Case Background
On September 26,
2023, Florida City Gas (FCG or utility) filed a petition for approval of tariff
modifications to implement a new transportation balancing charge rider
(balancing charge or rider).
FCG is an
investor-owned natural gas utility that provides service to two different types
of gas supply customers: sales customers and transportation customers. Sales customers
purchase gas from the utility and are charged the Purchased Gas Adjustment
(PGA) for the cost of natural gas, in addition to base rates. Transportation
customers are commercial and industrial customers that elect to purchase their
natural gas supply from a gas marketer authorized as a third party supplier by
FCG. Transportation customers negotiate directly with third party suppliers
(TPS) for the purchase of the natural gas commodity and are not charged the PGA
by the utility. The proposed rider is a dollar-per-therm charge that would be
included in the monthly gas bill for transportation customers only.
Natural gas
imbalances occur when the quantity of natural gas nominated and delivered from
the source to FCG’s interconnections differs from the amount of gas actually
consumed by customers. Imbalances are created by sales customers and
transportation customers. The utility balances the system on behalf of its
sales customers; for transportation customers the TPS typically takes steps to
mitigate delivery and consumption imbalances. FCG does not hold capacity on
behalf of transportation customers or their TPS; therefore the TPS is
responsible for transporting the natural gas and obtain firm interstate
capacity to do so.
FCG is
responsible for balancing the system in order to maintain the appropriate
supply of natural gas and avoid imbalance penalties from interstate pipelines.
The utility uses available interstate and intrastate capacity and storage to
vary (swing) the level of gas to resolve system imbalances. The costs
associated with the capacity and storage used to resolve imbalances is
currently recovered solely through the PGA from sales customers. Currently, no
cost recovery mechanism exists for transportation customers, as a result, the
cost of imbalances incurred by transportation customers is subsidized by sales
customers.
The proposed
rider is similar to the swing service riders first implemented by Peoples Gas
System in 2000 and modified in 2015, and by Florida Public Utilities Company in
2016. The methods used to calculate the
balancing charge differ slightly from the methods used to calculate the swing
service riders, but the balancing charge performs the same function of
mitigating subsidization between sales and transportation customers.
The Commission
suspended the proposed tariffs on November 9, 2023, in Order No. PSC-2023-0357-PCO-GU. FCG supplied additional information in
responses to staff’s first and second data requests on November 6, 2023 and
December 21, 2023, respectively. This is staff’s
recommendation to approve the proposed rider and associated tariffs. The
proposed tariffs are included with this recommendation as Attachment A.
The Commission
has jurisdiction over this matter pursuant to Sections 366.03, 366.04, 366.05, and
366.06, Florida Statutes (F.S.).
Discussion
of Issues
Issue 1:
Should the Commission approve Florida City Gas’
proposed transportation balancing charge and associated tariffs?
Recommendation:
Yes. Staff recommends the Commission should approve
Florida City Gas’ proposed transportation balancing charge and associated
tariff, as provided in Attachment A to the recommendation. The proposed rider
would allow FCG to recover capacity and storage costs in a more equitable
manner between transportation and sales customers and reduce
cross-subsidization between transportation and sale customers. FCG should
incorporate actual revenues received from the balancing charge as a credit in
the monthly PGA filings and in the annual final actual PGA true-up filing. The
utility should notify staff when the billing system modifications have been
completed. The proposed tariffs should become effective once all necessary
billing system modifications have been completed. (McClelland, Hampson,
Barrett)
Staff Analysis:
FCG explained in its petition that the purpose of
the proposed rider is to recover the cost of transportation and storage fees
incurred on behalf of transportation customers. Of the $12.8 million in total
capacity and storage costs included in the projection for the PGA for calendar
year 2024,
the utility calculated that transportation customers are projected to be
responsible for about $1 million. If approved by the Commission, the proposed
rider would be a cents per therm charge applicable to transportation customers.
The utility has proposed to book all revenues recovered from the charge as a credit
to the utility’s annual PGA filing, as discussed further in the recommendation.
Calculation of Transportation Balancing Charge
FCG proposed to calculate the balancing charge by
allocating a portion of the total capacity and storage costs currently recovered
through the PGA based on the monthly average system-wide total TPS imbalance as
a percentage of FCG’s total capacity and storage. Appendix 4 to the petition
provides the calculation of TPS imbalances as a percentage of FCG’s total
capacity and storage and the resulting two-year average imbalance of 7.85
percent (7.81 percent for 2021 and 7.88 percent for 2022).
In its PGA projection filing for 2024, FCG estimated that
its capacity and storage costs would be about $12.8 million. These costs were
included and approved by the Commission for the calculation of the 2024 PGA
factor.
Allocating 7.85 percent of the total capacity and storage costs to
transportation customers results in approximately $1 million to be collected by
the rider from transportation customers, as shown on Appendix 3 to the
petition. Appendix 3 shows that the utility uses Bay Gas Storage (located in
Mobile, Alabama) and transports natural gas into Florida on the Florida Gas
Transmission interstate pipeline and Peninsula intrastate pipeline.
FCG would then apportion the 2024 balancing charge revenue
requirement ($1,004,482) to individual transportation customer classes by
forecasted annual therms to develop the per-therm charge, as calculated in
Appendix 5 to the petition.
FCG has calculated the balancing charge to be $0.00780/therm.
