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State of Florida
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Public Service Commission
Capital Circle Office Center ● 2540 Shumard
Oak Boulevard
Tallahassee, Florida 32399-0850
-M-E-M-O-R-A-N-D-U-M-
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DATE:
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June 24, 2026
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TO:
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Office of Commission Clerk (Teitzman)
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FROM:
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Division of Engineering (Wooten, Ellis,
King, Ramos, Sanchez, Willis)
Division of Accounting
and Finance (D. Buys, D’Sa, Gatlin, Higgins, Mason, Vogel)
Division of Economics
(Hampson)
Office of the General Counsel
(Thompson, Hixon)
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RE:
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Docket No. 20260026-GU – Application for
rate increase by Florida City Gas.
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AGENDA:
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07/07/26 – Regular Agenda – Decision on Interim Rates –
Participation is at the Commission’s Discretion
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COMMISSIONERS ASSIGNED:
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All Commissioners
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PREHEARING OFFICER:
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La Rosa
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CRITICAL DATES:
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07/07/26 (60-day provision of
Section 366.071(2), F.S., waived by Company until 07/07/26)
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SPECIAL INSTRUCTIONS:
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None
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Case Background
On April 20, 2026,
Florida City Gas (FCG or Company) filed a petition seeking the Florida Public
Service Commission’s (Commission) approval of a rate increase and associated request
for interim rate relief. FCG is a natural gas local distribution company
providing sales and transportation of natural gas and is a public utility
subject to this Commission’s regulatory jurisdiction under Section 366.02,
Florida Statutes (F.S.). As a subsidiary of Chesapeake Utilities Corporation,
FCG currently serves approximately 125,000 residential, commercial, and
industrial natural gas customers in Miami-Dade, Broward, St. Lucie, Indian
River, Brevard, Palm Beach, Hendry, and Martin counties. The Company’s last
rate case was filed on May 31, 2022, and rates were last established by the
Commission by order on June 9, 2023, and as subsequently clarified on October
2, 2023.
FCG requested a
total base revenue increase of $63.3 million based on a projected 2027 Test Year,
which includes an incremental base rate revenue requirement of $46.9 million,
and the reclassification of the Safety, Access, and Facility Enhancement
program revenues in the amount of $16.4 million from surcharge recovery to base
rates, which is ultimately revenue neutral. Pursuant to Sections
366.06(2) and (4), F.S., FCG requested that this rate case proceed under the
Commission’s hearing process.
On June 2, 2026,
the Commission suspended the proposed permanent increase in rates and charges
to allow staff and the parties time to analyze the request and for the
Commission to conduct an administrative hearing.
This
recommendation addresses FCG’s requested interim rate increase in its base
rates and charges to generate $16,244,207 in additional gross revenues until
the permanent rates become effective.
The Company has based its interim request on a historical test year
which ended December 31, 2025. In its petition, FCG stated that it will hold
any revenues collected, subject to refund, with interest at a rate determined
pursuant to Rule 25-6.0435(3), Florida Administrative Code (F.A.C.), and that
it be allowed to collect the interim increase subject to a corporate
undertaking.
On February 20,
2026, the Commission acknowledged the Office of Public Counsel’s (OPC) Notice
of Intervention in this proceeding. In compliance with Section 366.06(2),
F.S., an administrative hearing has been scheduled for September 28 – October
2, 2026.
The Commission
has jurisdiction over this request under Sections 366.06 and 367.071, F.S.
Discussion
of Issues
Issue 1:
Is FCG's proposed interim rate base appropriate?
Recommendation:
Yes. The appropriate interim rate base is $551,813,687
for the purposes of determining interim rates. (Mason)
Staff Analysis:
In its filing, the Company proposed an interim
year-end rate base to determine interim rates of $551,813,687 for the period
ending on December 31, 2025. Pursuant to Section 366.071(5)(a), F.S., the
Company is permitted to use either an average investment rate base or an
end-of-period investment rate base for the purposes of setting interim rates.
Staff reviewed the rate base adjustments made in the current interim filing for
consistency with the Commission-approved adjustments in FCG’s last rate case
proceeding, where appropriate, as well as other applicable dockets. Based on staff’s review, it appears
that the Company made applicable adjustments that are consistent with the prior
Commission Orders.
As such, staff recommends that $551,813,687
is the appropriate amount of rate base for the historical interim test year
ended December 31, 2025. The calculations are shown on Attachment A.
Issue 2:
Is FCG's proposed interim return on equity and
overall rate of return appropriate?
Recommendation:
Yes. The appropriate return on equity for FCG is 8.50
percent and the overall average weighted cost of capital should be 7.16 percent
for the purposes of determining interim rates. (D'Sa, D. Buys)
Staff Analysis:
For
purposes of its interim rate request, FCG used a weighted average cost of
capital of 7.16 percent based on a return on equity (ROE) of 8.50 percent.
