Discussion
of Issues
Issue 1:
Should the Commission approve FPUC and FPUC – Fort
Meade’s revised transportation imbalance tariffs as contained in Attachments 1 and
2 to this recommendation?
Recommendation:
Yes, the Commission should approve FPUC and FPUC –
Fort Meade’s revised transportation imbalance tariffs as contained in
Attachments 1 and 2 to this recommendation. The proposed revisions are designed
to act as a deterrent for long monthly imbalances, provide benefits to sales
customers, and are consistent with the Florida Division of Chesapeake Utilities
Corporation’s imbalance tariffs. The revised tariffs should become effective on
April 2, 2019. (Guffey, Merryday)
Staff Analysis:
The companies proposed to revise their methodology for
calculating billing adjustments to pool managers for monthly imbalances. Specifically,
the companies proposed to modify the imbalance cash-out tiers and associated
cash-out rates. Imbalances occur when the amount of natural gas delivered by a
pool manager and the amount of natural gas consumed by transportation customers
varies.
Background
Rule 25-7.0335, Florida Administrative Code, (F.A.C.), requires
local distribution companies (LDCs), such as FPUC and FPUC – Fort Meade, to
make gas transportation service available to non-residential customers.
Transportation service is a voluntary program that allows customers to use a
pool manager, or third party marketer or shipper, rather than the LDC to meet
their natural gas requirements. In a transportation service environment, the
LDC only transports natural gas from the gate station (delivery point at which natural
gas is transferred from the interstate pipeline to the LDC’s distribution
system) to the transportation customer’s meter. Customers who purchase their natural
gas from the LDC are referred to as sales customers.
Both FPUC and FPUC – Fort Meade function as traditional
LDCs providing gas service for sales customers and provide optional
transportation service as required by Rule 25-7.0335, F.A.C. There
are currently 13 pool managers qualified to serve FPUC and FPUC – Fort Meade’s
transportation customers in aggregated customer pools. The transportation
customers pay the pool manager’s charges for natural gas and are not subject to
the companies’ Commission-approved Purchased Gas Adjustment (PGA) rates,
whereas sales customers are subject to PGA rates. The Commission does not
approve or review the natural gas prices the pool managers offer.
Current Imbalance Tariffs
Gas is delivered by the pool managers to the LDC’s gate
station at a constant level daily even though transportation customers’ daily
therm usage varies, creating negative or positive imbalances. At the end of
each month, the companies calculate each pool manager’s imbalance level by
aggregating customer usage in their pool and comparing it to the pool manager’s
natural gas deliveries.
A negative (short) imbalance results when the gas
consumption of a transportation customer pool exceeds what the pool manager
delivered that month; therefore, the companies sell natural gas to the pool
manager. A positive (long) imbalance results when more natural gas was
delivered than was needed for the transportation customers; therefore, the
companies purchase the excess gas delivered by the pool manager. To calculate
invoices to pool managers for a long imbalance or amounts due to the companies
for a short imbalance, the amount (in therms) of the long or short imbalance is
multiplied by the applicable imbalance tier. The resulting amount is then
multiplied by the PGA rate, i.e., cash-out rate. The proposed revisions to the companies’
tariff provisions that contain the imbalance tiers and cash-out rates are
discussed in detail below.
Proposed Revisions to Imbalance Tariffs
Imbalance Tiers
The companies explained that the current imbalance tiers
are very broad. The imbalance tiers represent the difference, expressed as a
percentage, between the natural gas quantity delivered (in therms) by the pool
manager and the natural gas consumed (in therms) by the transportation
customers. As shown in Table 1-1 below, the first tier is from zero to 20
percent; therefore, if a pool manager delivers between zero and 20 percent more
natural gas than what is consumed, the companies must pay the pool manager the
full PGA rate for the excess gas delivered. The next tier, 20 percent to 40
percent, provides for a payment of a long position at 90 percent of the PGA
rate. Similar calculations are used to determine payment amounts to or from
pool managers depending on position and tier.
