Case Background
On August 14,
2017, the Florida Division of Chesapeake Utilities Corporation (Chesapeake)
filed a petition seeking Commission approval of a Special Contract (Contract) with
Sebring Gas System, Inc. (Sebring). Pursuant to the Contract, Chesapeake will
construct a gas pipeline in DeSoto County near the City of Arcadia. The
pipeline is referred to as the Arcadia Pipeline on the map shown in Attachment
A to the recommendation and as the Sebring Pipeline in the Contract. Chesapeake
and Sebring both own and operate natural gas distribution facilities in Florida
and are subject to the regulatory jurisdiction of the Commission pursuant to
Section 366.06, Florida Statutes (F.S.).
The Contract
between Chesapeake and Sebring was executed on June 30, 2017, has an initial 20-year
term, and can be extended for additional one year periods unless given
notification by either party to terminate the Contract. The proposed Contract
is shown in Attachment B to the recommendation. During the evaluation of the
petition, staff issued two data requests to Chesapeake for which responses were
received on August 28, 2017 and on September 5, 2017. The first data request
was also forwarded to Sebring, for which responses were received on September
19, 2017. In its response to staff’s first data request, Chesapeake filed
certain revisions to the Cost of Service Study that was included in the
petition. There have been no public comments regarding this petition. The
Commission has jurisdiction over this matter pursuant to Sections 366.04,
366.05, and 366.06, F.S.
Discussion
of Issues
Issue 1:
Should the Commission approve the Contract between
Chesapeake and Sebring?
Recommendation:
Yes. The Commission should approve the Contract shown
in Attachment B between Chesapeake and Sebring. The Contract should be
effective as of the date of the Commission’s vote. (Guffey, Doherty, Draper)
Staff Analysis:
At present, Chesapeake and Sebring both have
customers in DeSoto County; however, neither utility has facilities capable of
providing gas service to the City of Arcadia. In May 2017, by Order No.
PSC-2017-0205-PAA-GU, the Commission approved a territorial agreement between
Chesapeake and Sebring.Pursuant to the territorial agreement, Sebring’s
service area includes customers within Arcadia’s municipal boundaries and two
specifically identified customers just outside Arcadia’s municipal limits. Chesapeake’s
service territory is defined as DeSoto County, except for customers within
Arcadia’s municipal boundary and the two specifically identified customers who
are located outside of the Arcadia municipal limits.
The proposed Contract is designed to allow Sebring to
provide gas service to the City of Arcadia. Sebring will construct and own the
distribution system to serve customers within the City of Arcadia and
Chesapeake will construct, own, and maintain a pipeline connecting the Florida
Gas Transmission (FGT) interstate transmission pipeline with Sebring’s distribution
system. Chesapeake will provide transportation service only; the gas delivered
to the City of Arcadia via FGT and the Sebring Pipeline is purchased by
Sebring. The Contract contains the terms and conditions under which Chesapeake
will provide transportation service and the negotiated rate allowing Chesapeake
to recover its investment in the Sebring Pipeline. Rule 25-9.034, Florida
Administrative Code, and Chesapeake’s tariff require that special contracts be
approved by the Commission.
In accordance with the Contract, Chesapeake is
constructing approximately one mile of four-inch coated steel pipeline
extending from the FGT facilities in Hardee County to the interconnection point
with Sebring’s distribution system. Chesapeake will connect the pipeline with
FGT at the Arcadia gate station, an existing delivery point. Chesapeake will
install a new custody transfer station at its interconnection point with
Sebring’s distribution system that will serve the City of Arcadia. Chesapeake
anticipates construction of the pipeline to be complete in October 2017. The
Contract contains language stating that Sebring is relying upon Chesapeake’s
expertise in operating and providing transportation service over the Sebring
Pipeline.
Chesapeake stated that it has obtained approvals from the
Department of Transportation and the Department of Environmental Protection for
the pipeline. Additionally, Chesapeake stated it is currently working to
receive approval from the Seminole Gulf Railroad for the railroad crossing.
Cost of Service Considerations
The cost of service study provided by Chesapeake in its
response to staff’s first data request shows total annual operating cost of
$128,183 for the Sebring Pipeline. The cost of service includes a return on the
investment, operation and maintenance cost, depreciation, and taxes. Chesapeake’s
investment for the Sebring Pipeline totals $821,384 and includes the main
installation, custody transfer meter, and skid mount (a prefabricated frame
that holds the meter and pressure regulation equipment). The return included in
the cost of service is 5.67 percent, based on the midpoint rate of return shown
in Chesapeake’s December 2016 year-end surveillance report.
The negotiated annual fixed rate contained in the Contract
of $135,812 is designed to enable Chesapeake to cover its cost of service. The contract
amount is paid by Sebring to Chesapeake in monthly reservation charges that
are fixed and do not vary based on actual usage. The largest daily quantity of
gas Chesapeake is obligated to transport to Sebring is 720 Dekatherms.
Based on the cost of service study provided, staff agrees
with Chesapeake’s assertion that the monthly reservation charge recovers its
cost of service and, therefore, will provide benefits to Chesapeake’s general
body of ratepayers, as well as Sebring’s customers in the City of Arcadia.
Conclusion
Based on the review of the petition and responses to staff’s
data requests, staff believes Chesapeake’s representations to be reasonable and
recommends that the Commission approve the Special Contract between Chesapeake
and Sebring as shown in Attachment B. The Contract should be effective as of
the date of the Commission’s vote.
Issue 2:
Should this docket be closed?
Recommendation:
If no protest is filed by a person whose substantial
interests are affected within 21 days of the issuance of the Order, this docket
should be closed upon the issuance of a Consummating Order. (Taylor)
Staff Analysis:
If no protest is filed by a person whose substantial
interests are affected within 21 days of the issuance of the Order, this docket
should be closed upon the issuance of a Consummating Order.
