Case Background
On January 13,
2025, Peoples Gas System, Inc. (PGS or utility) filed a petition for approval
of modifications to the Swing Service Charges applicable to transportation
customers, Individual Transportation Service (ITS), and Off-System Service
(OSS).
In 2000, the
Commission approved PGS’ Natural Choice Program, which enabled customers to
more easily receive transportation service from the utility by consolidating
and simplifying the existing transportation programs. The Natural Choice Program offered two
types of transportation service: a “pooled” service through the Natural Choice
Transportation Service (NCTS) and “individual” service through the ITS Rider.
NCTS customers are pooled together in groups and are supplied gas by a Pool
Manager, which is a third-party natural gas marketer.
The Pool Manager
is responsible for supplying and managing natural gas for its customer pool as
well as acquiring firm upstream capacity from PGS. While Pool Managers deliver
a fixed daily quantity of gas supply and capacity, the amount of gas actually
consumed by NCTS customers varies. As a result, PGS varies (or swings) the
level of gas and capacity delivered to the utility’s system through operational
purchases and sales in order to balance the system. The cost to swing gas adds
costs to the Purchased Gas Adjustment (PGA) clause, paid for by PGS’ sales
customers.
The Swing
Service Charge is designed to recover the cost to swing gas for transportation
customers and is credited to the PGA clause. The Swing Service Charge is a
cents per therm charge applicable to NCTS customers, who purchase gas from
third party marketers, and therefore do not pay the PGA charge. In 2015, the
Commission approved updated calculations for the Swing Service Charges to
reflect PGS’ then-current cost of providing swing service. In the instant petition, PGS is proposing
to update the methodology and calculations of the costs included in estimating
system balancing costs, resulting in revised Swing Service Charges.
With respect to
the ITS Rider, PGS is proposing to increase the eligibility threshold from
182,500 to 500,000 annual therms and to add a requirement to receive a certain
minimum daily pipeline capacity from PGS (vs. receiving capacity from a third
party). Finally, PGS proposed a change to the sharing mechanism contained in
its OSS tariff, which was first approved in 1994.
PGS currently
has a rate case proceeding in Docket No. 20250029-GU before the Commission
(rate case docket), with the hearing currently scheduled for September 8 – 11,
2025. By Order No. PSC-2025-0090-PCO-GU, the Commission suspended the proposed modifications
for further review by staff. During evaluation of the petition, staff
issued two data requests to the utility for which responses were received April
1 and May 5, 2025. On June 9, 2025, staff held an informal meeting on this
docket with PGS and the Office of the Public Counsel. Furthermore, the utility
provided written responses that have included in the docket file.
The proposed
tariff revisions are shown in Attachment A to the recommendation. The
Commission has jurisdiction over this matter pursuant to Sections 366.04,
366.041, 366.05, and 366.06, Florida Statutes.
Discussion
of Issues
Issue 1:
Should the Commission approve the proposed
modifications to the swing service charge, ITS rider, and OSS sharing mechanism?
Recommendation:
Yes, the Commission should approve the proposed
modifications to the swing service charge, ITS rider, and OSS sharing mechanism.
If the Commission approves the revised OSS sharing mechanism, PGS should be
required to reflect the revised OSS net revenues in its rate case docket
(Docket No. 20250029-GU). The proposed changes, as a whole, are designed to
improve the allocation of costs between transportation and PGA customers. The revised
swing service charges (Tariff Sheet No. 7.101-3) and OSS tariff (Tariff Sheet
No. 7.702-1) should become effective on the date of the Commission’s vote. The revisions
to the ITS rider (Tariff Sheet Nos. 7.805 and 7.805-9) should take effect 12
months after the Commission vote to allow for customer notification. (McClelland)
Staff Analysis:
The utility contends that its
proposed changes to the swing service charge, ITS rider, and OSS sharing
mechanism are designed to improve the allocation of costs between
transportation and PGA customers. Therefore, staff believes it is best to
analyze the utility’s proposed tariff changes as whole.
