Case Background
On January 12,
2018, Peninsula Pipeline Company, Inc. (Peninsula) filed a petition seeking
approval of a firm transportation service agreement (Agreement) between
Peninsula and the Florida Division of Chesapeake Corporation d/b/a Central
Florida Gas (CFG), collectively the parties, for the construction of a gas
pipeline and two custody transfer stations in Escambia County, Florida.
Peninsula operates as a natural gas transmission company as defined by Section
368.103(4), Florida Statues (F.S.). CFG is a local distribution company (LDC)
subject to the regulatory jurisdiction of the Commission pursuant to Chapter
366, F.S.
By 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 natural 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 CFG 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 B to the recommendation), Peninsula will construct and operate
a natural gas pipeline and two custody transfer stations in Escambia County.
During its evaluation of the petition, staff issued two data requests to both
Peninsula and CFG for which responses were received on February 26, 2018 and
March 5, 2018. On March 29, 2018, Chesapeake filed revised Tariff sheet Nos. 3
and 5 to reflect the addition of Escambia County to the description of
territory served. 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 proposed Agreement
between Peninsula and CFG dated January 8, 2018?
Recommendation:
Yes. The Commission should approve the proposed
Agreement between Peninsula and CFG dated January 8, 2018. In addition, CFG
filed revised Tariff Sheet Nos. 3 and 5 for administrative approval by staff to
reflect the addition of Escambia County to the description of territory served.
Commission staff should be given authority to administratively approve them
consistent with the Commission’s decision. (Doherty)
Staff Analysis:
This petition is a jointly developed plan by the parties
for the expansion of natural gas service in Escambia County. The parties stated
in the petition that Escambia County has limited economic development and that
the expansion of natural gas service will add growth and expansion in the
Pensacola area market.
Pursuant to the proposed Agreement, Peninsula will
construct an interconnection between Peninsula and Florida Gas Transmission’s
(FGT) interstate pipeline at the northernmost edge of Escambia County. From
that interconnection, Peninsula will construct a 33-mile, 12 inch steel
pipeline southward to Old Chemstrand Road. From there, Peninsula will extend a
10 inch pipeline east for five miles. The Peninsula pipeline will terminate at
two custody transfer stations to interconnect with CFG’s distribution system. Construction
of the Peninsula pipeline and CFG’s distribution system is expected to be
complete by the third quarter of 2018. A map of the FGT interconnection, the Peninsula
pipeline, and the two customer transfer stations is shown in Attachment A to
the recommendation. Once the Peninsula pipeline is in operation, Peninsula will
provide transportation service to CFG.
No LDC currently provides natural gas service in Escambia
County. Pensacola Energy, a municipal natural gas utility, provides natural gas
service to the City of Pensacola and in certain other discrete areas in
Escambia County. Pensacola Energy currently transports natural gas to serve its
customers over the Gulf South interstate pipeline. CFG stated in the petition
that its newly constructed distribution system will provide transportation
service to an industrial customer and Pensacola Energy. CFG further explained
that the expansion plans in Escambia County will provide CFG the opportunity to
serve additional customers. Interconnecting with the Peninsula pipeline via CFG
will provide Pensacola Energy with an additional supply source.
CFG 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 CFG.
CFG provided information showing that the impact on the PGA will be minor
($0.04693 per therm for 2019). While CFG will incur costs associated with this
service expansion, any new load will help spread the costs over a larger
customer base.
The parties assert that the negotiated monthly reservation
charge contained in the Agreement is consistent with a market rate since they
are within the ranges of rates set forth in similar agreements as required by
Section 368.105(3)(b), F.S. CFG did not obtain a Request for Proposals (RFP)
from other entities to construct the pipeline. Peninsula, however, engaged in a
conversation with FGT about building the pipeline. FGT declined to bid the
construction of the project because owning and operating laterals such as the
one proposed in this petition are not a focus of their expansion activities.
The proposed Agreement between CFG and Peninsula will be
in effect for an initial period of 30 years and will be extended for additional
10-year increments, unless either party gives written notice of termination. The
benefit of Peninsula, as opposed to CFG, constructing the new pipeline, is
primarily that Peninsula’s construction and ownership of the pipeline will
avoid CFG undertaking the costs and risks for this project, which in turn
protects CFG ratepayers.
Conclusion
CFG currently
does not provide natural gas service in Escambia County. Therefore, CFG filed
on March 29, 2018, revised Tariff Sheet Nos. 3 and 5 for administrative
approval by staff to reflect the addition of Escambia County to the description
of territory served section of its tariff. Commission staff should be given
authority to administratively approve them consistent with the Commission’s
decision.
Based on the
petition and responses to staff’s data requests, staff believes the proposed
Agreement is cost effective, reasonable, meets the requirements of Section
368.105, F.S., and benefits CFG customers. Staff therefore recommends approval
of the proposed Agreement between Peninsula and CFG dated January 8, 2018.
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.
(Brownless)
Staff Analysis:
If no protest is filled 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.
