Case Background
On
July 19, 2019, Florida Public Utilities Company (FPUC), Peoples Gas System
(Peoples), Peninsula Pipeline Company, Inc. (Peninsula), and SeaCoast Gas
Transmission, LLC, (SeaCoast) (collectively, the joint petitioners), filed a
petition seeking Commission approval of restructured Nassau County transportation
agreements to reflect the new Callahan intrastate pipeline (Callahan pipeline).
The Callahan pipeline, which is currently under construction, will allow the
joint petitioners to expand natural gas service in Nassau and Duval counties in
Northeast Florida.
FPUC
and Peoples are local distribution companies (LDCs) which own and operate
natural gas distribution facilities to serve retail customers and are subject
to the Commission’s regulatory jurisdiction under Chapter 366, Florida Statutes
(F.S.). Peninsula and SeaCoast operate as intrastate natural gas transmission
companies as defined in Section 368.103, F.S., and only transport natural gas.
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 and enter into certain gas transmission agreements without prior
Commission approval. Both Peninsula and FPUC are subsidiaries of Chesapeake
Utilities Corporation; therefore, any agreements between the affiliates require
Commission approval, pursuant to Section 368.105, F.S., and Order No.
PSC-07-1012-TRF-GP.
Similarly
to Peninsula, in Order No. PSC-08-0747-TRF-GP, SeaCoast 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 and enter into certain gas transmission agreements without prior
Commission approval. SeaCoast and Peoples are affiliates in that their parent
company is TECO Energy, Inc. and, therefore, their agreements must be approved
by the Commission.
The joint petitioners’
plans for the provision of natural gas service to residents in Nassau and Duval
counties were previously addressed by the Commission in Order No.
PSC-12-0230-PAA-GU. Specifically, in 2012, the Commission
approved a Nassau-Duval County territorial agreement between FPUC and Peoples.
The Nassau-Duval County territorial agreement provides that Peoples’ service
area includes Duval County and the WestRock facility (formerly known as
RockTenn), a large paper mill on the northern tip of Amelia Island, while
FPUC’s service area is Nassau County.
In the same
order, the Commission approved transportation service agreements between
Peninsula and FPUC and between Peninsula and Peoples. The 2012 transportation
agreements were needed in order to allow FPUC to serve Nassau County by
transporting natural gas from Peoples’ existing interconnection with the
Florida Gas Transmission Company (FGT) interstate pipeline through Peoples’
pipeline into the Fernandina Beach Line. The Fernandina Beach Line was jointly
constructed in 2012 by Peoples and Peninsula.
The joint petitioners
explained that since 2012, Nassau and Duval counties have experienced significant
growth and, therefore, they jointly developed the proposed plan to bring
additional natural gas capacity into the area. Furthermore, the joint
petitioners stated that the existing Fernandina Beach Line is approaching full
capacity and Peoples is experiencing pressure concerns in northern Duval County
and has commitments for new customers. The joint petitioners state that the
proposed agreements do not impact the 2012 Commission-approved Nassau-Duval
County territorial agreement.
In the instant petition, the joint petitioners
are seeking Commission approval of the following:
1.
A new Firm Service Agreement between SeaCoast and
Peoples (Issue 1)
2.
Amendment to Peninsula and FPUC’s 2012 Transportation
Service Agreement (Issue 2)
3.
Cancellation of Peninsula and Peoples’ 2012, and
amended in 2015, Transportation Agreement (Issue 3).
This
recommendation includes three attachments. Attachment A is a map depicting the
Callahan pipeline, Attachment B includes the SeaCoast/Peoples Firm Service
Agreement as discussed in Issue 1, and Attachment C includes the 2012
Peninsula/FPUC Transportation Service Agreement and the 2019 amendment as
discussed in Issue 2.
During
the evaluation of the instant petition, staff issued a data request to the
joint petitioners for which responses were received on October 10, 2019. On
November 6, 2019, staff held an informal meeting with the joint petitioners.
