Case Background
On
April 8, 2025, Florida City Gas (FCG or company) filed a petition seeking
approval of a proposed 2025 to natural gas transportation service agreement (TSA)
between FCG and Miami-Dade County Water and Sewer Department (MDWASD) through
Miami-Dade County. FCG is a public utility as defined by Section 366.02(8),
Florida Statutes (F.S.). MDWASD is a water and sewer utility operating
in Miami-Dade County, Florida. MDWASD’s Alexander Orr (Orr) and Hialeah Preston
(Hialeah) use natural gas at plants to heat lime kilns that produce lime for
the water treatment process. The natural gas is also used to power high service
pumps that pump water through MDWASD’s water distribution system to customers.
Currently, FCG is providing natural
gas transportation service to MDWASD’s Orr and Hialeah plants via the TSA the
Commission approved by Order No. PSC-2013-0402-PAA-GU (2014 TSA).
The 2014 TSA was needed in order to
allow FCG to provide natural gas transportation service to the Alexander Orr
and Hialeah water treatment plants after the expiration of their 2011 TSA
(effective August 1, 2009 through December 31, 2013).
FCG explained in the petition that the 2014 TSA expired on December 31, 2023.
FCG has continued to provide service
to Miami-Dade County’s Orr and Hialeah plants on a month to month basis under
the terms of the 2014 TSA while the parties negotiated a new contract. The
purpose of the TSA is to create a new agreement between FCG and Miami-Dade
County. The term of the proposed 2025 TSA would be a 10-year agreement,
backdating to January 1, 2024, to be consecutive with the 2014 TSA.
Contract rate transportation
service is available to certain large volume customers like MDWASD subject to
Rule 25-9.034, Florida Administrative Code, and to the terms and conditions of
FCG’s Commission-approved Load Enhancement Service (LES) tariff.
The LES tariff provides that:
(a) The
customer must be a commercial customer that currently receives service under contract
or otherwise would take service pursuant to the Flexible Gas Service (FGS),
Contract Demand Service (KDS), Transportation Supply Service (TSS), Off-System
Sales Service (OSS), or GS-1250k rate schedules in FCG’s tariff.
(b) The
customer must have an alternative energy source or an economic natural gas
bypass alternative, the availability of which shall be documented by the
customer and verifiable by FCG.
(c) FCG
must demonstrate to the Commission that service under the proposed contract
will not impose any additional costs on FCG’s other rate classes, including at
a minimum, that the rate shall not be set lower than the incremental cost of
service plus some additional amount as a reasonable return on investment.
(d) FCG
is not compelled to offer service under contract, but if offered it shall be
pursuant to mutually agreeable terms and conditions.
(e) In
developing rates for a contract under the LES tariff, FCG is required to
evaluate competitive and overall economic market conditions.
(f) The
agreed-upon contract must be approved by the Commission prior to execution by
the parties.
Pursuant to the proposed TSA,
attached hereto as Attachment A to this recommendation, FCG would continue to
serve Miami-Dade County’s Orr and Hialeah plants. During the evaluation of the
petition, staff issued a data request to FCG. Responses from FCG were received
on June 2, 2025. The Commission has jurisdiction over this matter pursuant to
Sections 366.04, 366.05, and 366.06, F.S.
Discussion
of Issues
Issue 1:
Should the Commission approve the proposed
transportation service agreement dated January 1, 2024, between FCG and Miami-Dade
County?
Recommendation:
Yes, The Commission should approve the proposed
transportation service agreement dated January 1, 2024, between FCG and
Miami-Dade County. The 2025 TSA is based on the LES tariff rate case which
provides clear specifications for contractual rates, terms, and conditions such
as those negotiated by and Miami-Dade County. Based on staff’s review of the
petition and responses given by FCG to data requests, staff believes the 2025
TSA complies with the LES tariff. (P. Kelley)
Staff Analysis:
Proposed Transportation Service Agreement
The 2025 TSA continues the plant-specific volumetric rate
structure first established in 2011 and updated with the 2014 TSA. The 2025 TSA
has updated the volumes and rates for each plant. FCG and Miami-Dade County indicate of the
contract will provide for cost-based rates that recover the incremental costs
of service plus some additional amount to recover some of FCG’s common costs.
The LES tariff indicated the Competitive Rate Adjustment tariff may apply in
this instance. The proposed term of the 2025 TSA is for ten years beginning
January 1, 2024, which would backdate the term to be consecutive with the 2014
TSA.