Pursuant to Section 366.071(5)(b)3., F.S., the appropriate ROE for purposes of
determining an interim rate increase is the minimum of the range of the Company’s
last authorized ROE established in the most recent rate proceeding. In its last
rate case, FCG’s ROE midpoint was set at 9.50 percent, with a range of plus or
minus 100 basis points. FCG
correctly reflected an ROE of 8.50 percent in its calculation of the overall
rate of return.
Consistent
with Section 366.071(5)(a), F.S., the Company used an end-of-year capital
structure based on the most recent 12-month period ended December 31, 2025, to
calculate the weighted average cost of capital as reflected in MFR Schedule F-8.
In FCG’s most recent rate case proceeding in 2022, the capital structure was
based on Florida Power & Light Company’s (FPL) capital structure.
Since the last rate proceeding, FCG was purchased by Chesapeake Utilities
Corporation (CUC) which has a different capital structure than FPL. FCG made
adjustments to the capital structure to reflect the same ratio of total capital
as that of CUC.
Staff believes that FCG’s calculation of the ROE and
weighted average cost of capital for the purpose of setting interim rates is
reasonable and consistent with Section 367.071, F.S., and therefore, recommends
that an ROE of 8.50 percent and an overall rate of return of 7.16 percent is
appropriate for the purpose of determining interim rates. Attachment B details
the calculations of the Company’s overall cost of capital.
Issue 3:
Is FCG's proposed interim test year net operating
income appropriate?
Recommendation:
Yes. The appropriate interim test year net operating
income is $27,498,041 for the purpose of determining interim rates. (Mason)
Staff Analysis:
The proposed net operating income for determining
interim rates, FCG reflected $27,498,041 as the twelve-month amount for the
historical interim test year ended December 31, 2025. On March 2, 2026, OPC
filed a letter before the Company’s Minimum Filing Requirements (MFR) were
filed, requesting that the Commission recognize a $500,000 reduction in
depreciation expense in 2025, that had been approved by the Commission.
The Company made this adjustment to the depreciation expense, which was
reflected on MFR Schedule F-5 at the time of filing. Staff reviewed the net
operating income adjustments made in the current interim filing for consistency
with the Commission-approved adjustments in the last rate case proceeding, as
well as other applicable dockets.
Staff’s recommendation of whether the Company
is entitled to the proposed interim increase is discussed in Issue 5. If it is
determined that interim relief should be granted to FCG then staff
recommends that the appropriate net operating income amount for the interim
test year is $27,498,041. The calculations are shown on Attachment A.
Issue 4:
Is FCG's proposed interim net operating income
multiplier appropriate?
Recommendation:
Yes. The appropriate interim net operating income (NOI)
multiplier is 1.3511. (Mason)
Staff Analysis:
On MFR Schedule F-6, FCG calculated an interim NOI
multiplier of 1.3511, based on a revenue expansion factor of 74.01 percent,
using a 21 percent federal income tax rate, a 5.5 percent state income tax
rate, a 0.3597 percent bad debt rate, and a 0.5 percent factor for regulatory
assessment fees. Staff has reviewed these rates and found them to be
appropriate.
Therefore, staff recommends that 1.3511 is the appropriate
interim NOI multiplier. The calculations are shown below:
Table 4-1
Interim NOI Multiplier
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Description
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Revenue Requirement
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100.0000%
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Regulatory Assessment Fee
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-0.5000%
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Bad Debt Rate
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-0.3597%
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Net Before Income Tax
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99.1403%
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State and Income Tax @ 5.5%
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-5.4527%
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Federal Income Tax @ 21%
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-19.6744%
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Revenue Expansion Factor
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74.0132%
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NOI Multiplier (100/74.0100)
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1.3511
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Issue 5:
Should FCG's requested interim revenue increase be granted?
Recommendation:
Yes. The requested interim revenue increase of
$16,244,207 should be granted. (Mason)
Staff Analysis:
FCG requested interim rate relief of $16,244,207 for
the historical test year ended December 31, 2025. The interim revenue increases
would allow FCG an opportunity to earn an overall rate of return of 7.16
percent based on the minimum range of return on equity of 8.50 percent.
As such, staff recommends that the appropriate revenue
increase is $16,244,207 for the historical test year ended December 31, 2025.
After a determination of the permanent rate increase has been made, the interim
rate increase will be reviewed to determine if any portion should be refunded
to customers. The calculation of interim rate relief is shown in Table 5-1.
Table 5-1
Interim Revenue Increase
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Description
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Jurisdictional Adjusted Rate Base
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$ 551,813,687
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Overall Rate of Return
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7.16%
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Jurisdictional Net Operating Income
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$39,520,896
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Jurisdictional Adjusted Net Operating Income
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($27,498,041)
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Revenue Deficiency
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$12,022,856
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Net Operating Income Multiplier
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1.3511
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Interim Revenue Increase
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$16,244,207
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Base Rate Revenues
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$86,770,676
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Recommended Percentage Increase Factor
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18.72%
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Issue 6:
Should Florida City Gas' proposed interim rates and
associated tariffs be approved?
