Case Background
On June 10,
2019, 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 Utilities Corporation, d/b/a
Central Florida Gas (CFG), collectively the parties. Peninsula operates as a
natural gas transmission company as defined by Section 368.103(4), Florida
Statutes (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; it 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 proposed Agreement as it does not fit any of the
criteria enumerated in the tariff for which Commission approval would not be
required. The parties 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
recommendation), Peninsula will acquire, construct, and operate a natural gas
pipeline, and construct a new interconnection in Polk County. During its
evaluation of the petition, staff issued two data requests to the parties for
which responses were received on July 2 and July 15, 2019. 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 May 17, 2019?
Recommendation:
Yes, the Commission should approve the proposed
Agreement between Peninsula and CFG dated May 17, 2019. (Guffey)
Staff Analysis:
CFG provides natural gas service to residential,
commercial, and industrial customers in Polk County, and receives deliveries of
natural gas to serve these customers over interstate transmission pipelines
owned by Gulfstream and Florida Gas Transmission (FGT). In addition, CFG uses a
connection with Peoples Gas System (which is referred to as an LDC to LDC interconnection)
and a section of intrastate pipeline in Haines City owned by Peninsula.
The parties have entered into the proposed Agreement to allow
CFG to meet increased demand in the Polk County area. The proposed Agreement
specifies an initial term of 20 years and thereafter shall be extended for
additional 10-year increments, unless either party gives no less than 180 days
of written notification of termination. The proposed Agreement has the added
benefit of providing CFG with an additional source of gas (via the Gulfstream
interstate pipeline) and enhancing an existing interconnection with the FGT
pipeline. The specific projects are discussed below and shown in Attachment B
to the recommendation.
First, Peninsula would acquire 1,200 feet of existing 12
inch steel pipeline from Calpine. The Calpine pipeline is shown as the short
blue line on Attachment B and already connects to the existing Gulfstream Gate
Station (south of Calpine). The Calpine pipeline would also connect with a new
interconnection Peninsula would construct directly to the south of Derby Avenue
and to the east of Calpine pipeline. This interconnection would give CFG a
secondary source of natural gas from Gulfstream.
Second, Peninsula would acquire from CFG 13,000 feet of 10
inch steel pipeline that runs from CFG’s Lake Blue Gate Station north to the
newly proposed interconnection south of Derby Avenue. This is shown as the red
line on Attachment B. Peninsula would increase the pressure on this pipeline
resulting in the pipeline operating as a transmission pipeline (and not a
distribution pipeline). CFG explained that Peninsula, as a transmission
pipeline operator, would be more suited to provide the on-going operations and
maintenance and meet the Pipeline and Hazardous Materials Safety Administration’s
compliance and safety requirements. Peninsula would increase the pressure on
the 10 inch steel pipeline by installing a regulator at the existing Lake Blue
Gate Station.
Finally, from the new interconnection south of Derby Avenue,
Peninsula would construct 800 feet of 6 inch polyethylene pipeline to the north
where it would interconnect with CFG’s distribution system in the vicinity of
Derby Avenue in Polk County. The polyethylene pipeline is shown as the short green
line on Attachment B.
In response to staff’s first data request, the parties
stated that CFG did not issue a Request for Proposals (RFP) from other entities
to construct the pipeline. Peninsula, however, engaged in discussions with FGT
about extending its existing pipeline in Polk County. CFG stated that FGT
declined to bid on the pipeline construction portion of the project citing that
constructing and operating laterals such as those proposed in this petition are
not a focus of FGT’s expansion activities.
The parties assert that the
negotiated monthly reservation charge contained in the proposed 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 is
proposing to recover its payments to Peninsula through its swing service rider
mechanism consistent with other gas transmission pipeline costs incurred by
CFG. The swing service rider allows CFG to recover intrastate capacity costs
from their transportation customers and is a cents per therm charge that is
included in the monthly gas bill of transportation customers. While
CFG 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 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 the three
projects, which in turn protects CFG’s ratepayers. Peninsula anticipates the
pipeline construction to be completed by September 2019.
Conclusion
Based on the petition and the parties’ responses to
staff’s data requests, staff believes that the proposed Agreement is cost
effective, reasonable, meets the requirements of Section 368.105, F.S., and
benefits CFG’s customers. Staff therefore recommends approval of the proposed
Agreement between the parties dated May 17, 2019.
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. (Simmons)
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.
