Case Background
On February 2,
2017, Florida City Gas (FCG or Company) filed a petition for approval of
modifications to its existing Extension of Facilities (applicable to general
tariff extension customers) and Area Extension Program (AEP) tariffs. In
accordance with Rule 25-7.054, Florida Administrative Code, (F.A.C.), the
tariffs apply to new customers that require an extension of gas distribution facilities
in order to receive service. The proposed tariff modifications will allow FCG
to require certain general tariff extension customers and AEP customers to
commit to receive natural gas service at a defined minimum annual volume and to
pay for the minimum annual volume even if it had not been reached, i.e., a take
or pay commitment, in order to receive service.
In a February 7,
2017 email (subsequently filed in the docket), FCG waived the 60-day suspension
deadline, pursuant to Section 366.06(3), Florida Statutes (F.S.), until the
April 4, 2017 Agenda Conference. FCG responded to staff’s first data request on
March 3, 2017. On March 17, 2017, the Company filed revised responses to
staff’s data request and revised tariff pages. The proposed tariff pages as
revised are contained in Attachment 1 of this recommendation. The Commission
has jurisdiction over this matter pursuant to Sections 366.04, 366.05, 366.06, F.S.
Discussion
of Issues
Issue 1:
Should the Commission approve FCG’s proposed tariff
modifications, as revised on March 17, 2017, to the Extension of Facilities and
AEP tariffs?
Recommendation:
Yes, the Commission should approve FCG’s proposed
tariff modifications, as revised on March 17, 2017, to the Extension of Facilities
and AEP tariffs effective April 4, 2017. (Ollila)
Staff Analysis:
Current Extension of Facilities Tariffs
Rule 25-7.054(3), F.A.C., provides that extensions of gas
facilities are made at no cost to the customer when the capital investment
necessary to extend service is equal to or less than the Maximum Allowable
Construction Cost (MACC). FCG’s tariff defines the MACC as six times the
estimated annual gas revenue less the cost of gas (margin revenues). If
the required capital investment exceeds the MACC, then the customer must pay
the difference between the MACC and the capital costs as an Aid to Construction
(ATC) pursuant to FCG’s “Extensions of mains and services above free limit”
tariff provision. This tariff provision is shown on Page 1 of 3 of Attachment
1.
FCG stated that during 2012-2016 over 4,400 customers (or
on average 880 customers per year) paid ATC costs. The capital investment to
serve a new customer may include gas mains, service lines, and regulators.
The AEP tariff is designed to provide FCG with an alternate
optional method to recover its capital investment to provide natural gas
service to customers in a discrete geographic area who do not have gas service
available.
The AEP tariff provides for the determination of a charge applicable to all gas
customers located in the geographic area over a 10-year amortization period.
The AEP charge is applied on a per therm basis in addition to all other
tariffed charges. The AEP charge is calculated by a formula based on the amount
of investment required and the projected gas sales and resulting revenues
collected from customers in the AEP area.
The AEP tariff requires FCG to recalculate and true-up the
AEP charge on the third anniversary of the date when the facilities to provide
gas service were placed into service, or on the date when 80 percent of the
originally forecast annual load is connected, whichever comes first. The
Company can true-up the AEP charge only once, and the new charge will be
applied prospectively over the remainder of the amortization period.
The AEP tariff includes a provision that the length of the
amortization period may be modified upon Commission approval. In 2012, FCG
extended its facilities pursuant to the AEP tariff to serve a large commercial
customer, a citrus producer (Glades project). In 2016, the Commission approved
a delay of the true-up and an extension of the amortization period for two
years because the project had not developed as projected.
Other than the Glades project, FCG has used the AEP tariff nine times since its
1995 implementation.
FCG’s Proposed Take or Pay Provision
The proposed tariff modifications provide FCG with the
option to require a take or pay provision from a general tariff extension customer
or an AEP customer. The proposed take or pay provision would require the customer
to agree to commit to a minimum volume of natural gas each year.
FCG explained that it views the proposed take or pay
provision as another tool to mitigate the risk associated with high-cost
extensions. The Company asserted that its ability to fully recover its
investment may be compromised when a customer’s actual gas volumes are
significantly less than the customer’s estimate of gas volumes used to
calculate the MACC and there are minimal or no opportunities to true-up the
calculation. FCG asserted that a take or pay provision will add another layer
of protection to reduce the risk to the general body of ratepayers from stranded
investment. The Company also asserted that a take or pay provision will
encourage potential customers to provide business information that will result
in a realistic, rather than an inflated, calculation of potential gas volumes.
FCG stated that the process to determine whether a minimum
take or pay requirement is necessary is the same for general tariff extension customers
or AEP customers. FCG identified three factors it would use to evaluate whether
the take or pay provision should be required. The factors are the overall
capital investment necessary to extend service, the customer’s use for natural
gas, and whether the business is a start-up or established business with
verifiable consumption data that can be used to substantiate the annual natural
gas use estimates (risk assessment). According to the Company, lower risk
businesses are those that have existing natural gas use, are implementing
equipment with known gas usage, or can provide verifiable usage data, such as
data from an affiliate. A higher risk potential customer might be a new
business that has new equipment, projected high volumes, and little or no
business or gas usage experience. According to the Company, the “ultimate”
factor is the impact to the Company and its ratepayers if the new customer’s
volumes are less than projections.
The minimum volume commitment will not be set above the
amount used to calculate the MACC. A customer’s specific annual volume commitment
would be identified in a schedule that is contained in the gas extension
contract. Each year, on the anniversary date of the account, FCG will audit the
actual billed volume of natural gas and compare it to the take or pay schedule
in the gas extension contract. If the volume is less than the requirement, the
Company would bill for the volume shortfall using the applicable charges
associated with the customer’s tariff rate for general service extension
customers. For an AEP customer, the billing of the volume shortfall would also
include the applicable AEP surcharge. The minimum volume commitment is six
years for general tariff extension customers and ten years for AEP customers.
FCG stated that it does not anticipate frequent use of the take or pay
provision for general tariff extension customers or AEP customers.
The Company explained that the Glades project prompted it
to review its general tariff extension and AEP tariffs and to consider whether
changes to the tariffs might reduce or mitigate future difficulties with
lower-than-expected usage. In response to staff’s data request, FCG stated that
there had been at least one prior situation where a take or pay provision would
have been useful as the expected gas volumes did not materialize due to an
unintentional error by the customer concerning the customer’s installed
equipment specifications. FCG also stated that there is a potential project
currently under consideration in an existing AEP area with the customer being
amenable to a take or pay provision. The Company asserts that the proposed
revisions are in the public interest and will protect existing ratepayers while
facilitating the expansion of service to new customers.
Conclusion
Staff believes that a take or pay provision for general
tariff extension customers and AEP customers is reasonable and appropriate
because it will limit the risk to the general body of ratepayers. Therefore,
staff recommends that the Commission approve FCG’s proposed tariff
modifications to the Extension of Facilities and AEP tariffs effective April 4,
2017.
Issue 2:
Should this docket be closed?
Recommendation:
If Issue 1 is approved the tariffs should become
effective on April 4, 2017. If 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. (Leathers)
Staff Analysis:
If Issue 1 is approved the tariffs should become
effective on April 4, 2017. If 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.