Staff believes that the proposed methodology to calculate
the balancing charge is reasonable because it allocates the costs of storage
and capacity from imbalances to the more appropriate cost-causers, further
reducing cross-subsidization between customer classes.
In response to staff’s data request, FCG stated that the
utility opted to calculate the average TPS imbalance using two years for its
initial filing, as opposed to a multi-year average, as described in proposed
tariff sheet No. 82.
FCG explained that it relied upon the most accurate and complete data available
for full calendar years and that the utility did not use calendar year 2020 due
to impacts of COVID-19.
Future Revisions to Transportation Balancing
Charge
Pursuant to subsection D of proposed tariff sheet No. 82,
FCG has proposed to file an updated rider charge if there are future material
changes in the total capacity and storage costs booked to the PGA. Furthermore,
the utility has proposed to track the average monthly TPS balances on an annual
basis and file an updated charge for Commission approval if the three-year
average monthly system-wide total TPS imbalances change by more than 10
percent. FCG explained that although the utility used a combined two-year
monthly average to estimate the initial imbalance, FCG believes using a
three-year average going forward is a reasonable method to track TPS imbalances
on a rolling basis each year.
Staff believes that FCG’s proposal for future revisions to
the balancing charge is a reasonable methodology to track changes to TPS
imbalances and their associated storage and capacity costs.
Transportation Balancing Charge Revenue Credit
to the PGA
In its petition at paragraph 14, the utility asserts that
its interstate and intrastate costs are currently being charged to the PGA cost
recovery clause and paid exclusively by sales customers. As background
information, the PGA clause authorizes investor-owned natural gas utilities
within the Commission’s jurisdiction to recover prudently incurred commodity
and gas transportation costs on a dollar-for-dollar basis for the gas it
purchases and resells to its customers. Through an annual hearing process, the
utilities file true-up and projection schedules, and the Commission evaluates
the actual and estimated costs presented in order to set a yearly maximum
levelized upper limit factor, or cap for the upcoming (or forward) year.
True-up balances from a prior year are used in the calculation to set the
forward year PGA cap that sales customers pay.
FCG asserts that because transportation customer volumes
can fluctuate, it will not prepare a forecast of per-therm revenue that the
proposed balancing charge will generate. Instead, FCG plans to collect such
revenues and apply them as a credit in the annual true-up filing for the PGA.
If approved, staff believes the application of the rider as a credit in the
utility’s final true-up schedule will effectively reduce the subsidization
burden that sales customers have been carrying, since the credit is included in
the costs that are used in establishing the forward-year PGA factor.
Customer Bill Impacts
The proposed rider would result in an increase in costs
assigned to transportation customers, and a corresponding reduction of costs
assigned to sales customers in the PGA. FCG provided estimated monthly bill
impacts for average commercial and industrial transportation customers in Appendix
6 to the petition. If approved by the Commission, small commercial GS-1
transportation customers who consume 174 therms per month would see an increase
of approximately $1.39, including Gross Receipts Tax.
FCG provided estimated impacts of the balancing charge on
the PGA in response to staff’s data request.
All things remaining equal and assuming that balancing charge revenues are
recovered equally over a twelve-month period, FCG estimated that a credit of
approximately $1 million to the PGA would reduce the maximum levelized 2024 PGA
factor from $0.84816 per therm to $0.82773 per therm, a reduction of
approximately two cents per therm for the sales customers. FCG notes that the
savings actually realized by sales customers depends on several factors, such
as the actual balancing charge revenues recovered and credited, effective date
of the rider, applicable annual PGA cycle, and a sales customer’s individual
usage.
Effective Date
In its petition, FCG stated that modifications to the
utility’s billing system are necessary to implement the proposed balancing
charge. FCG requested that the Commission approve the balancing charge to
become effective from the later of 30 days after the Commission vote approving
the proposed tariffs, or once the billing system modifications are complete.
Staff recommends that FCG notify staff once all billing system modifications
are complete and the rider is ready to be implemented.
FCG explained that the utility provided notice of the
proposed rider to all TPS on the system, as well as all existing transportation
customers within 30 days of filing its petition. Staff has reviewed the
customer noticing and confirmed that the notice reflects FCG’s balancing charge
as proposed in its petition. FCG has also proposed to notify customers through
a bill message immediately prior to the effective date of the rider.
Conclusion
Based on the information provided in FCG’s petition and in
response to staff’s data requests, staff recommends that the Commission should
approve FCG’s proposed transportation balancing charge and associated tariff,
as provided in Attachment A to the recommendation. The proposed balancing
charge would allow FCG to recover capacity and storage costs in a more
equitable manner between transportation and sales customers and reduce
cross-subsidization between transportation and sales customers. FCG should
incorporate actual revenues received from the balancing charge as a credit in
the monthly PGA filings and in the annual final actual PGA true-up filing. The
utility should notify staff when the billing system modifications have been
completed. The proposed tariffs should become effective once all necessary
billing system modifications have been completed.
Issue 2:
Should this docket be closed?
Recommendation:
If Issue 1 is approved and a protest is filed within
21 days of the issuance of the order, any revenues collected once the tariff
becomes effective should be 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. (M. Thompson)
Staff Analysis:
If Issue 1 is approved and a protest is filed within
21 days of the issuance of the order, any revenues collected once the tariff
becomes effective should be 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.
