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    Florida PSC Issues Order Approving Midcourse Correction Involving St. Joe Natural Gas


    September 28, 2022 - Targeted News Service

     

      TALLAHASSEE, Florida, Sept. 28 -- The Florida Public Service Commission issued the following order approving midcourse correction (DOCKET NO. 20220003-GU; ORDER NO. PSC-2022-0331-PCO-GU) on Sept. 27, 2022:

      * * *

      In re: Purchased gas adjustment (PGA) true-up.

      The following Commissioners participated in the disposition of this matter:

      ANDREW GILES FAY, Chairman

      ART GRAHAM

      GARY F. CLARK

      MIKE LA ROSA

      GABRIELLA PASSIDOMO

      ORDER APPROVING ST. JOE NATURAL GAS COMPANY, INC.'S MIDCOURSE CORRECTION.

      BY THE COMMISSION:

      Background

      On August 8, 2022, St. Joe Natural Gas Company, Inc. (SING or Company) filed a Petition for a Mid-Course Correction of its purchased gas adjustment factor cap (PGA cap). After input from our staff, the Company replaced the original filing with a Revised Petition on August 11 , 2022 (Revised Petition)./1 SING asserts that, without a mid-course adjustment to its PGA cap for the last three months of 2022, it expects an under-recovery of costs to total $348,459 by the end of December. In its Revised Petition, SING is requesting to increase its PGA cap effective with the first billing cycle in October through the last billing cycle for December 2022. The currently-effective PGA cap was established by Order No. PSC-20210437-FOF-GU (2021 PGA Order)./2 At Page 3 in the 2021 PGA Order, we approved a levelized PGA cap for SING for the period January through December 2022 of $0.6170 per therm. Although we set a levelized PGA cap, utilities have the flexibility to charge a lower factor on the monthly bill. The Company seeks a mid-cycle adjustment because recent market price projections for natural gas significantly exceed the price projections that were used to set the current PGA cap. Absent a correction, this projected increase in the price of natural gas is expected to result in a relatively large under-recovery of PGA costs by the end of 2022./3

      SJNG's Revised Petition conforms to requirements previously established by us for seeking a mid-course correction to forecasted gas expenses./4 We recently approved a mid-course correction to a PGA cap for Peoples Gas System on July 7, 2022./5 Prior to that decision, we previously approved mid-course corrections to the PGA cap for several utilities when the amount of projected under-recovery was substantial./6

      In this Order, we first address the actual and projected PGA cost differences and the proposed related adjustment to the PGA cap. We then address the proposed effective date of the revised PGA cap, as reflected in the proposed tariff sheet revision. The revised and legislative tariff sheet is included as Attachment A to this order.

      We are vested with jurisdiction over the subject matter of this proceeding by the provisions of Chapter 366, Florida Statutes (F.S.), including Sections 366.04, 366.05, and 366.06, F.S.

      Decision

      I. Approving St. Joe Natural Gas Company Inc.'s Revised Petition for Mid-Course Correction

      Summary of Revised Petition

      By the 2021 PGA Order, we approved SJNG's levelized PGA cap factor of $0.6170 per therm, effective with the first billing cycle for January 2022. On an ongoing basis, SJNG monitors its natural gas cost recovery revenue and expenses, and based upon the actual 2021 results and updated estimates for 2022, the Company now projects that an under-recovery greater than 10 percent is likely to occur absent a modification to the current PGA cap.

      Based upon a revised projection of revenues and expenses for the remainder of 2022, the Company estimates that the expense for purchasing natural gas will significantly exceed the revenues that are projected to be recovered via the currently-approved levelized PGA cap. Specifically, the revised 2022 expense for purchasing natural gas is estimated to be $779,685, while the projected revenues for the same period would be $541,062. When this difference between expenses and revenues is coupled with the true-up balances, interest charges, and other adjustments, the beginning of the year true-up balance of $107,920 is projected to grow to $348,459 by the end of December 2022./7 The mid-course correction the Company is proposing would recover only a portion ($172,099) of that imbalance./8

      SJNG asserts that the primary cause of the projected 2022 under-recovery is a significant increase in actual and projected 2022 natural gas prices, yielding higher costs than the projected costs that were used to establish the currently-approved PGA cap. According to SJNG, since the issuance of the 2021 PGA Order, a convergence of inter-related factors has "resulted in an extraordinary environment affecting natural gas pricing." These factors include geopolitical uncertainty caused by Russia's military invasion of Ukraine and demand for natural gas exceeding current natural gas production levels. SJNG believes resetting the PGA cap for October through December of 2022 would allow it the flexibility to provide its customers with the appropriate price signal, while at the same time allow it to recover a portion of the projected costs for purchased natural gas.

