Discussion
of Issues
Issue 1:
Should the Commission approve the special contract
between Chesapeake and Mosaic?
Recommendation:
Yes. The Commission should approve the special contract
shown in Attachment A between Chesapeake and Mosaic. The contract should be
effective as of the date of the Commission’s vote. (Doherty, Draper)
Staff Analysis:
To evaluate the proposed special contract, staff is
providing some background information regarding Chesapeake’s transportation
service provided to Mosaic.
Background
Mosaic is a large volume natural gas transportation
customer and currently takes service under Chesapeake’s Firm Transportation
Service - 13 (FTS-13) rate schedule. The FTS-13 rates were approved by the
Commission in Chesapeake’s 2009 rate case.
The FTS-13 rate schedule contains a flat monthly rate of $16,692.25 and no per
therm usage charge. Mosaic continues to be the only customer on the FTS-13 rate
schedule. In the 2009 rate case, the FTS-13 rate was designed based on Mosaic’s
cost to bypass the company’s distribution system while also recovering
Chesapeake’s cost to provide service to Mosaic. Mosaic has the ability to
bypass Chesapeake’s distribution system since the Florida Gas Transmission
(FGT) pipeline traverses Mosaic’s property and Mosaic could directly interconnect
with FGT.
Chesapeake only provides transportation service to Mosaic
as Chesapeake does not purchase the actual gas commodity for its customers;
rather, customers purchase gas from third party marketers or shippers. The
FTS-13 rate is available to customers whose annual transportation volume is
greater than 12,500,000 therms.
In October 2014, the Commission closed the FTS-13 rate
schedule to new customers and grandfathered Mosaic under the FTS-13 rate. Since
the FTS-13 rate was designed based on Mosaic’s cost to serve, a new customer
seeking service under the same tariff may not have the same cost profile as
Mosaic, potentially resulting in the new customer being subsided by the general
body of ratepayers.
Due to Mosaic’s current business requirements and
processes, its gas transportation volumes have dropped below the 12,500,000
therms annual transportation requirement of the FTS-13 rate schedule. As a
result of this reduced level of usage, Mosaic now qualifies for the FTS-12 rate
schedule that is available to customers with annual therm usage between
2,500,000 and 12,500,000 therms. Under the current Commission approved FTS-12
charges, Mosaic would have to pay a firm transportation charge ($9,000) as well
as a usage charge ($0.06123 per therm), resulting in a monthly bill of
approximately $72,372.
Chesapeake explained in the petition that reclassifying
Mosaic as an FTS-12 customer would significantly increase Mosaic’s monthly bill;
therefore, Chesapeake identified the most practical step was to negotiate the
proposed contract as requested by Mosaic. Rule 25-9.034, Florida Administrative
Code, and Chesapeake’s tariff require that special contracts be approved by the
Commission.
Proposed Contract
The cost of service study provided by Chesapeake shows current
total annual operating costs of $102,316 for the Mosaic facilities. The cost of service includes operation and maintenance
costs and taxes. Chesapeake explained that the facilities to serve Mosaic are
fully depreciated. Therefore, there is no investment and no associated
depreciation and return on investment included in the cost of service.
The negotiated annual fixed rate contained in the special contract
(confidential) is designed to enable Chesapeake to cover its cost of service.
The special contract amount is to be paid by Mosaic to Chesapeake in monthly
reservation charges that are fixed and do not vary based on actual usage. The initial
maximum daily quantity of gas Chesapeake is obligated to transport to Mosaic is
5,100 dekatherms, with the option for Mosaic to adjust the maximum daily
quantity up to 6,100 dekatherms. The term of the special contract is five years
and will be extended for additional periods of one year each unless either
party gives written notice of termination.
Based on the cost of service study provided, staff agrees
with Chesapeake’s assertion that the monthly reservation charge recovers Mosaic’s
cost of service and, therefore, will provide benefits to Chesapeake’s general
body of ratepayers.
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 Mosaic as shown in Attachment A. The special 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. (Mapp)
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 the Consummating Order.
