Case Background
On March 2,
2023, Peninsula Pipeline Company, Inc. (Peninsula) filed a petition seeking
approval of a firm transportation service agreement (Transportation Agreement)
between Peninsula and Florida Public Utilities Company (FPUC) (collectively,
the parties). The purpose of the Transportation Agreement is to ensure
continuance of gas service to FPUC after the impending acquisition by Peninsula
of certain pipeline facilities in the immediate area of the City of Lake Wales
in Polk County. Peninsula operates as an intrastate natural gas transmission
company as defined by Section 368.103(4), Florida Statutes (F.S). FPUC 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 gas 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 Transportation 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, a Delaware 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 1999, the
Commission approved a pipeline lease agreement (1999 agreement) between FPUC
(Florida Division of Chesapeake Utilities Corporation at the time) and
Citrosuco North America, Inc. (Citrosuco) for pipeline facilities in the Lake
Wales area. Citrosuco owns and operates a citrus
processing plant in Lake Wales. In 1999, Citrosuco constructed a natural gas
pipeline that provides access for the Citrosuco processing plant to the Florida
Gas Transmission (FGT) interstate natural gas pipeline. The Citrosuco-owned pipeline
runs from the FGT Lake Wales gate station to Citrosuco’s meter at the entrance
of its citrus processing plant.
Pursuant to the
1999 agreement, Citrosuco owns the pipeline and leases it to FPUC for operation
and maintenance. FPUC receives certain quantities of natural gas at the Lake
Wales Gate Station for Citrosuco’s use and transports the natural gas on the
pipeline to Citrosuco’s facility. In addition, FPUC accesses the pipeline to
serve customers in the Lake Wales area. The 1999 agreement expired in 2019 and
has been renewed on a monthly basis.
Peninsula has
been in discussions with Citrosuco to acquire the pipeline from Citrosuco
through a Pipeline Purchase and Sale Agreement. This purchase agreement between
Peninsula and Citrosuco, which contains a negotiated purchase price, does not
require Commission approval. Upon acquisition, Peninsula would maintain and
operate the pipeline and provide transportation service to FPUC pursuant to the
proposed Transportation Agreement. Citrosuco would continue to receive natural
gas service from the pipeline. Peninsula stated that the closing of the
purchase agreement is contingent on Commission-approval of the proposed
Transportation Agreement.
The proposed Transportation
Agreement and project map are shown as Attachments A and B to this
recommendation. Pursuant to the Transportation Agreement, FPUC will
continue to utilize the Citrosuco pipeline system to serve its customers in and
around Lake Wales, Florida. On March 8,
2023, staff had an informal conference call with Peninsula and FPUC regarding
the petition. During the evaluation of the petition, staff issued a data
request to the parties for which responses were received on March 13, 2023. Peninsula
requested expedited approval of the proposed Transportation Agreement and that
the Commission consider it at the April 4, 2023 Agenda Conference. 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
Agreement dated March 1, 2023 between FPUC and Peninsula?
Recommendation:
Yes, the Commission should approve the proposed
Transportation Agreement dated March 1, 2023 between FPUC and Peninsula. The
proposed Transportation Agreement is reasonable and meets the requirements of
Section 368.105, F.S. Furthermore, the proposed Transportation Agreement
benefits FPUC’s current and potential future customers by ensuring that there
is an uninterrupted supply of natural gas to Lake Wales, Florida.
Staff Analysis:
Proposed Transportation Service Agreement
The parties have entered into the proposed firm Transportation
Agreement to enable FPUC to continue to serve natural gas customers in and
around the area of Lake Wales once Peninsula has acquired the Citrosuco
pipeline system.
The proposed Transportation Agreement specifies an initial
term of 20 years and thereafter shall be extended on a year-to-year basis,
unless either party gives no less than 90 days of written notification of
termination. If either party desires to negotiate modifications to the rates or
terms of this Transportation Agreement, they may do so no less than 120 days
prior to expiration of the current active term. The proposed Citrosuco pipeline
acquisition is discussed below and the project map depicting the pipeline is
Attachment B to this recommendation.
