Case Background
On February 20,
2018, Florida City Gas (FCG or utility) filed a petition for approval of an
Area Extension Plan Rate Extension Agreement (AEP Agreement) with United States
Sugar Corporation (U.S. Sugar). The extension of the utility’s distribution facilities
to serve U.S. Sugar and the surrounding area is known as the Glades AEP
Project.
The Area
Extension Plan (AEP) tariff is designed to provide FCG with an optional method
to recover its capital investment to provide natural gas service to customers
in a discrete geographical area who do not have gas service available. The AEP tariff provides for the
determination of a surcharge based on the required investment and the projected
gas sales to customers located in the geographical area. The surcharge is
applied on a per therm basis over a ten year amortization period in addition to
all other tariffed charges. The AEP tariff specifies the formula to calculate
the charge; the utilization of the tariff itself does not require Commission
approval.
The AEP tariff
provides for a surcharge recalculation on the third anniversary of facilities
being placed in service. The customers on the Glades AEP Project began taking
service in 2012, therefore, a true-up was to occur in 2015. However, significant
problems led FCG to request, in October 2015, that the Commission approve a variance
to the AEP tariff to provide relief to customers on the Glades AEP Project. The
Commission approved FCG’s request in 2015 in Order No. PSC-16-0066-PAA-GU (2015
Order).[2]
FCG stated that
it has used the AEP tariff mechanism for eight projects since its 1995
implementation, and the AEP has proved helpful to the utility and customers
that may have otherwise been unable to receive service. However, the primary
customer on the Glades AEP Project, U.S. Sugar, continues to face unique and
significant challenges and a surcharge recalculation pursuant to the 2015 Order
may interfere with the economic wellbeing and development in the area.
Therefore, FCG filed the instant petition. On March 22, April 6, and April 16,
2018, FCG responded to staff’s data requests. On April 18, 2018, FCG filed a supplemental
amendatory petition to clarify that the AEP surcharge will terminate in 2024
for all Glades AEP Project customers except for U.S. Sugar as provided for in
the AEP Agreement. The AEP Agreement is attached to the recommendation as
Attachment A (Exhibit A to the AEP Agreement is not attached as it contains
confidential information). The Commission has jurisdiction over this matter
pursuant to Section 366.06, Florida Statutes.
Discussion
of Issues
Issue 1:
Should the Commission approve the AEP Agreement and
FCG's request for a variance from the AEP tariff for the Glades AEP Project?
Recommendation:
Yes, the Commission should approve the AEP Agreement
and FCG’s request for a variance from the AEP tariff for the Glades AEP
Project. (Merryday)
Staff Analysis:
In November 2012, when the customers on the Glades AEP
Project first began taking service, the surcharge was calculated to be $0.241
per therm. This assumed reasonably forecasted natural gas usage and an
amortization period of ten years. At the time of the original third year
true-up, the utility determined that, to keep the amortization period to ten
years, the new surcharge would have to be $0.515 per therm. This was the result
of unanticipated environmental issues, fewer new customers taking service than
expected, and a citrus canker blight which caused U.S. Sugar to use
significantly less natural gas than predicted. To reduce the financial strain
on customers and encourage economic growth, FCG asked the Commission to delay
the surcharge recalculation by two years, until October 2017, with the
amortization period extending through October of 2024. The Commission approved
the proposal and the rate remained $0.241 per therm.
In late 2017, the utility performed the true-up
calculations required by the 2015 Order, but determined that extenuating
factors have continued to impede natural gas usage and would make the
recalculated rate increase to $0.629 per therm. FCG explained that the December
2017 through May 2018 citrus harvesting and processing season was on track to
be the first productive year after more than a decade of disease, but Hurricane
Irma destroyed up to 89 percent of the crops where U.S. Sugar sourced its
fruit. The utility also notes that primarily the fruit, and not the trees, were
damaged and citrus production should increase next season.
Being mindful of the significant economic impacts such a
rate increase would have on the Glades AEP Project customers, including the
largest industrial customer in the Glades project, U.S. Sugar, FCG proposed the
special AEP Agreement with U.S. Sugar and revised AEP surcharges for all Glades
customers. While the AEP Agreement is between the utility and U.S. Sugar and
any affiliates (for whom the project was primarily designed), it provides
benefits to all customers on the Glades AEP Project. The AEP Agreement and the
revised AEP surcharges to all other Glades customers are discussed below.
Glades AEP Agreement
The AEP Agreement includes the following elements:
·
The AEP surcharge will be set at $0.301 per
therm instead of $0.629 (a reduction of $0.328 per therm).
·
In exchange for the reduced rate, U.S. Sugar
agrees to continue taking service for its Southern Gardens citrus processing
facility (plant) and paying the AEP surcharge through November 2027 or until it
has repaid 87.13 percent of the contribution in aid of construction (CIAC). In the
event that a balance remains at the end of November 2027 or that U.S. Sugar
terminates service at its plant early, U.S. Sugar will submit the remainder of
the CIAC to FCG within 45 days.
·
U.S. Sugar’s affiliates and subsidiaries agree
to continue taking service and paying the AEP surcharge after the amortization
period ends in 2024. Thereafter, if natural gas is no longer an economically
viable option, U.S. Sugar’s affiliates and subsidiaries, excluding the plant,
may provide reasonable documentation to that effect in order to cease taking
service. U.S. Sugar’s affiliates and subsidiaries must provide at least 60 days
notice to do so.
·
Glades AEP surcharge recalculations will occur in
November 2020 and November 2022, with one subsequent recalculation occurring
upon U.S. Sugar demonstrating a six percent increase in annual natural gas
consumption thereafter.
Other Glades AEP Customers
For the remaining customers on the Glades AEP Project, the
AEP surcharge will also be set at $0.301 per therm (instead of the recalculated
rate of $0.629 per therm). Similar to the AEP Agreement discussed above, AEP
surcharge recalculations will occur in November 2020 and November 2022, with
one subsequent recalculation occurring upon U.S. Sugar’s demonstrated six
percent increase of natural gas consumption after November 2022. The utility
explained that with U.S. Sugar being the largest customer in the Glades AEP
Project, a six percent increase in consumption by U.S. Sugar would result in a
reduction in the AEP surcharge, therefore benefitting all customers. As
provided for in the 2015 Order, the AEP surcharge assessed to the Glades AEP
Project customers will terminate in October 2024.
FCG stated that it has been able to contact 36 of 38
customers on the Glades AEP Project regarding the recalculated AEP rate. In
response to Staff’s First Data Request, FCG claims that these customers have
accepted the recalculated AEP rate. For the remaining two customers, FCG states
that a representative left contact information.
Conclusion
The utility states that the proposed lower AEP surcharge
will reduce recovery on the Glades AEP Project by approximately $5 million. However,
according to the utility, the $5 million under-recovery will not affect the
general body of rate payers and any unrecovered amount is a risk to the utility’s
shareholders.
In FCG’s recent rate case, the Commission approved changes
to the AEP tariff that provides for true-ups on the third, fifth, seventh, and
ninth anniversaries of the date when each AEP project goes into service.
The utility stated that this will prevent spikes in AEP rates and allow for
gradual adjustments over time, if needed. In its response to Staff’s Second
Data Request, FCG indicated that these true-up requirements will not apply to
the Glades AEP Project.
FCG’s proposal will benefit U.S. Sugar, the large
industrial customer in the Glades Project area, who is facing unique economic
challenges. The proposal will also give relief to the other customers by
providing for a lower AEP rate. Staff therefore recommends that the Commission
approve FCG’s request for the AEP Agreement and a variance from the AEP tariff.
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. (Trierweiler)
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.
