Case Background
On July 30,
2021, Florida City Gas (FCG or utility) filed a petition for approval of
variance to modify the Sebastian area extension program (AEP) true-up and
extend the amortization period. Specifically, FCG seeks Commission approval of
the following modifications to the Sebastian AEP Project surcharge: (a) waive
the year seven true-up and retain the current AEP surcharge subject to future
true-ups; (b) extend the amortization period from ten years to fifteen years
subject to earlier termination of the AEP surcharge upon full payment of the
balance to be recovered through the AEP; and ( c) retain the year nine true-up
per the tariff and add true-ups for years thirteen and fourteen.
The AEP tariff was
first approved by the Commission in 1995 and is designed to provide FCG with an
optional method to recover its capital investment to extend distribution
facilities to provide natural gas service to new customers in a discrete
geographic area. The AEP tariff provides an alternative
option for FCG to recover the cost of main extensions as required by Rule
25-7.054, Extension of Facilities, Florida Administrative Code (F.A.C.).
The AEP tariff
provides for the determination of a surcharge applicable to all gas customers
located in the specified geographic area over a 10-year amortization period.
The tariff requires FCG to recalculate and true-up the AEP surcharge on the
third anniversary of the in-service date, or on the date when 80 percent of the
originally forecasted annual load is connected, whichever comes first. The
recalculated AEP surcharge is applied prospectively over the remainder of the amortization
period. In addition, the AEP tariff provides for true-ups on the fifth, seventh
and ninth anniversary of the in-service date of an AEP project. The requirement
to include true-ups on the fifth, seventh and ninth anniversary of the
in-service date was approved in FCG’s 2018 rate case.
The AEP surcharge
is applied on a per-therm basis in addition to all other tariffed charges. The
AEP surcharge is calculated by a formula based on the amount of investment
required and the projected gas sales and resulting revenues collected from
customers in the AEP area. The AEP tariff specifies the formula to calculate
the surcharge and the AEP surcharge itself does not require Commission
approval. The AEP tariff includes a provision that the length of the 10-year
amortization period may be modified upon Commission approval.
Staff issued two
data requests in this docket, for which FCG responded on August 25, 2021 and on
October 14, 2021. The Commission has jurisdiction over this matter pursuant to
Sections 366.04, 366.05, 366.06, Florida Statutes (F.S.).
Discussion
of Issues
Issue 1:
Should the Commission approve FCG’s proposed AEP
tariff variance to modify the Sebastian AEP Project true-up timeline and extend
the amortization period?
Recommendation:
Yes, the Commission should approve FCG’s tariff
variance request to waive the year seven true-up requirement, extend the
amortization period from ten years to fifteen years, and add additional true-up
requirements to years thirteen and fourteen for the Sebastian AEP Project.
(Ward, Coston)
Staff Analysis:
In December of 2014, FCG placed the Sebastian AEP Project
in-service. The Sebastian AEP Project was designed to serve commercial and
industrial customers in the Sebastian-Vero Beach area, as well as to serve
additional residential, commercial, and industrial customers that the utility
anticipated to connect to the Sebastian AEP Project over time. At the onset,
the qualifying AEP extension project was estimated to be an additional $1,224,318
above the utility’s Maximum Authorized Construction Contribution (MACC)
allowance.
This amount would be the responsibility of the new customers subscribing to the
extension project. The utility stated that the original surcharge was
calculated based on having 80 new customers and approximately 808,900 annual
therm sales by the tenth and final year of the amortization period.
However, as of July 30, 2021, the utility only had 48
customers paying the AEP surcharge. In addition, the utility stated that as of
May 31, 2021, there is a remaining balance of $1,094,587 to be recovered
through the AEP by the end of the ten-year amortization period. FCG stated that
the rate of new customer growth and conversion to natural gas along this extension
has been slower than the original forecast. The utility highlighted that one
large commercial customer (which accounted for 29 percent of the original forecasted
volume) was delayed, resulting in lower revenues during the first six years of
the amortization period. In addition, FCG noted that the economic impact of the
COVID-19 pandemic has contributed to the lower than expected growth and sales
forecast.
In response to staff’s second data request, FCG explained
that the utility reassessed the Sebastian AEP surcharge on the third and fifth
anniversary of the in-service date as required by the AEP tariff. FCG stated
that they did not revise the AEP surcharge at those times because, based on the
information available, the utility forecasted customer growth and conversion to
natural gas shortly after those true-up years. However, FCG stated that new
customer growth and conversion to natural gas did not materialize as expected
after the year three and five true-ups.
As required by the AEP tariff, the year seven true-up for
the Sebastian Project is due in December 2021. FCG explained that in recalculating
the year seven true-up amount, the AEP surcharge would increase from the
current $0.4638 per therm to $1.3851 per therm, or an approximate 197 percent
increase, which would be applied to the bills of the Sebastian AEP customers
from January 2022 through December 2024. FCG stated that this increase would be
uneconomical for most customers, which could potentially lead to customers
switching to alternative fuel sources.
To reduce the rate impact to the Sebastian AEP Project customers,
the utility has requested to waive the year seven true-up and retain the
current surcharge amount until the year nine true-up. In addition, the utility
requested to extend the amortization period from ten to fifteen years. FCG explained
that extending the amortization period would give the utility more time to
attract new customers and increase volumes, and to collect the remaining
balance. Finally, the utility also requested to add additional true-ups for
year thirteen and fourteen, in order to further promote stability in the AEP
surcharge through the remainder of the amortization period.
FCG’s proposal only impacts the customers within the
Sebastian AEP Project and does not impact the general body of ratepayers. Also,
this request would not apply to any other AEP tariff projects. In response to staff’s data request,
FCG stated that, if approved by the Commission, it would notify customers of
the changes prior to implementation.
Conclusion
The Commission has previously approved a delay in true-up
and an extension of the amortization period for FCG’s AEP projects. Specifically,
in 2016, the Commission approved a delay in the true-up and an extension of the
amortization period for two years for an AEP project located in Hendry County
(Glades Project). In 2018,
the Commission approved additional modifications to the AEP surcharge
calculations in the Glades Project.
Staff believes that FCG’s proposal is reasonable and
appropriate because it will limit the risk to the Sebastian AEP Project
customers by minimizing rate impact while also providing the utility time to
add additional customers onto the system. Additional customers would disperse
the remaining Sebastian AEP Project costs over a larger customer base.
Therefore, the Commission should approve FCG’s tariff variance request to waive
the year seven true-up requirement, extend the amortization period from ten
years to fifteen years, and add additional true-up requirements to years
thirteen and fourteen for the Sebastian AEP Project.
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. (Sandy)
Staff Analysis:
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.
