The Florida Public Service Commission (PSC) Tuesday deferred a decision on whether and how to allow Florida Power & Light Co. to recover the costs of a new storage project with MoBay Gas Storage after state Attorney General Charlie Crist, who is running for governor, Monday called on regulators to reject the proposal to charge customers for the new service.
Crist said the utility should not be allowed to add charges to customers’ bills because it agreed to a settlement last year freezing FPL’s base rates through the end of 2009. He estimated the $10 million of additional cost of the new project would amount to an addition to base rates even though it would be recovered as a fuel cost.
The PSC at its regular meeting Tuesday deferred a decision until its Sept. 19 meeting. In the meantime it call for additional briefs to be filed by Aug. 29 and a new staff recommendation to be completed by Sept. 7.
The staff-recommended order that would have been voted on at Tuesday’s meeting would have allowed FPL to recover the monthly storage reservation charge, the injection/withdrawal charges, and the monthly insurance charge through the fuel cost pass-through, since they are directly related to the volume of gas available for electricity generation. These costs should be considered a cost of gas and should be recovered as such through the fuel adjustment clause,” the staff recommendation said.
The staff, however, disagreed with FPL’s proposal to charge off the full amount of the base gas cost through the fuel adjustment clause when the base gas is injected. That cost could be deferred as a regulatory asset and be amortized to the fuel adjustment clause over the term of the storage agreement, the staff said. The cost could be carried in the fuel adjustment clause until the utility’s next rate case, at which time the remainder of unamortized cost would be considered a base rate item.
The gas inventory charge for working gas also could be recovered through the fuel adjustment clause until the next rate case when its long-term accounting treatment would be in the rate base.
FPL said the project is needed to ensure reliability of service, given the company’s dependence on Gulf of Mexico supplies, and to decrease price and cost volatility. The utility would be the anchor tenant in the storage project, signing on to provide 3 Bcf of base gas and take 6 Bcf of working gas capacity for 15 years starting with the in-service date of April 2008. Phase I of the MoBay facility, being constructed by Falcon Gas Storage Inc. using a depleted oil field, would have a total of 6 Bcf of base gas and 12 Bcf of working gas. FPL would be able to withdraw up to 350 MMcf/d and inject up to 75 MMcf/d.
The company now says the overall project will encompass 50 Bcf of high-deliverability, multicycle working gas storage. In a nonbinding open season in March, MoBay received indications of interest for more than 1.3 Bcf/d of withdrawal capacity from electric utilities, local distribution companies, producers, marketers and Gulf Coast LNG importers. Falcon said it has finalized binding precedent agreements with FPL and PPM Energy for 10 Bcf of working gas capacity and 400,000 Dth/d of daily withdrawal capability (see Daily GPI, June 26).
FPL used natural gas for approximately 50% of its electric energy generation during 2005. Approximately half of FPL’s firm gas transportation capacity is tied to offshore production in the Destin/Mobile Bay area (Zone 3). The area is susceptible to production shut-ins during and immediately after Gulf of Mexico hurricanes. The company told the commission its existing access to storage is tied only to the Florida Gas Transmission pipeline whereas MoBay, located in Mobile County, AL, will connect to both the FGT and Gulfstream pipelines. If Gulf of Mexico gas production is curtailed, the MoBay project will provide an alternative source of gas for delivery into Gulfstream.
Overall, working with MoBay will be more efficient than signing on for storage from a more distant location that would have to be transported through multiple pipelines, the staff believes.
In response to staff discovery, FPL stressed that the primary reason for its proposed participation in MoBay is to hedge the physical supply of natural gas. FPL said it would increase reliability and also reduce fuel price volatility, which creates the potential for fuel cost savings.
FPL pointed out that in the commission’s generic Hedging Order, the PSC approved a resolution of issues that allowed investor-owned electric utilities to create risk management programs to manage fuel price volatility. This order allowed utilities to recover prudently incurred hedging transaction costs, gains and losses, and incremental operating costs associated with such programs through the fuel adjustment clause.
FPL already has a small amount of storage capacity at Bay Gas Storage, and has booked net savings by using the storage as a hedging tool, the PSC staff said in agreeing that storage qualified as “a prudent form of physical supply and price hedging.”
The staff also recommended that the PSC approve FPL’s request to recover carrying costs on gas inventory that it currently maintains at the Bay Gas Storage facility through the fuel adjustment clause with the same stipulation as the MoBay project that those costs would be included in the rate base at the next rate case. FPL estimates the annual inventory carrying cost associated with the approximately 2 MMcf of Bay Gas storage capacity to be $1 million.
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