Table 1-1
Current Imbalance Tiers
|
Imbalance Tiers
|
Short Factor
|
Long Factor
|
|
Lower
|
Upper
|
|
|
|
0%
|
20%
|
1.00
|
1.00
|
|
20%
|
40%
|
1.10
|
0.90
|
|
40%
|
60%
|
1.20
|
0.80
|
|
60%
|
80%
|
1.30
|
0.70
|
|
Greater than 80%
|
1.40
|
0.60
|
Source: Docket No. 20190036-GU
petition
The companies proposed to revise
the imbalance tiers as shown in Table 1-2 below. As Table 1-2 demonstrates, the
proposed imbalance tiers only provide a 100 percent payout for a long position
from zero to five percent.
Table 1-2
Proposed Imbalance Tiers
|
Imbalance Tiers
|
Short Factor
|
Long Factor
|
|
Lower
|
Upper
|
|
|
|
0%
|
5%
|
1.00
|
1.00
|
|
5%
|
20%
|
1.10
|
0.90
|
|
Greater than 20%
|
1.20
|
0.80
|
Source: Docket No. 20190036-GU
petition
Cash-out Rate for Monthly Imbalance Amounts
The companies’ second revision is to change the cash-out rate
for monthly imbalance amounts as shown in the proposed tariffs. Instead of the
PGA rate, the companies proposed to use market- based natural gas cash-out
rates as reported in the Platts Gas Daily and published interstate pipeline
capacity charges. The Platts Gas Daily provides natural gas commodity prices in
various areas of the US natural gas market.
The companies assert that proposed cash-out rates are
indicative of the natural gas prices in the market. The PGA rate is typically
higher than market based natural gas prices as it includes interstate and
intrastate pipeline demand charges for all the capacity the companies need to
hold to serve their sales customers and costs related to the companies’
purchase gas function.
To support their petition, the companies explained that over
the last three years, payments to pool managers have increased. In response to
staff’s data request, the companies provided monthly imbalance quantities. The monthly
imbalance quantities (in therms) show that for the period January 2015 through
December 2018, the net total of each pool manager’s monthly imbalance was a
long imbalance, i.e., the pool managers delivered excess natural gas.
Therefore, the companies made the following annual payments to pool managers
for excess natural gas delivered: $2.1M (2015), $2.8M (2016), $4.9M (2017), and
$3.5M (2018). These payments to pool managers are included in the calculation
of the PGA rate. The companies assert that the proposed lower cash out rates
should provide a price signal to pool managers to not overschedule natural gas
deliveries. A reduction in the payment amounts to pool managers for long
imbalances will provide downward pressure on the PGA rate benefitting the sales
customers.
The companies assert that the long positions are an
indication that some pool managers may intentionally purchase more natural gas in
the market than the amount needed to serve their customer pool in order to sell
the excess (long) gas quantity back to the companies at the PGA rate. The
companies explained that any excess natural gas purchased from the pool
managers either is used by the sales customers or sold to an interstate
pipeline. Any revenue received from an interstate pipeline is credited to the
PGA charge; however, the interstate pipeline’s cash-out rates are typically
based on the New York Mercantile Exchange, which is less than the companies’
PGA rates.
Conclusion
The proposed revisions are intended as a deterrent to long
monthly imbalances and provide benefits to sales customers. Furthermore, the
proposed revisions are consistent with Florida Division of Chesapeake Utilities
Corporation’s (Chesapeake) current Commission-approved imbalance tariffs. FPUC
is a wholly-owned subsidiary of Chesapeake Utilities Corporation which is
headquartered in Dover, Delaware. Chesapeake is an operating division of
Chesapeake Utilities Corporation. The companies expressed a desire to have
consistent tariff provisions across their Florida business units.
The companies stated that they have communicated with the pool managers
about the proposed revisions and that the pool managers have been supportive. Staff
recommends that the Commission approve FPUC and FPUC – Fort Meade’s tariff
modifications as shown in Attachments 1 and 2 to this recommendation. The revised tariffs should
become effective on April 2, 2019.
Issue 2: Should this docket
be closed?
Recommendation:
If Issue 1 is approved and a protest is filed within
21 days of the issuance of the order, the tariffs should remain in effect, with
any revenues held subject to refund, pending resolution of the protest. If no
timely protest is filed, this docket should be closed upon the issuance of a
consummating order. (Nieves)
Staff Analysis:
If Issue 1 is approved and a protest is filed within
21 days of the issuance of the order, the tariffs should remain in effect, with
any revenues held subject to refund, pending resolution of the protest. If no
timely protest is filed, this docket should be closed upon the issuance of a
consummating order.
