Case Background
The Florida
Division of Chesapeake Utilities Corporation (Chesapeake or Company) is a
natural gas utility and its principal offices are located in Fernandina Beach,
Florida. The Company also owns property
in Winter Haven, Florida upon which a former site of a manufactured gas plant
(MGP) was located.
In 1990,
Chesapeake executed a Consent Order with the Florida Department of
Environmental Protection (DEP) that required the Company to remediate all
environmental impacts associated with the former MGP site. On May 19, 2001, DEP approved the Company’s
proposal to implement air spurge/soil vapor extraction as a remedy for
addressing the contaminants present in areas of the site. In 2008, the Company performed excavation and
removal of petroleum-tainted soil. On
June 10, 2009, Polk County notified the Company that additional sampling had to
be performed to complete the remediation monitoring requirements.
In its 2009 rate
case, the Company addressed the increasing costs for remediation of the site
and sought Commission approval of a surcharge to allow Chesapeake to recover
its environmental costs associated with the project. On January 14, 2010, the Commission
approved a 4-year fixed surcharge of $0.62 on a typical residential customer’s
monthly bill.
On January 27,
2014, the Commission approved an extension of the Company’s Environmental
Surcharge. This extended the fixed surcharge by 20
months and allowed Chesapeake to recover an additional $380,781 related to
remediation activities of the Company’s former MGP site in Winter Haven,
Florida.
On June 17,
2016, the Company filed a petition with the Commission, seeking approval to
establish a regulatory liability related to the Environmental Surcharge to
address the Company’s expected future remediation costs. The Company also filed
an affidavit from Michele Ruth, a licensed Professional Engineer engaged by
Chesapeake to manage and oversee the remediation operations, and Company witness
testimony of Michelle Napier in support of its request.
This
recommendation addresses Chesapeake’s petition for approval to establish a
regulatory liability related to funds collected through the Environmental
Surcharge. The Commission has jurisdiction pursuant to Sections 366.04(3),
366.041, and 366.06, Florida Statutes (F.S.).
Discussion
of Issues
Issue 1:
Should the Commission approve Chesapeake’s petition
to establish a regulatory liability related to funds collected through the
Environmental Surcharge in order to address the expected future remediation
costs?
Recommendation:
Yes. The Commission should approve Chesapeake’s
petition to retain the over-collected balance as a regulatory liability in
Account 254 for purposes of addressing the future expected remediation costs. The
status of the remediation efforts and costs should be subject to review in the
Company's next rate case. (Passett)
Staff Analysis:
When Chesapeake’s Environmental Surcharge was
established in its 2009 rate case, an under-collected balance of $268,257 was
established for related environmental remediation costs.
From January 1, 2009 through December 31, 2013, the Company recovered
$1,027,621 and incurred $642,949 in remediation expenses. When its surcharge
was set to expire, the Company had an over-collected balance of $116,415
($1,027,621 - $268,257 - $642,949).
At the end of the surcharge period (December 31, 2013),
Chesapeake forecasted to incur an additional $443,000 in related environmental
remediation. A 20-month extension of the Environmental Surcharge was approved on
January 27, 2014, to allow
the Company to recover remediation costs. During the surcharge extension
period, the Company recovered $419,554 and incurred $144,199 in remediation
expenses, which created an incremental over-collected balance of $275,355
($419,554 - $144,199). The total over-collected balance, from the original
surcharge through the end of the surcharge extension, is $391,770 ($116,415 +
$275,355).
Chesapeake’s most recent forecast reflected that it will incur
$425,000 in related environmental remediation costs over the next four to five
years. As
of July 27, 2016, the Company stated that it incurred approximately $78,340 in
remediation costs since the surcharge extension’s expiration date (August 31,
2015), leaving an approximate over-collected balance of $313,430 ($391,770 -
$78,340). Staff would note that both the under-collections and over-collections
appear to be due to timing issues with forecasted remediation expenses.
The funds collected from the original surcharge and the
surcharge extension, along with all costs incurred and the cumulative over/(under)
collected funds are detailed below in Table 1-1.
Table
1-1
Chesapeake Surcharge Summation
July 27, 2016
Sources: Direct Testimony
of Michelle D. Napier, June 17, 2016, Docket No. 160153-GU, In re: Petition for
approval of final true-up of environmental Surcharge by Florida Division of
Chesapeake Utilities Corporation and FPSC
Document No. 05629-16, Attachment A, in Response to Request No. 5
Chesapeake proposed that it retain the over-collected
balance in Account 254 as a regulatory liability, in order to address future
expected remediation costs. Pursuant to the Uniform System of Accounts for
Natural Gas Companies as found in the Code of Federal Regulations, Title 18,
Subchapter F, Part 201, Account 254, other regulatory liabilities, shall
include amounts that must be established by credits that would have been
included in net income or accumulated other comprehensive income but for it
being probable that: such items will be included in a different period for
purposes of developing the Company’s authorized rates; or customer refunds, not
provided for in other accounts. Staff agrees with Chesapeake that the Company’s
over-collected balance meets the criteria required to qualify as a regulatory
liability in Account 254, as this balance is not includible in other accounts
and would have been included in net income, if it were not subject to customer
refund.
Chesapeake stated that it has no ongoing mechanism to
recover the additional costs related to the environmental remediation, and without
a mechanism in place to collect funds for the upcoming expenses, the Company
asserted that refunding the over-collected balance would cause it certain
financial harm. In contrast, the Company stated that if it were allowed to
retain the over-collected funds, it would be able to recover the remediation
expenses, and the status of the remediation efforts and amount held to address
such efforts would still be subject to review in the next rate proceeding.
Chesapeake asserted that retaining the over-collected
balance would ensure that the Company is well positioned to address additional
remediation costs consistent with the Commission’s intent set forth in the
orders establishing and extending the Environmental Surcharge. In approving and
extending the Environmental Surcharge in previous orders, the Commission allowed
Chesapeake to raise the funds necessary to cover these forecasted environmental
expenses, as the Company was not recovering the costs in base rates necessary
to recover its expected costs. Staff agrees with Chesapeake that if the
Commission were to require the Company to issue a refund, it would cause
financial harm when the forecasted costs that the surcharge was meant to recover
are incurred. Staff believes that allowing Chesapeake to retain the
over-collected funds in order to cover the forecasted environmental remediation
expenses would prevent the Company from facing unnecessary financial harm. With
Chesapeake incurring approximately $78,340 of related expenses between
September 2015 and June 2016, and the remediation process forecasted to last
another four to five years, staff believes that this is a timing issue and it
would be appropriate for the Company to retain the over-collected balance in
order to address future anticipated remediation costs. Therefore, staff
recommends that the Commission approve Chesapeake’s petition to retain the
over-collected balance as a regulatory liability in Account 254 for purposes of
addressing the future expected remediation costs with the status of the
remediation efforts and remainder amounts, if any, being subject to review in
the Company’s next rate proceeding.
Issue 2:
Should this docket be closed?
Recommendation:
If no person whose substantial interests are
affected by the proposed agency action files a protest within 21 days of the
issuance of the order, this docket should be closed upon the issuance of a
consummating order. (Leathers)
Staff Analysis:
At the conclusion of the protest period, if no
protest is filed this docket should be closed upon the issuance of a
consummating order.