Analysis of Bypass Alternatives Available to Miami-Dade County
The
Commission has historically approved various load retention tariff schedules
similar to FCG's LES tariff for gas transportation utilities which are designed
to allow utilities to retain customers who have demonstrated the ability to
bypass utility facilities at costs below the normal tariff rates.
In instances of demonstrated bypass, load
retention tariffs typically encourage negotiated rates that allow the utility
to cover its cost of providing service to the customer plus provide some amount
of contribution to the common costs of the utility. FCG's LES Rate Schedule’s
section titled “Applicability” includes the requirement that, “the Customer
must provide the Company verifiable documentation of either a viable
alternative fuel or of a Customer's opportunity to economically bypass the
Company’s system.” In response to staff’s data request, FCG stated that the
bypass assumptions today are the same as they were in the 2014 TSA, only that
the bypass costs do interconnect with the Florida Gas Transmission pipeline and
have been updated.
To demonstrate the viability
of bypass options, it is necessary to show that MDWASD's estimated cost per
therm to bypass FCG’s system would be less than the cost per therm that MDWASD
would be charged under the GS-1250k tariff rate. The applicable GS-1250k tariff
rate is approximately $0.14073 per therm. Attachment A to the joint data
request indicates that Miami-Dade County’s estimated costs to bypass FCG’s
system for the Orr and Hialeah plants are $0.0233 per therm and $0.0455 per therm,
respectively. Based on review of materials submitted in support in support of
the petition and additional information provided in response to staff’s data
request, staff believes that FCG’s demonstration that Miami-Dade County has
verifiable and documented bypass alternatives to the FCG gas transportation
facilities at the Orr and Hileah plants is reasonable.
Cost Recovery under the Proposed 2025 TSA
Under the terms of the LES
tariff, FCG must demonstrate to the Commission that service under the proposed
contract will not impose any additional costs on FCG’s other rate classes,
including at the minimum, that the rate shall not be set lower that the
incremental cost of service plus some additional amount as a reasonable return
on investment. Staff has reviewed the cost support data for the 2025 TSA
provided in the petition and in response to staff’s data request.
The cost support provided by
the Company indicates that FCG’s operations and maintenance expense estimates
account for inflation for all years. As the previous inflationary rate was not
sufficient in order for contract rates to be set at a level to allow recovery of
incremental costs, the FCG and Miami-Dade County’s negotiated inflationary
adjustments to the 2025 TSA rates for beginning the year after the first year
of the contract term. In the 2014 TSA, from January 1, 2018 till December 31,
2023, the annual price increase relied on the Bureau of Labor Statistics
Consumer Price Index for All Urban Consumer (CPI-U). If the CPI-U did not
increase or even decreased in that calendar year, then the transportation rates
did not increase. In this TSA, there is an inflation provision that will allow
for the annual price to increase by a minimum of no less than 0.75 percent or
by the result of the increase to the CPI-U, which ever number is higher for
that calendar year.
Staff compared the incremental
cost of service to the Orr and Hialeah plants to each plant's proposed 2025 TSA
rates. Staff notes that the proposed 2025 TSA rates are set higher than
incremental costs for all tier levels (1-3) and all years in the contract term
(2024-2033) for both the Orr and the Hialeah plants. The total marginal revenue
for the contract term (total revenue less inflation-adjusted costs for the 10-year
term) is relatively small, especially for volumes based on proposed Tier 3
volumes and rates. In order to help assess whether rates under the 2025 TSA
provide sufficient headroom to cover specified cost risks, staff evaluated the
cost impact of volumetric shortfalls.
The risk of volumetric
shortfalls has been addressed, at least in part, by the take or pay provision
of the 2025 TSA.
Under the take or pay provision, if actual volumes are less than the take or
pay volumes, the 2025 TSA rates are set sufficiently high to recover the
incremental costs of service and provide some level of contribution.
Conclusion
Based
upon review of the petition and the additional information provided in response
to staff’s data request, staff recommends that the Commission should approve the proposed transportation
service agreement dated January 1, 2024, between FCG and Miami-Dade County. The
2025 TSA is based on the LES tariff which provides clear specifications for
contractual rates, terms, and conditions such as those negotiated by the join
petitioners. Based on staff’s review of the petition and responses provided by
FCG to data requests, staff believes the 2025 TSA complies with the LES tariff.
Issue 2:
Should this docket be closed?
Recommendation:
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. (Sandy)
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.
