average
capacity cost). Peoples
also allocates capacity to shippers outside the NCTS pool, such as shippers who
contract directly with ITS transportation customers. Any unallocated capacity
and its associated cost are assigned to the PGA. NCTS pool managers use the
pipeline capacity released to them by Peoples to transport the gas to the
customers in their customer pool. While the Commission does not regulate the
prices pool managers charge their customers, staff believes that pool managers
recover from the customers in their pool the cost of the gas and the cost of
the upstream pipeline transportation.
As part of its total capacity portfolio, Peoples also holds
capacity to cover peak system demand and future demand growth. The Company currently
recovers the costs associated with capacity that is held for peak demand system
requirements and future growth through the PGA mechanism. Furthermore, according
to the Company, when upstream capacity is acquired, it must sometimes be grown
into (i.e., it may be necessary to acquire additional capacity before the
anticipated growth fully materializes). Because NCTS customers do not pay the
PGA, they do not pay any of the cost of upstream capacity held for peaking and
future growth. According to Peoples, the growth in NCTS customers has caused
the PGA customers to pay a disproportionate share of the costs of peaking and
future growth capacity.
In this filing Peoples therefore proposes to modify Rider
NCTS to increase the rate at which Peoples releases upstream capacity to NCTS pool
managers (and passed on to their customers). The increased rate would include a
portion of peaking and future growth capacity costs, so that those costs are
more equitably allocated between PGA customers and transportation customers in
the NCTS pool. According to Peoples, the methodology change is revenue neutral
to the Company. The proposed change to the capacity release pricing methodology
is discussed below.
Recovery of Costs of Capacity Held for Peaking
and Future Growth
Peoples’ proposed change to its capacity release pricing
mechanism is the application of a Load Factor Adjusted Release Rate, which is
comprised of the average capacity cost plus a Load Factor Adder (adder). The adder
represents the NCTS customers’ portion of the upstream capacity costs associated
with providing peaking and future growth currently embedded in the PGA.
Peoples provided work papers in response to staff’s first
data request No. 3 to illustrate how Peoples currently calculates the average
capacity cost, which Peoples is not proposing to change.
For May 2016 Peoples’ average capacity cost rate was 58.1 cents per MMBtu. The
proposed adder would be derived from dividing the projected NCTS customers’
share of the upstream capacity costs associated with providing peaking and
future growth by the projected NCTS customer throughput.
In response to staff’s first data request No. 3, Peoples’
calculated an initial adder of 14 cents per MMBtu, based on May 2016 data. By
combining this adder with the average capacity cost rate of 58.1 cents per MMBtu,
the resulting Load Factor Adjusted Release Rate would be approximately 72.1 cents
per MMBtu. For an NCTS customer using 2,000 therms per year, this would result
in an annual increase of approximately $28.
Peoples also stated that the corresponding PGA reduction would
be approximately 4 cents per therm. For a typical residential (i.e., PGA)
customer using about 240 therms per year, Peoples’ proposed application of the Load
Factor Adjusted Release Rate mechanism would result in an annual reduction of
approximately $9.60.
According to Peoples, the average capacity cost will
continue to be calculated monthly and the adder will be calculated annually, in
January. Factors that could vary the adder include the addition of new capacity
to Peoples’ portfolio, additional capacity releases to customers, a change in
the swing service charge, or upstream transporter rate changes.
Firm Delivery Agreement
Peoples’ proposed modifications to the Firm Delivery
Agreement include changes in terminology, cash-out prices for negative monthly
imbalances, and a modification that permits pool managers to request an
increase in the quantity of gas released during the month.
Terminology
Peoples acquired additional upstream capacity on pipelines
on which it did not hold capacity at the inception of Rider NCTS. The current
Firm Delivery Agreement refers to only one particular pipeline (Florida Gas
Transmission Company). The proposed tariff would change the references to
upstream pipelines to “Transporter,” a more generic term. According to Peoples,
this proposed change would eliminate the need for administrative tariff changes
in the event additional pipelines enter the Florida transportation market in
the future.
