Case Background
On May 26, 2021,
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 Joint Petitioners. Peninsula operates as a natural
gas transmission company as defined by Section 368.103(4), Florida Statutes
(F.S.). CFG provides natural gas service to
residential, commercial, and industrial customers in areas including Polk
County and currently receives deliveries of natural gas over interstate
transmission pipelines owned by Gulfstream Natural Gas System and Florida Gas
Transmission Company (FGT). CFG is a local distribution company 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 and 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. Furthermore, the Joint Petitioners are
subsidiaries of Chesapeake Utility Corporation 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.
In accordance
with the proposed Agreement, Peninsula will construct, own, and operate a
natural gas pipeline, a new gate station, and a new delivery receipt station in
Polk County. During the evaluation of the petition, staff issued two data
requests to the Joint Petitioners, for which responses were received on July
23, 2021 and on August 9, 2021. In addition, staff held an informal follow-up
meeting with the Joint Petitioners on August 16, 2021. The proposed Agreement
is included with this recommendation as Attachment A. The project map,
identifying the proposed construction projects, is included as Attachment B to
this recommendation. The dashed line represents the pipeline Peninsula will
construct, pursuant to the proposed Agreement. 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
Transportation Service Agreement between Peninsula and CFG dated May 7, 2021?
Recommendation:
Yes, the Commission should approve the proposed
Transportation Service Agreement between Peninsula and CFG dated May 7, 2021.
The proposed Agreement is reasonable and meets the requirements of Section
368.105, F.S. Furthermore, the proposed Agreement benefits CFG customers by
enhancing reliability, serving new incremental load, and by avoiding the risks
associated with ownership of the facilities. (Hampson)
Staff Analysis:
Proposed Transportation Service
Agreement
The Joint Petitioners have entered into the proposed
Agreement to provide CFG with the additional capacity needed to serve new
incremental load in the Winter Haven distribution system. The overall scope of
Peninsula’s project contemplates the construction of a steel pipeline, a new
gate station with
FGT, and a new delivery receipt station.
Specifically, Peninsula would construct a gate station
connecting the new pipeline to the FGT Avon Park Lateral, south of Winter
Haven. Peninsula would also install 7,400 feet of 4-inch steel pipeline
beginning from the new gate station and continuing northward to the new delivery
receipt station. Peninsula would construct the delivery receipt station in the
area of Pollard Road and Logistics Parkway. The Joint Petitioners state that
the proposed project would allow CFG to capture new load growth in the area,
including a large can manufacturing facility expected to begin operation in the
third quarter of 2021. Peninsula stated that it anticipates the construction of
the pipeline, gate station with FGT, and the delivery receipt station to be
completed in the first quarter of 2022.
The proposed Agreement specifies an initial term of 20
years; with an extension on a year-by-year basis, unless either party gives
written notification of termination not less than 90 days prior to expiration.
In response to staff’s data request, CFG explained it did not issue a formal
Request for Proposals. The Joint Petitioners state that FGT has declined to bid
for similar projects in previous discussions, citing that constructing and
owning laterals like those proposed is not the focus of their expansion
activities.
Staff notes that the pipeline along Bomber Road, shown as
the solid line on Attachment B, will be constructed and owned by CFG and is
therefore not part of the proposed Agreement. In response to staff’s data
request, the Joint Petitioners explained that the 4-inch medium-density
polyethylene pipeline is an extension of CFG’s existing distribution main,
making CFG the logical choice to construct and own that pipeline.
Negotiated Monthly Reservation Payments to
Peninsula
The Joint Petitioners assert that the negotiated monthly
reservation charge contained in the proposed Agreement is consistent with
market rates, because the rates are substantially the same as rates set forth
in similar agreements as required by Section 368.105(3)(b), F.S. Staff has
reviewed the proposed Agreement’s monthly reservation charge as well as the
cost estimates for each portion of the project and the breakdown between labor
and materials. In
discussions with Commission staff, the Joint Petitioners explained that the
negotiated monthly reservation charge was determined based on the expected
costs associated with the project; including design costs, capital and
depreciation costs, operations and maintenance costs, safety and regulatory
compliance costs, taxes, and Peninsula’s return on equity.
CFG has proposed 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 its
transportation customers and is a cents per therm charge that is included in
the monthly gas bill of transportation customers. Staff
believes that 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
protect CFG’s ratepayers from undertaking the costs and risks associated with
the project.
Anticipated System Benefits
The Joint Petitioners assert that the proposed project is
anticipated to provide multiple reliability and operational benefits for CFG.
First, the project would introduce additional natural gas supply from FGT to
CFG’s distribution system approximately mid-way between existing FGT gate
stations in Bartow and Winter Haven. Staff agrees this would provide additional
reliability for CFG’s distribution system, should either current FGT gate
station in the Bartow and Winter Haven area become constrained.
Second, the Joint Petitioners explained that completion of
Peninsula’s proposed project would allow CFG to decrease the pipeline pressure
along Spirit Lake Road, eliminating the need for several existing farm taps.
CFG has identified eight farm taps for retirement, which would otherwise need
to be rebuilt within the next year. By decreasing the pressure along Spirit
Lake Road, CFG is able to avoid the cost associated with rebuilding the older
equipment. In response to staff’s data request, the Joint Petitioners stated
that customers served by these farm taps should not anticipate any changes to
service reliability.
Staff agrees that retiring the aging farm taps would avoid the additional costs
associated with rebuilding the equipment and would not impact reliability for
customers currently served by them.
Finally, CFG has identified four larger regulator stations
that could also be retired as result of decreasing the pipeline pressure. Two
regulator stations to be removed from service are located near high traffic
roads and their removal should result in increased public safety. The Joint
Petitioners state that the remaining two regulator stations are located in a
CFG operations yard and are fed by a higher-pressure pipeline that crosses
under Lake Shipp. Staff agrees that retiring the regulator stations would
result in reduced maintenance expenses and increased safety in the area. CFG
stated that it anticipates the retirement of the farm taps and four regulator
stations to be completed by the end of the second quarter of 2022, dependent
upon Peninsula’s completion of its project.
Conclusion
Based on the petition and the Joint Petitioners’ responses
to staff’s data request, staff recommends that the Commission should approve
the proposed Transportation Service Agreement between Peninsula and CFG dated
May 7, 2021. The proposed Agreement is reasonable and meets the requirements of
Section 368.105, F.S. Furthermore, the proposed Agreement benefits CFG
customers by enhancing reliability, serving new incremental load, and by
avoiding the risks associated with ownership of the facilities.
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.
(Osborn)
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.