Modifications to the Swing Service Charge
The swing service charge is assessed to all transportation customers
who take service under PGS’s NCTS Rider. Costs to balance the system are calculated
based on six primary tools Peoples uses to balance its system. The six tools
are (1) reserve capacity, (2) swing gas supply, (3) No Notice transportation
service, (4) storage contracts, (5) swing sale agreements, and (6) upstream
pipeline park and loan services. PGS is
proposing to update four of the six tools to estimate system balancing costs.
The four modifications are discussed in more detail below.
Modifications to the Reserve Capacity
Calculation
Reserve capacity is interstate and intrastate pipeline
capacity contracted to be available when customer usage increases. Capacity
cost represent the reservation charges Peoples pays pipeline companies based on
how much capacity Peoples reserves. Peoples provides a monthly release of
upstream pipeline capacity to the NCTS pool managers and charges the pool
managers for released capacity at the weighted average cost of capacity (WACC).
WACC are expressed in dollars per MMBtu and are the weighted average costs per
day of firm transportation rights held by PGS pursuant to contracts with
delivering pipelines.
PGS proposed to modify the calculation of the WACC. The
existing formula divides the total interstate and intrastate capacity cost,
less ITS capacity release credits, by the total interstate and intrastate
capacity quantity, less ITS capacity release quantity. PGS explained that
historically, the utility only used interstate pipelines, such as the Florida
Gas Transmission Company (FGT), to transport natural gas into Florida. About 10
years ago, utilities also began using intrastate pipelines to transport natural
gas.
The proposed change would eliminate intrastate capacity
quantity from the denominator of the formula. PGS explained that the inclusion
of both interstate and intrastate capacity was duplicative and distorted the
WACC formula. Transporting gas on an interstate pipeline and then transporting
that same gas again on an intrastate pipeline would double-count that quantity
in the existing WACC formula. Double-counting the quantity would create a
larger denominator in the WACC formula, which would in turn result
mathematically in a lower WACC. PGS’ justification for the updated formula is
to prevent understating the cost of capacity and under-collecting full capacity
costs from the NCTS pool managers.
Modifications to the Swing Gas Supply
PGS explained in its petition that the utility currently
calculates swing gas supply based off a 30-day rolling average of Platts Gas
Daily FGT Zone 3 prices. PGS has proposed to modify the calculation to account
for recurring purchases of gas from Transco Zone 5. PGS explained the utility
also purchases swing gas supply at the Southern Natural Gas Pipeline and Elba Express
Pipeline, which is priced at the Transco Zone 5 index. The proposed
modifications will more closely reflect actual costs incurred by PGS to
purchase swing gas supply.
Update to No Notice Transportation Service
No Notice Transportation Service (NNTS) is a firm rate
schedule offered by FGT and represents the quantity by which a shipper’s (e.g.,
PGS) actual delivery quantities vary from scheduled deliveries. PGS states in
its petition that the Federal Energy Regulatory Commission (FERC) recently issued
an order regarding the most recent FGT rate case, modifying FGT’s rates. PGS’
proposed changes to the swing service calculation reflect the updated
FERC-approved NNTS rates. Approval of the proposed rates would enable PGS to
pass through all FGT pipeline charges to the customers incurring them.
Storage Contracts – Modification to Add Gas Commodity
Costs
Storage contracts are held with storage facilities,
typically subterranean salt domes, and are used to manage supply and demand
constraints as well as price volatility. In the process of storing gas supply,
PGS typically incurs injection costs, withdrawal costs, and capacity
reservation costs, on top of the cost of gas purchased.
Currently, PGS only recovers capacity reservation fees in
the swing service rider, which are the charges for contracted storage quantity
(i.e., storage space). PGS is seeking to modify the calculation to also recover
injection and withdrawal costs as they contribute to the actual storage
contract expenses the utility incurs. In paragraph 37 of the petition, PGS
states that they would modify the calculation for storage contracts by adding
three components included with “one turn of storage.” “One turn of storage”
refers to one complete cycle of injecting and withdrawing natural gas from a
storage facility.