      SJNG is proposing to reset its PGA cap from $0.6170 per therm to $1.60 per therm, effective with the first billing cycle of October 2022 through the last billing cycle of December 2022. In SJNG's proposed notice to its customers that will be included in September bills, the Company states:

      St Joe Natural Gas has asked [the Public Service Commission to approve] a cap of $1.60 [per therm] for October through December 2022. St Joe Natural Gas is allowed to charge anything up to the cap to cover the costs of natural gas that is bought and sold to its customers. There is no profit on the fuel charge and it is a direct pass through to the customer. Waiting until 2023 would cause the cap to be set even higher to recover the unbilled gas costs associated with 2022's loss. This does not mean that the fuel charge will be $1.60 [per therm] on your bill. It means that we are able to charge up to $1.60 [per therm] should fuel prices continue to climb. Starting with your October bill, the fuel charge portion will likely increase from $0.617 [per therm] up to no more than $1.60 [per therm] to cover the cost of gas purchased from the pipeline and delivered to your meter. The fuel charge will more likely be set around $1.10 to $1.30 [per therm] in order to cover the current price and recover the unbilled fuel costs associated with 2022 so far.

      If approved, applying this revised PGA cap will allow the Company to address much of the under-recovered true-up balance for 2022, although it will not eliminate the full amount of the true-up balance or even the full amount of the reprojected expenses for 2022./9 However, our approval of this mid-cycle correction would allow the Company to reduce the impact of the true-up balance in 2022, and thereby mitigate having to do so during the year 2023, for customers who are subject to the PGA. If approved, our calculation of the bill impact indicates than an average RS-2 residential customer with monthly consumption of 20 therms would incur an additional gas cost of $19.66 per month, based upon projections that implement the proposed new PGA cap at its full value between October and December 2022. The Company, however, has indicated in its notice to customers that it may set the fuel recovery charge at a lower rate that, if implemented, would result in a lower bill impact.

      A revised tariff sheet in "clean" and "legislative" formats is attached to the Revised Petition, with the requested effective date beginning with the first billing cycle in October 2022. SJNG requested consideration of this Revised Petition on or before the September 8, 2022 Commission Conference in order to allow it to provide notice to customers. The Company's proposed effective date and revisions to its tariff are subsequently addressed herein.

      Analysis

      In projecting its costs for natural gas, the Company evaluates the New York Mercantile Exchange (NYMEX) natural gas futures settlement prices, recent historical records for therm sales, and the balance within its true-up account. With that data, the Company observed NYMEX values in August of 2021 in the range of $4.50 per MMBTU, with NYMEX futures for 2022 forecasted between $5.00 and $6.00 for most of 2022. The Company states that at the time it revised its price projection, the NYMEX forecasted values for September through December 2022 were in the range of $8.00 to $9.00 per MMBTU, with most of 2023 forecasted to be back in the range of $5.00 per MMBTU. In its Revised Petition, the Company also noted that current events in Ukraine have influenced natural gas market prices, and in a Data Request response, SJNG indicated that federal government policies related to production and leases has also influenced natural gas markets.

      We have evaluated historic NYMEX settlement prices and observed that when SJNG prepared its forecast of 2022 (in August of 2021) the NYMEX 12-month average of natural gas was $3.42 per MMBTU. Beginning in the second quarter of 2022, significant changes in the market impacted settlement prices, which ranged from $6.60 to $8.15 per MMBTU (through August 2022). Near-term forecasts of monthly futures for September through December 2022 are over $9.00 per MMBTU for all months. However, forecasted NYMEX futures extending into 2023 indicate that by the middle and later months in 2023, forecasted prices are considerably lower, with estimates ranging from $5.35 to $5.85 per MMBTU.

