Case Background
On April 24,
2023, Peninsula Pipeline Company, Inc. (Peninsula) filed a petition seeking
approval of a Firm Transportation Service Agreement (Agreement) between
Peninsula and Florida Public Utilities Company (FPUC), collectively the
parties. The purpose of the Agreement is to allow FPUC to provide natural gas
service to existing and future residential, commercial, and industrial
customers in and near the City of Newberry (Newberry or the City) in Alachua
County. Newberry currently does not provide natural gas service but customers have
the option to use propane as a secondary fuel source provided by propane
distributors.
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 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 authorized to conduct business in
Florida, 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.
Pursuant to the
proposed Agreement and project map (Attachments A and B to this
recommendation), Peninsula will construct, own, and operate a new natural gas
pipeline and update an existing gate station located in Trenton, which will be
an interconnect with Florida Gas Transmission Company’s (FGT) interstate
pipeline system. During the evaluation of the petition, FPUC and staff had an
informal meeting on April 18, 2023, and staff issued two data requests to the
parties for which responses were received on May 17, 2023 and on June 13, 2023.
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 Firm Transportation Service Agreement dated
April 5, 2023, between Peninsula and FPUC?
Recommendation:
Yes,
the Commission should approve the proposed Firm Transportation Service
Agreement dated April 5, 2023, between Peninsula and FPUC. The proposed
Agreement is reasonable and meets the requirements of Section 368.105, F.S.
Furthermore, the proposed Agreement benefits FPUC’s current and potential
future customers by interconnecting to FGT’s less constrained West Leg allowing
FPUC to provide natural gas service in and around the City of Newberry in
Alachua County. (Guffey)
Staff Analysis:
Proposed Transportation Service Agreement
The City of Newberry currently does not provide natural
gas service but customers who desire to use gas have the ability to purchase
propane as their secondary fuel source. Propane suppliers are unregulated by
the Commission. FPUC believes that once the natural gas distribution system in
the City is completed and service becomes available, some propane customers may
opt for natural gas as it is a cheaper fuel.
FPUC explained that Newberry is experiencing increased
development in residential, commercial, and light industrial sectors. FPUC
further stated that the City has indicated a high interest in obtaining reliable
and reasonable natural gas service and FPUC has obtained several letters of
interest from home builders and other businesses. The proposed Agreement will
also support the City’s economic development plan which emphasizes the
development of commercial and light industrial sectors of its local economy. FPUC
indicated it also anticipates interest from a large scale industrial customer
who currently uses coal as a fuel source.
In response to the City’s interest in bringing natural gas
service to the area, the parties have entered into the proposed Agreement to
enable FPUC to expand its distribution system. FPUC stated that it has a
franchise agreement in the City for natural gas service. The Company asserts
that the proposed project and Agreement with Peninsula to extend natural gas
service to Newberry and its vicinity is the most economical approach to meet
the area’s customer demand.
The proposed Agreement specifies an initial term of 20
years and thereafter shall be extended on a year-to-year basis, with no changes
in the terms of the Agreement, 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 Agreement, they may do so no less
than 120 days prior to expiration of the current active term.
Proposed Newberry Project
Attachment B to this recommendation shows the proposed
Newberry gas distribution expansion project. Peninsula stated that it would
begin by updating an existing gate station interconnection with the West Leg of
FGT located off of SR 26 in Trenton, in Gilchrist County. FPUC explained that
the West Leg is unconstrained, meaning that FGT has transportation capacity
available. As shown by the red line, starting at the existing gate station
interconnection with FGT, Peninsula would construct approximately 93,300 feet (17.67
miles) of 4-inch steel pipeline traveling east along SR 26 and ending at a
newly constructed metering and regulation (M&R) station located off US
Highway 41, which Peninsula would also construct. The completion of these
projects will enable FPUC-owned gas to be transported to Newberry. In response
to staff’s first data request, Peninsula stated that it anticipates to begin
construction in the second quarter of 2024 while the completion would depend on
contractor resources and coordination with the City.
Anticipated System Benefits
The parties stated that the proposed Agreement has the
added benefit of providing FPUC with an additional source of gas (via the
Peninsula intrastate pipeline) and enhancing an existing interconnection with
the FGT pipeline.
The parties assert that the proposed project will enable
FPUC, having a franchise agreement with the City, to serve residential,
commercial, and industrial customers in the City and its vicinity who currently
do not have natural gas service. The parties further assert that construction
of the pipeline will allow the current and future customers in the area to
obtain less expensive natural gas (as opposed to propane) as their energy
source. FPUC stated that the proposed project would allow them to transfer 200
residential propane customers to natural gas in the first year of operation. The
petition also states that the proposed project will support the City’s economic
development plan with emphasis on commercial and light industrial segments of
its economy.
The parties assert that Central Alachua County is
currently served by FGT’s East Leg, which is constrained. The proposed pipeline
project interconnecting to FGT’s unconstrained West Leg will have the added
benefit of incremental supply to natural gas facilities in Central Alachua
County supplied by the East Leg.
In response to staff’s first data request, the parties
stated that FPUC did not obtain formal Request for Proposals responses from
other entities. FPUC
explained that in previous discussions and requests with FGT for other
projects, FGT has declined to bid on projects related to construction, owning,
and operating laterals such as the proposed expansion project in this petition,
which are not a focus of FGT’s expansion activities.
FPUC explained that the proposed Newberry project is
larger than what FPUC would typically undertake on its own. Due to various
tariff requirements, if FPUC undertook the project, the project costs would
unduly burden the City and its customers seeking natural gas service. Therefore,
FPUC contracted with Peninsula to undertake the proposed Newberry project as it
falls within its pipeline operation portfolio. As such, Peninsula will
construct, own, and operate the 17.67 mile interconnect with FGT, which would
protect the general body of ratepayers from potential unforeseen construction
price increases or other related challenges. Upon
the completion of Peninsula’s portion of the pipeline construction, FPUC will
begin development of its gas distribution system in the City.
Negotiated Monthly Reservation Payments to
Peninsula
The parties 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. The parties assert that
Peninsula will recover the pipeline and district regulator construction costs
through the monthly reservation charge to FPUC as shown in Exhibit A to the
proposed Agreement. The monthly reservation charge is designed to recover costs
such as, but not limited to, engineering, permitting, materials, and
installation costs associated with pipeline and related facilities, ongoing
maintenance including Pipeline and Hazardous Materials Safety Administration
compliance, safety requirements, property taxes, gas control, and Peninsula’s
return on investment.
FPUC stated that it will initially recover its payments to
Peninsula through the 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. While FPUC will incur costs associated with this service expansion,
new load added to the system will help spread the costs over a larger customer
base. If the actual need for gas does not meet the projected demand, FPUC
stated that it will endeavor to sell the excess capacity on Peninsula and those
proceeds will be applied to offset PGA costs to the general body of ratepayers.
FPUC currently is negotiating with a nearby large
industrial customer to provide natural gas service. Payments from this
industrial customer will be used to offset the amounts paid to Peninsula by the
general body of ratepayers.
Conclusion
Based on the petition and the parties’ responses to
staff’s data requests, staff believes that the proposed Agreement is reasonable
and meets the requirements of Section 368.105, F.S. Furthermore, the proposed
Agreement benefits FPUC’s current and potential future customers by
interconnecting to FGT’s less constrained West Leg allowing FPUC to provide natural gas service in and around the
City of Newberry in Alachua County. Therefore, staff recommends that the
Commission should approve the proposed Firm Transportation Service Agreement
dated April 5, 2023, between Peninsula and FPUC.
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. (Dose)
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.