PGS explained during its meeting with staff that the utility
typically signs a storage contract for anywhere between four and twelve turns
of storage in one year. PGS proposed to allocate one turn of storage to the
swing service rider. PGS explained that the number of turns used varies based
on market conditions and system peaks, and the storage contract only charges
the utility for as many turns as are actually used. PGS believes that one turn
of storage accurately covers the quantities of stored gas demanded by swing
service customers.
Removal of Natural Gas Vehicle Service (NGVS)
from Tariff Sheet
The Swing Service Charge (Tariff Sheet No. 7.101-3) and
NCTS Rider (Tariff Sheet No. 7.803) currently include reference to the NGVS
class, which was terminated in Docket No. 20200051-GU.
PGS has requested to remove mention of the closed NGVS class from the two
existing tariff sheets.
Modifications to ITS Rider
Under PGS’ ITS Rider, commercial and industrial customers
take transportation service on an individual basis and choose their own gas
supplier. Currently, ITS customers are not required to acquire upstream
capacity release from PGS. ITS Rider customers purchase their capacity either
directly from the interstate pipeline, through a third-party marketer, or by receiving
a capacity release from PGS. ITS customers do not pay a PGA or swing service
rider charge as they receive capacity releases and the natural gas commodity
from a third party. When PGS releases capacity to the ITS, the interstate
pipeline handles the transaction. The capacity is released by PGS through the
interstate pipeline’s electronic bulletin board. ITS customers purchase
capacity off the electronic bulletin board and are billed by the interstate
pipeline according to their FERC approved tariff. PGS is then credited for any
revenues by the interstate pipeline. The
revenues are in turn credited to the PGA.
PGS has proposed two modifications to the ITS Rider.
First, PGS has proposed to raise the threshold to qualify for the ITS Rider from
182,500 therms per year to 500,000 therms per year. All current ITS customers
below the threshold will be transferred to the Rider NCTS program. Currently, PGS anticipates transferring 61
out of 174 existing ITS customers to NCTS, leaving 113 customers as ITS Rider customers,
as explained during the utility’s meeting with staff. ITS customers are not
subject to the swing service charge, while NCTS customers are; this transfer
will subject additional customers to the swing service charge, thus increasing
the overall amount recovered through the swing service rider. Revenues
collected through the swing service rider are credited to the PGA. Therefore,
an increase in the revenues collected through the swing service rider would
provide benefits to customers subject to the PGA, primarily residential and
small commercial customers. PGS explained in its responses to staff that examples
of customers that consume more than 500,000 therms annually include paper
mills, citrus processors, or large hospitals.
Second, PGS has proposed to modify ITS Rider to require
customers to take a minimum percentage of 25 percent of their daily capacity
release requirement from PGS. PGS stated that currently only 13 percent of ITS Rider
customers take capacity release from PGS. In response to staff’s second data
request No. 9, PGS provided three benefits to an ITS customer to elect to
receive the utility’s capacity vs. the capacity of a third-party marketer:
reliability, price, and flexibility. PGS
stated that increasing the amount of capacity released to ITS customers allows
for recovery of more of the overall capacity costs from those customers
utilizing such capacity and any capacity costs recovered through capacity
release will be directly credited to the PGA. PGS estimated a credit of $3
million to the PGA in 2026 as a result of the proposed change.
The proposed ITS tariff revisions also would allow PGS to
require a minimum of as much as 40 percent capacity release requirement. PGS
explained in its response to staff that it would increase the minimum release
requirement when the utility forecasts having sufficient excess capacity; excess
capacity could not be released through OSS sales; and the release of
incremental capacity would be beneficial to the ITS customers (improved reliability
or reduced costs). PGS further stated that it has the highest scheduling
priority on the interstate pipelines; therefore, the utility’s capacity is the
most reliable. In its petition, PGS committed to providing impacted ITS
customers a minimum of 12 months written notice prior to the effective date of
the tariff change. PGS also committed to continuing to communicate with
impacted ITS customers throughout the period leading up to the change.
Proposed Revision to OSS Sharing
The Commission first approved the OSS rate schedule in
Order No. PSC-94-1187-FOF-GU.