      As previously discussed, SJNG's revised PGA cap will not eliminate the full amount of the reprojected year-end true-up balance. As presented, the SJNG Revised Petition seeks to recover a total of $172,099 in projected true-up costs, while deferring recovery of $176,359, as a mitigation to limit the impact its request will have on customer bills. Table 1 presents information to demonstrate the calculations. Based on analyzing NYMEX future prices for 2023, which are lower than current prices, the Company structured its mid-course correction to recover a portion of its full under-recovered balance, with the hope that lower market prices in 2023 will enable it to address the deferred under-recovery balance naturally.

      * * *

      Table 1: True-Up Calculations for SJNG's Mid-Course Correction

      Source: Schedules E-1/R and E-2, from Appendices A and B, attached to Revised Petition.

      [Link to table at bottom of document.]

      * * *

      Absent the instant pleading, November's cost recovery hearing would be the forum for SJNG to seek recovery of its actual and estimated costs. However, as the Revised Petition demonstrates, SJNG has experienced and is expecting to continue to incur higher market prices than originally projected for natural gas, resulting in an estimated 2022 year-end under-recovery balance of $348,459.

      We find that addressing the imbalance in costs at an earlier occasion is preferred over waiting until November's hearing to do so. Although we set a levelized PGA cap, utilities have the flexibility to charge a lower factor on monthly bills. We note, however, the revenue projections the Company provided to us with its Revised Petition are based on setting the PGA to the cap for October through December 2022. A mid-cycle change to reset the PGA cap is an opportunity for us to be responsive to the market-driven escalation in actual and forecasted costs. While it is possible that market prices between now and November's hearing could change in a manner that would reduce the projected under-recovery balance, the opposite is possible as well. Absent any action, the higher or lower true-up balance would be addressed at the November evidentiary hearing in this docket, when we set the Company's 2023 PGA cap. However, we find a PGA cap change implemented for the October through December 2022 billing cycles is more timely. We find this action will reduce the true-up balance through the remaining months of 2022, and would, in turn, moderate the portion of the 2023 PGA cap that is calculated from the end-of-year (2022) true-up balance.

      In addition, it is important to note that, while the instant Revised Petition addresses a proposed revision to the PGA cap for SJNG, the determination of prudence of PGA costs incurred is reserved as an issue to be resolved at the time of the hearing or in a subsequent Commission Conference. Any costs found to be imprudently incurred and recovered would be a matter to be addressed by us at that time.

      Bill Impact for Typical Residential Customer

      The revised PGA cap the Company is recommending is $1.60 per therm, an increase of approximately $0.98 cents per therm. Our practice is to assume average residential usage of 20 therms per month for comparative purposes. Our estimation of the bill impact for a residential customer on the RS-2 rate schedule using 20 therms of natural gas is shown in Table 2. Based on the Company's proposed PGA cap adjustment, a residential customer taking service under the RS-2 tariff with a monthly consumption of 20 therms would incur an additional gas cost of up to $19.66 per month, for the October through December 2022 billing cycles.

      * * *

      Table 2: Sample Bill for a Residential Customer on the RS-2 Rate Schedule Using 20 Therms

      Source: Our staff's calculations, noting that utility and gross receipts taxes were not included.

      [Link to table at bottom of document.]

      * * *

      We take notice that this example demonstrating a bill impact of about 37 percent is based on SJNG setting its PGA factor at the full cap of $1.60 per therm for October through December 2022./10 As expressed in its customer notification, SJNG seeks the flexibility to set its PGA cap at $1.60 per therm, but is hopeful that market conditions for what it pays for gas may allow it to set its PGA recovery amount at a level below the $1.60 per therm upper limit. If the PGA recovery factor were set at an amount less than $1.60 per therm, then the bill impact would be lower than as shown in Table 2. In addition, the Company has filed their projection testimony and exhibits for 2023, which forecast a lower PGA cap in 2023 than the $1.60 per therm under consideration in this pleading, if its mid-course correction is approved./11

      By requesting a mid-course correction for only a portion of its estimated total true up balance, we find that the Company is balancing the uncertainty of whether market conditions will be more or less favorable for reducing the under-recovery balances at a later time, against the near-term impact the requested correction will have on its customers. We find that this is a reasonable approach for two reasons. First, market conditions are at historically high levels, which has created the under-recovery balance that prompted the Company to request relief. By requesting only a portion of its total estimated true up balance, the Company is attempting to moderate the impact of what their customers would pay in order to address the under-recovery of its purchased gas costs. Second, NYMEX future prices for 2023 are reflecting that market prices may recede from current levels, indicating that the current imbalance between costs and revenues may be expected to improve in 2023. Table 3 below illustrates what the remaining true-up balances would be with and without the requested mid-course correction. If the mid-course correction is approved, the 2022 projected year-end under-recovery balance will be $176,359, rather than $348,458, if no mid-course correction is implemented.

