Case Background
On September 1,
2017, Peninsula Pipeline Company, Inc. (Peninsula) filed a petition seeking
approval of a firm transportation service agreement (Agreement) between
Peninsula and Florida Public Utilities Company (FPUC), collectively the
parties, for an extension in New Smyrna Beach. Peninsula operates as a natural
gas transmission company as defined by Section 368.103(4), Florida Statutes
(F.S.). FPUC is a local distribution company (LDC)
subject to the regulatory jurisdiction of the Commission pursuant to Chapter
366, F.S.
In Order No.
PSC-07-1012-TRF-GP Peninsula received approval of an
intrastate gas pipeline tariff that allows it to construct and operate
intrastate pipeline facilities and to actively pursue agreements with gas
customers. Peninsula provides transportation service only, and does not engage
in the sale of natural gas. Pursuant to Order No. PSC-07-1012-TRF-GP Peninsula
is allowed to enter into certain gas transmission agreements without prior
Commission approval. However, Peninsula is requesting Commission approval of
this Agreement as it does not fit any of the criteria enumerated in the tariff
for which Commission approval would not be required. Both Peninsula and FPUC are subsidiaries of
Chesapeake Utility Corporation (Chesapeake), and agreements between affiliated
companies must be approved by the Commission pursuant to Section 368.105, F.S.,
and Order No. PSC-07-1012-TRF-GP.
Pursuant
to the proposed Agreement (Attachment A to the petition), Peninsula will construct
a new natural gas pipeline in the New Smyrna Beach area and relocate an
existing gate station that is in a populated area. During its evaluation of the
petition, staff issued a data request to both Peninsula and FPUC for which
responses were received on October 2, 2017. The Commission has jurisdiction
over this matter pursuant to Sections 366.05(1), 366.06, and 368.105. F.S.
Discussion
of Issues
Issue 1:
Should the Commission approve the Agreement between
Peninsula and FPUC?
Recommendation:
Yes. The Commission should approve the proposed Agreement
between Peninsula and FPUC dated August 25, 2017. (Doherty, Draper)
Staff Analysis:
FPUC provides natural gas service to residential and
commercial/industrial customers in the New Smyrna Beach area. As discussed in
the petition, FPUC is currently experiencing operational pressure issues on its
distribution system which have hindered FPUC’s ability to provide adequate
service to the outer edges of New Smyrna Beach during peak periods. Peak
periods occur typically in the winter and cold weather lowers the pressure of
gas, causing delivery of gas issues. The pressure issues have also directly
impacted economic growth development in both the large commercial and small
industrial sectors. Finally, a current FPUC gate station is located inside an
active RV park, raising safety concerns.
To address the issues discussed above, FPUC and Peninsula
entered into the proposed Agreement. This Agreement will be in effect for an
initial period of 20 years and shall be extended for additional 10-year
increments. The Agreement will provide resolution to the pressure problems,
improve the reliability, and relocate the gate station from the RV park.
Specifically, pursuant to the Agreement, Peninsula will undertake two new
projects discussed in more detail below.
First, Peninsula will relocate the gate station that is
currently inside an RV park to a new site adjacent to the Highway 92
right-of-way just north of the current site. Peninsula provided photos of the
gate station and adjacent RV park in Attachment B to the petition.
Second, Peninsula will construct and own a new pipeline,
referred to as the New Smyrna Beach Line in the proposed Agreement. The new 14.7
mile pipeline will interconnect with the interstate Florida Gas Transmission
(FGT) pipeline’s Daytona West gate station on US Highway 92, approximately one
mile west of Interstate 95 in Volusia County. The pipeline will travel south where
it will interconnect with FPUC’s existing pipeline in New Smyrna Beach. The New
Smyrna Beach Line is shown in the map in Attachment A to this recommendation as
the solid blue line. Peninsula stated that it is required to obtain approvals
from the Florida Department of Transportation and the Florida Department of
Environmental Protection for the pipeline, which Peninsula expects to receive
soon. Construction is expected to be completed in early 2018.
FPUC’s existing 4 inch pipeline that has been serving the
New Smyrna Beach area will remain in service as a distribution line. The New
Smyrna Beach Line will be larger in diameter (8 inches) and will be located
entirely within the public rights-of-way. The New Smyrna Beach Line will also
operate at a higher delivery pressure than FPUC’s existing line to alleviate
the existing pressure problems and support growth in the area.
The parties assert that the negotiated monthly reservation
charge contained in the Agreement is consistent with a market rate in that they
are within the ranges of rates set forth in similar agreements as required by
Section 368.105(3)(b), F.S. In response to staff’s data request, Peninsula
provided a comparison of construction costs (confidential) for other similar
agreements entered into by Peninsula. While construction costs vary for each
project due to pipe size, construction conditions, permitting, etc., staff
believes that Peninsula’s construction and on-going maintenance costs for the
proposed new line appear reasonable and comparable to other projects.
FPUC is proposing to recover the payments to Peninsula
under the proposed Agreement from its customers through its Purchased Gas
Adjustment (PGA) and Swing Service Rider mechanisms consistent with other gas
transmission pipeline costs incurred by FPUC. FPUC provided information showing
that the impact on the PGA will be minor ($0.042 per therm for 2018). While
FPUC will incur costs associated with this service expansion, any new load will
help spread the costs over a larger customer base.
The benefit of Peninsula, as opposed to FPUC, constructing
the new pipeline, is primarily that Peninsula’s construction and ownership of
the pipeline will avoid FPUC undertaking the costs and risks for this project,
which in turn protects FPUC’s ratepayers. Prior to entering into an agreement
with Peninsula, FPUC stated that it engaged in a conversation with FGT
regarding the possibility of FGT building the new pipeline; however, the
conversation did not produce an economically viable solution. In response to
staff’s data request, FGT’s project estimate is higher than Peninsula’s cost.
Conclusion
Based on the petition and responses from Peninsula to staff’s
data request, staff believes the proposed Agreement is cost effective, reasonable,
meets the requirements of Section 368.105, F.S., and benefits FPUC’s customers.
Staff therefore recommends approval of the proposed Agreement between Peninsula
and FPUC dated August 25, 2017.
Issue 2:
Should this docket be closed?
Recommendation:
Yes. 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 a Consummating Order.