The original order outlined that the OSS was to allow the utility to make
capacity sales to customers not connected to the PGS distribution system, and
revenues received from off-system sales would be shared 50/50 between PGS as
above the line revenues and as a credit to the PGA. These off-system sales
provide additional revenues to the utility and its general body of ratepayers. The
OSS rate schedule was devised to allow the utility to make interruptible sales
of unused capacity reserved on the interstate pipelines. As the utility paid
for capacity whether or not it was ultimately used, the OSS schedule permitted
the utility to recover costs during times when customers’ gas requirements are below
the capacity reserved by PGS.
In PGS’ 2002 rate case, PGS originally proposed to
maintain the 50/50 OSS sharing mechanism, while including no OSS sales in test
year revenues. In Order PSC-03-0038-FOF-GU, the Commission approved the
proposal to include $500,000 in off-system sales in test year revenues and
amend the sharing to a 25/75 split, with 25 percent of the revenues retained by
the utility as above the line regulated revenues and 75 percent credited to the
PGA. In
PGS’ 2008 rate case, the Commission maintained the 25/75 sharing mechanism and
increased OSS revenues to $1.5 million for the test year to reflect higher OSS
revenues.
In its current 2025 rate case docket, PGS filed MFRs under
the current 25/75 sharing and included $2.6 million (25 percent) in OSS net
revenues in operation revenues. PGS stated that if the Commission approved the
revision to the sharing mechanism in this docket, PGS would increase the OSS
margin from 25 to 50 percent and increase OSS net revenues in the rate case to
$5.3 million. Staff notes that the amount of projected OSS revenues for the
test year is an issue to be determined by the Commission in PGS’ rate case
docket. Any increase in other operating revenues decreases the revenue
requirement to be recovered through base rates.
In the instant petition, PGS has now proposed to modify
the OSS sharing mechanism from a 25/75 to a 50/50 basis, as originally approved
in 1994. Under a 50/50 sharing, 50 percent of net off-system revenues would be
credited to the PGA, and 50 percent included as projected OSS revenues for the
2026 test year in the rate case docket. To support this change, PGS stated that
the 50/50 sharing would align the utility with the off-system sales sharing
mechanism currently used by Florida Public Utilities Company and Florida City
Gas and their respective Commission-approved OSS rate schedules.
Furthermore, the utility stated in their responses to
staff’s first data request that under the proposed 50/50 sharing mechanism, the
utility would be able to “enhance the projected OSS revenue for 2026, thereby
reducing the base revenue requirement in Docket No. 20250029-GU for 2026 and
providing long-term savings embedded within base rates for customers.” Staff notes that the proposed revision to the
sharing mechanism reduces the percentage of OSS revenues allocated to the PGA
(from 50 to 25 percent); however, the changes to the ITS Rider discussed above
would increase the credit to the PGA.
Therefore, as a whole, PGS’ proposal provides a reasonable approach as
to how the utility allocates costs and benefits between transportation and
sales customers.
Conclusion
Based on the above, the Commission should approve the
proposed modifications to the swing service charge, ITS rider tariffs, and OSS
tariff. If the Commission approves the revised OSS sharing mechanism, PGS
should be required to reflect the revised OSS net revenues in its rate case
docket (Docket No. 20250029-GU). The proposed changes, as a whole, are designed
to improve the allocation of costs between transportation and PGA customers.
The revised swing service charges (Tariff Sheet No. 7.101-3) and OSS tariff (Tariff
Sheet No. 7.702-1) should be effective on the date of the Commission’s vote. The
revisions to the ITS rider (Tariff Sheet Nos. 7.805 and 7.805-9) should take
effect 12 months after the Commission vote to allow for customer notification.
Issue 2:
Should this docket be closed?
Recommendation:
Yes. If Issue 1 is
approved and a protest is filed within 21 days of the issuance of the order,
the tariffs should remain in effect, with any revenues 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. (Sandy)
Staff Analysis:
If Issue 1 is approved
and a protest is filed within 21 days of the issuance of the order, the tariffs
should remain in effect, with any revenues 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.