The Commission has jurisdiction over this matter pursuant to Sections 366.04, 366.05(1),
366.06, and 368.105, F.S.
Discussion
of Issues
Issue 1:
Should the Commission approve the Firm Service
Agreement (agreement) dated July 19, 2019, between SeaCoast and Peoples?
Recommendation:
Yes, the Commission should approve the agreement
dated July 19, 2019, between SeaCoast and Peoples as shown in Attachment B to
this recommendation. (Guffey, Coston, Draper)
Staff Analysis:
The new 16-inch steel Callahan
pipeline is being constructed to allow FPUC and Peoples to expand natural gas
service in Nassau and Duval counties. The construction of the Callahan pipeline
does not need Commission approval; however, staff believes a description of the
Callahan pipeline project is helpful to establish context for the joint
petition. Investment and ownership in the Callahan pipeline is split 50/50
between Peninsula and SeaCoast.
Peoples and FPUC explained that contracting with the intrastate pipelines to
construct and own the Callahan pipeline, as opposed to building it themselves,
will avoid the LDCs undertaking the costs and risk for this project, thus
protecting their ratepayers. Peoples and FPUC also stated that the intrastate
companies are well experienced in permitting, land acquisition, and
construction of a project of this size and scope.
The Callahan pipeline will interconnect with the Southern
Natural Gas Company, LLC, interstate pipeline (SONAT) in western Nassau County
and will extend 26.5 miles eastward and terminate at the existing Fernandina
Beach Line. In Attachment A to this recommendation, the Callahan pipeline is
shown as the green line and the Fernandina Beach Line is shown as the red line.
The joint petitioners explained that since both FPUC and Peoples need
additional natural gas quantities in Nassau and Duval counties, the jointly
constructed pipeline avoids two companies constructing separate pipelines and,
therefore, avoids a duplication of facilities. In addition, the interconnect
with SONAT will provide FPUC and Peoples the ability to receive natural gas
from a second interstate pipeline. The current interconnect for FPUC and
Peoples to receive natural gas in Northeast Florida is with the FGT pipeline.
Since SeaCoast and Peoples are affiliated companies, the
proposed agreement requires Commission approval. Pursuant to the agreement,
SeaCoast will provide firm transportation service for Peoples over its portion
of the Callahan pipeline for an initial term of 20 years, with an option to extend
for an additional ten years. Peoples will recover its payments to SeaCoast through
the Purchased Gas Adjustment (PGA) mechanism and from transportation customers,
consistent with prior pipeline projects. The effective date of the agreement is
expected to be September 30, 2020, which is the estimated in-service date of
the Callahan pipeline.
SeaCoast and Peoples assert that the negotiated
reservation charge set forth in the agreement is a cost-based market rate and
is designed to allow SeaCoast to recover its costs associated with the Callahan
pipeline. Based on the petition and responses to staff’s data request, SeaCoast
and Peoples have supported the need of the new Callahan pipeline and associated
agreement. Staff believes the proposed agreement is reasonable, meets the
requirements of Section 368.105, F.S., and benefits Peoples’ customers by
allowing Peoples to expand natural gas service to new customers and ensure
appropriate natural gas pressure for existing customers. Therefore, staff
recommends approval of the agreement dated July 19, 2019, between SeaCoast and
Peoples.
Issue 2:
Should the Commission approve the Amended Firm Gas
Transportation Service Agreement dated July 19, 2019, between Peninsula and
FPUC?
Recommendation:
Yes, the Commission should approve the Amended
Transportation Service Agreement (amended agreement) between Peninsula and FPUC
as shown in Attachment C to this recommendation. (Guffey, Coston, Draper)
Staff Analysis:
The current Commission-approved transportation
service agreement dated February 1, 2012 (2012 agreement), between Peninsula
and FPUC allows Peninsula to transport and deliver natural gas to FPUC through
Peoples’ distribution system and the Fernandina Beach Line.