      * * *

      Table 3: True-Up Calculations for SJNG

      Source: Schedules E-1/R and E-2, from Appendices A and B, attached to Revised Petition.

      [Link to table at bottom of document.]

      * * *

      Conclusion

      We approve the Revised Petition for Mid-Course Correction filed by SJNG. Adjusting the PGA cap to $1.60 per therm as proposed by the Company would allow SJNG the opportunity to recover a portion of the recent market-driven escalation in the Company's actual and forecasted costs for natural gas that are expected to be much higher than originally forecasted.

      II. Appropriate Effective Date For St. Joe Natural Gas Company Inc.'s Revised Levelized PGA Cap

      Analysis

      In its Revised Petition, SJNG has requested that the proposed revisions to the PGA cap and associated tariffs become effective beginning with the first billing cycle of October 2022, which starts October 1, 2022. Under this request, the effective date of the increase would be 23 days after our vote. The Company will provide the relevant tariff sheet to correspond with our decision.

      We have considered the effective date of rates and charges of the revised PGA cap and for the levelized purchased gas adjustment cost recovery factors on a case-by-case basis. While petitions for purchased gas adjustment cost recovery mid-course corrections are infrequent, we have previously approved an effective date less than 30 days from our vote.

      In Order No. PSC-05-1029-PCO-GU, we approved a mid-course correction to Florida Public Utilities Company's PGA cap on the effective date of the vote./12 In 2001, we approved requests by six natural gas utilities for mid-course corrections to their caps. In each of these cases, we allowed the new cap to take effect the day of the vote./13 In the 2001 cases, we stated that the requests were driven by drastic increases in the price of natural gas. For the recent Peoples Gas mid-course correction, we approved an effective date of 26 days after the vote.

      For comparative purposes, over the last 20 years, in the electric Fuel Cost Recovery Clause docket, we have approved fuel cost recovery factor rate decreases effective sooner than the next full billing cycle. After the date of our vote, they range between the vote and effective date is 2 to 25 days. The rationale for that action being that it was in the customers' best interests to implement the lower rate as soon as possible. Regarding the fuel cost recovery factor/rate increases, we have approved an effective date of the revised factors ranging from 14 to 29 days after the vote. In two of these cases, we noted that the utility had given its customers 30 days' written notice before the date of the vote that a fuel cost recovery factor increase had been requested and provided the proposed effective date of the higher fuel factors. We find the same rationale is applicable to a gas mid-course correction.

      As previously noted, there are 23 days between our vote on September 8, 2022, and the beginning of SJNG' billing cycle on October 1, 2022. We emphasize that an effective date in October 2022 will provide the greatest number of months within 2022 over which to spread recovery, resulting in a lower potential monthly bill impact for SJNG's customers.

      Conclusion

      Based on the above, the appropriate revised levelized PGA cap shown on Attachment A (Fifteenth Revised Sheet No. 103) shall become effective with the first billing cycle of October 2022.

      Based on the foregoing, it is

      ORDERED by the Florida Public Service Commission that St. Joe Natural Gas Company, Inc.'s petition for a mid-course correction of its purchased gas adjustment factor cap be granted. It is further

      ORDERED that the approved revisions to St. Joe Natural Gas Company, Inc.'s cap and associated tariffs shall become effective beginning with the first billing cycle of October 2022, as reflected in Attachment A, attached hereto. It is further

      ORDERED that the Purchased Gas Adjustment Clause docket is an ongoing docket and shall remain open.

      By ORDER of the Florida Public Service Commission this 27th day of September, 2022.

      ADAM J. TEITZMAN, Commission Clerk

      Florida Public Service Commission

      2540 Shumard Oak Boulevard

      Tallahassee, Florida 32399

      (850) 4 13-6770

      www.floridapsc.com

      * * *

      Original text here: http://www.floridapsc.com/library/filings/2022/08068-2022/08068-2022.pdf

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