Cash-out Price for Negative Monthly Imbalance
Amounts
A negative monthly imbalance results when the customer
pool’s gas consumption exceeds what the pool manager delivered that month. Customer
pools in a negative monthly imbalance posture have consumed gas that Peoples had
acquired for its system supply or PGA customers. The proposed tariff would
change the cash-out prices for negative monthly imbalances. These revisions
would include changing the usage rates from the Florida Gas Transmission
Company (FGT) FTS-1 usage rate to the FTS-3 usage rate, and changing the
capacity reservation charges by replacing Peoples’ average capacity cost with
the FGT FTS-3 maximum reservation charge. Table 1-1 displays the current and proposed
rates/charges.
Table 1-1
Current and Proposed Usage
Rates and Reservation Charges
|
Current Charge
Description
|
Current Rate per
MMBtu
|
Proposed Charge
Description
|
Proposed Rate per
MMBtu
|
|
|
|
|
|
|
FTS-1 Usage Rate
|
1.56 cents
|
FTS-3 Usage Rate
|
0.23 cents
|
|
Average Capacity Cost (as of May 2016)
|
58.1 cents
|
FTS-3 Reservation Charge
|
132.99 cents
|
Source: Peoples’ filing in Docket No. 160120-GU
As Table 1-1 demonstrates, under Peoples’ proposed tariff,
the usage rate would decrease from 1.56 cents to 0.23 cents and the reservation
charge would increase from 58.1 cents to 132.99 cents, resulting in an overall
increase of 73.56 cents per MMBtu. Peoples asserts that the higher cash-out
price is intended as a deterrent to negative monthly imbalances.
Quantity Changes to Upstream Capacity During
the Month
Currently, by the 20th of the month, pool
managers are allowed to request a decrease in the quantity of the upstream
capacity released by Peoples to the pool manager to deliver gas for the
customer pool. In its amended petition, Peoples stated that as a result of the
informal meeting, it proposes that a pool manager also be permitted to request
an increase in the quantity of upstream capacity released to the pool manager
for the month. According to Peoples, adding the ability to request an increase during
the month should assist pool managers in avoiding negative monthly imbalance
cash-outs.
Rider ITS Cash-out Price
Rider ITS is applicable to firm or interruptible individual
transportation service for any non-residential customer who uses 182,500 therms
or more per year. Peoples proposes that the cash-out prices under Rider ITS be revised
so that they continue to be identical to the proposed cash-out prices for Rider
NCTS pool managers, as described in Table 1-1 above.
Conclusion
Staff believes that the proposed changes are reasonable,
specifically:
·
As the number of NCTS customers has grown, PGA
customers alone have paid for the cost of reserving upstream capacity for
peaking and future demand which benefits both PGA and NCTS customers. Staff
believes the proposed change to the allocation methodology is reasonable and
will result in a more equitable allocation of capacity costs associated with peaking
and future growth across customer classes.
·
Staff believes using the more generic term, transporter,
is reasonable and likely to promote administrative efficiency by eliminating
tariff filings as new pipelines are added.
·
Negative monthly imbalances result when NCTS and
ITS customers consume gas originally acquired for Peoples’ system supply or PGA
customers. Staff believes that an increase in the cash-out price is a
deterrent, and therefore, is reasonable.
·
The opportunity for pool managers to increase
the quantity of upstream capacity released during the month will allow pool
managers to better manage their gas requirements and thus, mitigate the
potential effect of the increased cost of negative cash-outs.
Staff recommends that the Commission approve Peoples’
tariff modifications filed in the amended petition, effective October 11, 2016.
Issue
2: Should
this docket be closed?
Recommendation:
If Issue 1 is approved and a protest is filed within
21 days of the issuance of the order, the tariffs should remain in effect, with
any revenues held subject to refund, pending resolution of the protest. If no
timely protest is filed, this docket should be closed upon the issuance of a
consummating order. (Janjic)
Staff Analysis:
If Issue 1 is approved and a protest is filed within
21 days of the issuance of the order, the tariffs should remain in effect, with
any revenues held subject to refund, pending resolution of the protest. If no
timely protest is filed, this docket should be closed upon the issuance of a
consummating order.