The negotiated confidential charges contained in the 2012 agreement require
FPUC to pay Peninsula for the transportation of the natural gas. Transportation
agreements typically include terms such as the Maximum Daily Transportation
Quantity (MDTQ), the negotiated monthly reservation charge, and points of
delivery. The MDTQ is the largest daily quantity of gas Peninsula is obligated
to transport on a firm basis for delivery to FPUC.
Once the Callahan pipeline is in
operation, FPUC will no longer need Peninsula to transport natural gas for
delivery through Peoples’ distribution system. Instead, Peninsula will transport
natural gas for delivery to FPUC across its portion of the Callahan pipeline
and the Fernandina Beach Line. FPUC stated that the Callahan pipeline is a
large diameter pipe compared to Peoples’ line which allows for natural gas to
be delivered at a high pressure. Therefore, Peninsula will be able to deliver
increased quantities of natural gas to FPUC.
To reflect the transportation of
gas via the Callahan pipeline, Peninsula and FPUC are proposing to amend their
2012 agreement to increase the MDTQ and the corresponding change in the monthly
reservation charge. The negotiated monthly reservation charge in the amended
agreement is designed to recover Peninsula’s portion of the Callahan project. The
amended agreement changes the delivery point from the FGT/Peoples interconnect
to the Callahan interconnect with SONAT. In addition, the agreement adds
additional points of delivery to FPUC at several locations along the Callahan
route in Nassau County. Finally, the initial 15-year term of the 2012 agreement
will be extended for 13 years.
The amended agreement only provides for revisions to the
first page and Exhibit A to the 2012 agreement. For clarity, staff included in
Attachment C to this recommendation the entire 2012 agreement and the amendment
to that agreement. Staff believes the proposed amendment is reasonable and
benefits FPUC’s customers by allowing FPUC to expand natural gas service in
Nassau County. Therefore, staff recommends approval of the amended agreement
between Peninsula and FPUC.
Issue 3:
Should the Commission approve the cancellation of
the Gas Transportation Agreement between Peninsula and Peoples?
Recommendation:
Yes, the Commission should approve the cancellation
of the Gas Transportation Agreement between Peninsula and Peoples effective
with the in-service date of the Callahan pipeline. (Guffey, Coston)
Staff Analysis:
In 2012, the Commission
approved a Gas Transportation Agreement between Peninsula and Peoples.
This agreement allows Peoples to provide transportation service to Peninsula
across Peoples’ system (yellow line in Attachment A to this recommendation).
Because Peninsula and Peoples negotiated a payment structure not anticipated in
Peoples’ tariff, Rule 25-9.034, Florida Administrative Code, requires the
Commission to approve this special contract. The fixed monthly charge, payable
by Peninsula, was designed to recover Peoples’ investment in certain upgrades
to its facilities to support Peoples’ transportation of natural gas for
Peninsula.
In 2015, the Commission approved
in Order No. PSC-15-0318-PAA-GP an amendment to the special contract between
Peninsula and Peoples. The amendment enabled Peoples to provide Peninsula with
incremental transportation service.
The joint petitioners explained that when the Callahan
pipeline becomes operational, Peoples will no longer transport natural gas on
behalf of Peninsula. Therefore, this contractual obligation becomes obsolete
and both parties have agreed to terminate the agreement. While Peoples will no
longer receive payments from Peninsula after the agreement is terminated, Peoples
stated that it will recover its investment through revenue derived from new
growth in St. Johns County and in Duval County. In response to staff’s data request,
the joint petitioners stated that the anticipated effective date of the
termination of the agreement is September 30, 2020 (the current anticipated
in-service date of the Callahan pipeline). Since the existing agreement between
Peninsula and Peoples will become obsolete when the Callahan pipeline goes into
service, staff recommends approval of the cancellation of the Gas
Transportation Agreement between Peninsula and Peoples.
Issue 4:
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.