Recommendation:
Yes, Florida City Gas’
proposed interim rates and associated tariffs, as shown in Attachment C, should
be approved. The interim rates should be made effective for all meter readings
made on or after thirty days from the date of the Commission vote and decision
herein. Pursuant to Rule 25-22.0406(8), F.A.C., the Company should provide
notice to customers of the revised rates with the first bill containing the new
rates. (Hampson)
Staff Analysis:
As discussed in FCG witness Baugh’s direct
testimony, the proposed interim rates were calculated using the methodology
contained in Rule 25-7.040, F.A.C., which requires that any increase be applied
evenly across the board to all rate classes based on their base rate revenues.
As discussed in Issue 5, staff recommends an interim increase of $16,244,207,
as proposed by FCG. MFR schedule F-10 (Year-End), page 2, demonstrates the
calculation of the interim percentage increase (18.72 percent) allocated to
each rate class and the resulting proposed interim rates. The distribution
charge for RS-100 customers would increase from $0.57421 per therm to $0.91507
per therm. The total monthly bill for residential customers using 14 therms per
month would increase approximately $4.77, excluding taxes.
On May 21, 2026, FCG provided a draft customer notice for
staff review and approval. Florida City Gas’ proposed interim rates and
associated tariffs, as shown in Attachment C, should be approved. The interim
rates should be made effective for all meter readings made on or after thirty
days from the date of the Commission vote and decision herein. Pursuant to Rule
25-22.0406(8), F.A.C., the Company should provide notice to customers of the
revised rates with the first bill containing the new rates.
Issue 7:
What is the appropriate security to guarantee the
amount subject to refund?
Recommendation:
The appropriate security to guarantee the funds
collected subject to refund is a corporate undertaking guaranteed by Chesapeake
Utilities Corporation on behalf of FCG. (D'Sa, Buys)
Staff Analysis:
Section 367.071(2)(a),
F.S., requires that the difference between the interim rates and the previously
authorized rates shall be collected under bond or corporate undertaking subject
to refund with interest at a rate ordered by the Commission. The statute also
states that the Commission shall determine whether a corporate undertaking may
be filed in lieu of a bond. FCG requested an annual interim revenue increase of
$16,244,207 and to use a corporate undertaking to guarantee the maximum amount
subject to refund during the period when interim rates are in effect.
The criteria for a corporate
undertaking include sufficient liquidity, ownership equity, profitability, and
interest coverage to guarantee any potential refund. Based on an estimated
eleven-month collection period of interim rates, the maximum amount of revenues
that may need to be protected is $15,144,143. Staff reviewed FCG’s three most
recent annual reports (2025, 2024, and 2023) filed with the Commission to
determine if FCG can support a corporate undertaking in the amount requested.
Based on staff’s analysis, FCG’s
financial information demonstrates the company does not have the financial
capacity to support a corporate undertaking in the amount requested. FCG has
acceptable levels of liquidity (working capital and current ratio), but
inadequate levels of equity, interest coverage, and profitability. The maximum limit
for a corporate undertaking is one-half of FCG’s most recent year-end net
income. FCG’s 2025 net income is $5,169,000 as reported which is one-third of
the Company’s requested interim increase. In addition, FCG’s average net income
over the three-year period is also less than the requested corporate
undertaking amount. Based on this analysis FCG does not qualify for a
stand-alone corporate undertaking.
Alternatively, staff recommends
that FCG obtain and file a letter with the Commission from its parent company,
CUC, that guarantees the corporate undertaking amount on behalf of FCG. Staff reviewed
CUC’s three most recent annual reports (2025, 2024, and 2023) filed with the
Securities and Exchange Commission (SEC) and confirmed that CUC has the
financial capacity to guarantee a corporate undertaking on behalf of FCG. On
June 9, 2026, FCG filed a letter with the Commission from CUC confirming CUC’s
financial commitment to guarantee a corporate undertaking in an amount up to
$15,144,143. This
brief financial analysis is only appropriate for deciding if FCG can support a
corporate undertaking in the amount requested and should not be considered a
finding regarding staff’s position on other issues in this proceeding.
Accordingly, staff recommends the appropriate security to
guarantee the funds collected subject to refund is a corporate undertaking
guaranteed by CUC of behalf of FCG.
Issue 8:
Should this docket be closed?
Recommendation:
No. This docket should remain open pending the
Commission’s final resolution of the Company’s requested rate increase. (M.
Thompson, Hixon)
Staff Analysis:
This docket should remain open pending the
Commission’s final resolution of the Company’s requested rate increase.