Citrosuco Pipeline Acquisition
The Citrosuco pipeline consists of approximately 11 miles
of 8-inch steel pipeline and associated facilities. The pipeline runs from the
FGT Lake Wales gate station to Citrosuco’s meter at the entrance of its citrus
processing plant.
In the petition, Peninsula stated that it has negotiated
an acquisition agreement with Citrosuco for the Citrosuco pipeline system and
that the closing of the pipeline acquisition agreement is contingent on
Commission approval of the proposed Transportation Agreement. If the proposed Transportation
Agreement is approved, Peninsula stated that it will take over ownership of the
pipeline, as well as operation and maintenance of the facilities from FPUC.
Peninsula will provide service to FPUC pursuant to the proposed Transportation Agreement.
In response to staff’s data request, the parties explained that the Citrosuco
pipeline falls within the portfolio of projects typically operated by
Peninsula, instead of FPUC.
The parties stated that after the closing of the
acquisition, FPUC will serve Citrosuco for six years pursuant to the
Commission-approved Contract Transportation Service Rider which allows FPUC to
provide reduced rates to commercial or industrial customers with alternate fuel
capabilities. Afterwards, FPUC asserts that Citrosuco would be served under a
standard rate schedule.
Anticipated System Benefits
The parties assert that the proposed Transportation Agreement
will enable FPUC to continue to obtain gas supply from FGT upon Peninsula’s
acquisition of the Citrosuco pipeline. In response to staff’s first data
request, FPUC stated that it believes there is too much risk involved in
leasing key facilities from an unrelated entity such as Citrosuco.
FPUC believes that Peninsula’s ownership of the pipeline will protect the
general body of ratepayers from potential unforeseen price increases or service
challenges tied to a leasing arrangement. FPUC stated that the Citrosuco
pipeline is a key strategic asset for FPUC’s gas supply and operations in the
City of Lake Wales. Additionally, FPUC stated that it anticipates growth in the
immediate area of the pipeline, and that Peninsula owning the pipeline would
position FPUC to meet the anticipated growth.
Furthermore, the parties asserted that purchasing the
existing pipeline through a negotiated purchase price would be less costly than
installing a new, separate pipeline to serve FPUC’s customers. FPUC estimated
that it would cost approximately $15.46 million to build another, similar feed
to its Lake Wales system. By instead acquiring the existing pipeline from
Citrosuco, Peninsula would be avoiding additional costs, and therefore reducing
the total cost to be recovered from FPUC’s general body of ratepayers.
Negotiated Monthly Reservation Payments to
Peninsula
The parties assert that the negotiated monthly reservation
charge contained in the proposed Transportation 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. The parties
assert that Peninsula will recover the purchase price of the pipeline from
Citrosuco through the monthly reservation charge (confidential) to FPUC as
shown in Exhibit A to the proposed Transportation Agreement.
FPUC is proposing to recover its payments to Peninsula
through Purchased Gas Adjustment (PGA) and swing service rider mechanisms. The
PGA allows FPUC to periodically adjust the price of natural gas supplied to its
customers to reflect the actual cost of gas purchased and delivered on behalf
of the customers. The swing service rider allows FPUC to recover intrastate
capacity costs from their transportation customers and is a cents per therm
charge that is included in the monthly customer gas bill of transportation
customers.
Conclusion
Based on the petition and the parties’ responses to
staff’s data request, staff believes that the proposed Transportation Agreement
is reasonable and meets requirements of Section 368.105, F.S. Furthermore, the
proposed Transportation Agreement benefits FPUC’s current and potential future
customers by ensuring that there is a continuous supply of natural gas to the
City of Lake Wales. Staff therefore recommends approval of the proposed Transportation
Agreement between Peninsula and FPUC dated March 1, 2023.
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.
(Thompson)
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.
