Case Background
Florida City Gas
(FCG or utility) is a local distribution company subject to the Commission’s
jurisdiction pursuant to Chapter 366, Florida Statutes (F.S.). FCG serves
approximately 114,000 residential, commercial, and industrial natural gas
customers in southern Florida. On September 15, 2020, the utility filed a
petition requesting approval of a new Renewable Natural Gas Service (RNGS) tariff
to allow FCG to provide biogas conditioning services for the purpose of
converting biogas into usable renewable natural gas (RNG)
for the biogas producer. In addition, the petition requests modifications to FCG’s
Volume No. 10 natural gas tariffs to accommodate and allow for the receipt and
transportation of RNG through the utility’s distribution system on behalf of
the biogas producer.
RNG is produced by
cleaning and conditioning biogas in order to meet pipeline quality gas
standards. In 2017, the Commission approved a similar petition by Peoples Gas
System by Order No. PSC-2017-0497-TRF-GU. The proposed new RNGS tariff, as shown on
tariff sheet Nos. 74.1 through 74.3, and the additional Volume No. 10 proposed
tariff modifications, are included as Attachment A of the recommendation.
During the
review of this petition, staff issued two data requests, for which responses
were received on October 21, 2020 and November 25, 2020. By Order No. PSC-2020-0459-PCO-EI, issued on November 23, 2020,
the Commission suspended the tariff pursuant to the 60-day file and suspend
provision in Section 366.06(3), F.S. The Commission has jurisdiction
over this matter pursuant to Sections 366.03, 366.04, 366.05, and 366.06, F.S.
Discussion
of Issues
Issue 1:
Should the Commission approve FCG’s proposed new RNGS
tariff and modifications to its current Volume No. 10 natural gas tariffs?
Recommendation:
Yes, the Commission should approve FCG’s proposed new
RNGS tariff and modifications to its current Volume No. 10 tariffs, effective
January 5, 2021. The RNGS tariff would provide FCG with an opportunity to
provide biogas conditioning services to interested customers and the utility
demonstrated a reasonable approach to implementing the tariff. A participating
customer would enter into an agreement with FCG and all capital and operating
costs associated with the RNG cleaning and conditioning facility will be borne
by the customer over the life of the contract. (Forrest, Coston)
Staff Analysis: FCG explained that it has been approached by municipalities or private
businesses seeking the opportunity to contract with the utility to construct
and operate conditioning facilities to convert biogas into pipeline quality RNG.
Specifically, the utility stated that FCG has been in contact with five
entities who are evaluating the production of RNG from landfill gas or waste
treatment facilities. The primary intention from the biogas-producing customers
is to use the RNG to help offset their natural gas demand. The utility stated
that sources of biogas include landfills, wastewater treatment plants, or agricultural
digesters associated with facilities such as dairies. FCG also stated that the
utility has received inquiries from residential and commercial/industrial
customers regarding the availability of RNG.
In its petition, the utility explained that once biogas
has been cleaned and conditioned to pipeline quality safety standards, RNG is a
“carbon-neutral” energy source.
Once conditioned, RNG can be interchangeable with natural gas from other
sources. FCG stated in its petition that the use of RNG “reduces total emission
of greenhouse gases.” Without the collection of the biogas to be conditioned
into RNG, the biogas produced would escape into the atmosphere or be burned off
at the source with the emissions from the burning process released into the atmosphere.
Biogas producers currently may elect to install and maintain their own
conditioning equipment or contract with a third-party for the service. FCG
estimates that the costs for biogas conditioning equipment could range from $5
to $25 million for a single facility.
FCG also noted that by assisting customers to convert
biogas into RNG, the resulting natural gas would offset the demand for natural
gas the customer is currently purchasing from the utility, thus freeing
capacity on FCG’s distribution system. The utility states that the potential
offset of natural gas by the customer could allow for new growth within FCG’s
service territory.
Proposed New RNGS Tariff
Under the proposal, FCG would enter into a contract with a
biogas-producing customer to construct and operate the RNG facilities on behalf
of the customer. The resulting RNG would be used onsite by the producing
customer or injected into FCG’s distribution system for transportation and
delivery to another location on behalf of the customer. The tariff requires
that all RNG be conditioned to meet the utility’s gas quality and heat
standards. This requirement would ensure that all RNG produced under the proposed
tariff can be safely used without any adverse impact to the integrity of the
customer’s and FCG’s natural gas equipment. The biogas equipment would be
installed on the customer’s property or on utility-owned property if there
isn’t enough room on the customer’s property.
The proposed tariff requires that the utility and customer
enter into a mutually satisfactory RNG Service Agreement (agreement). The terms
of this agreement would include the design, location, quantity, quality specifications,
operational requirements, and the required Monthly Service Charge. This charge
would be designed to cover the costs of the construction, operational costs, and
carrying costs of the facilities. In addition, in the event that RNG is
injected into FCG’s distribution system for transportation on behalf of the
producing customer, the RNGS tariff requires that the customer pay the Commission-approved
per-therm distribution charge under the applicable tariff. This safeguard
ensures that there is not any cross-subsidization for transporting and
delivering RNG on FCG’s distribution system on behalf of the biogas customer.
In the event that a customer produces more RNG than it
needs for its facility, the customer can do one of the following: (a) make
arrangements with FCG to inject the excess produced RNG into FCG’s system to
deliver it to the producing customer at a different location, (b) inject the
excess RNG into FCG’s system to deliver it to a third party that is also a customer
of FCG, or (c) inject the excess into FCG’s system for delivery to the
interstate pipeline for sale in the interstate gas market. In the case of
excess supply of RNG, the customer served under the tariff would contract
directly with the purchasing entity of the excess supply. There is an additional
option of storing the excess RNG if there are storage facilities available to
that customer.
Finally, depending on the price and other variables such
as the location of the biogas source, FCG stated that the RNG could be
purchased by FCG as part of its system supply, which would allow the utility to
include in its portfolio a renewable natural gas source.
Should FCG elect to purchase RNG from a biogas producer to serve its customers,
FCG would seek Commission approval of the RNG costs through the annual
Purchased Gas Adjustment proceeding. FCG explained that it is anticipated that the
cost of the RNG would be higher compared to the current cost of fossil natural
gas; however, the location of the biogas producer could mitigate pipeline
capacity costs FCG incurs to transport natural gas into its service territory.
Impact on the General Body of Ratepayers
FCG stated that the RNGS tariff
has essential safeguards that ensure that the utility’s general body of
ratepayers will not subsidize the biogas customers taking service under the
RNGS tariff. Specifically, the utility
stated that it would ensure that service taken under the proposed RNGS tariff
will not affect any ratepayers by confirming the credit worthiness of the
customers taking service under the tariff. In response to staff’s first data
request, the utility stated it will do its due diligence to ensure that the non-participants
are not at risk by requiring RNGS customers to provide one of the following
options: (a) a deposit in the amount of two months estimated billing, (b)
providing an immutable and binding letter of credit, or (c) a surety bond. In
addition, the utility stated that customers served under the RNGS tariff will
also be required to provide banking references. FCG will perform credit analyses
for potential customers by using a reputable and unbiased reporting agency such
as Dun & Bradstreet or a similar reporting agency.
If a biogas customer were to default, FCG stated that the utility would
discontinue biogas conditioning services and secure its equipment, and seek
resolution of default according to the method used to guarantee credit.
Staff recommends approval of the petition based, in part, on FCG’s
assertion that it will implement a thorough and reasonable process to evaluate
the credit worthiness of a potential customer to be served under the RNGS
tariff, and the utility’s own internal risk assessment policies. Based on this
process, the utility does not anticipate any cost impact to the general body of
ratepayers.
Proposed Modifications to Volume No. 10 Tariffs
The proposed tariff modifications
to FCG’s natural gas tariffs, Volume 10, are necessary tariff changes to allow
FCG to receive and transport on its distribution system the RNG on behalf of
the biogas-producing customer. These changes recognize that an RNG customer
could be delivering gas into the utility’s system, not taking it out.
Traditionally, natural gas utilities receive natural gas from intrastate or
interstate pipelines.
Conclusion
Staff recommends that the Commission should approve FCG’s
proposed new RNGS tariff and proposed modifications to its current Volume No.
10 tariffs, effective January 5, 2021, as shown in Attachment A of this
recommendation. The RNGS tariff would provide FCG with an opportunity to
provide biogas conditioning services to interested customers and the utility demonstrated
a reasonable approach to implementing the tariff. A participating customer
would enter into an agreement with FCG and all capital and operating costs
associated with the RNG cleaning and conditioning facility will be borne by the
customer over the life of the contract.
Issue 2:
Should this docket be closed?
Recommendation:
Yes. 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. (Osborn, Crawford)
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.
