Despite over $6 billion in losses since 2002, Florida’s Public Service Commission (PSC) approved the continuation of existing fuel price hedging programs (Docket No. 50001-EI – Fuel) on December 3 for Florida’s five investor-owned electric utilities(IOUs): Duke Energy Florida (DEF), Florida Power & Light Company (FPL), Florida Public Utilities Company (FPUC), Gulf Power Company (Gulf), and Tampa Electric Company (TECO).
Hedging is a risk management strategy used in limiting or offsetting the probability of loss from price fluctuations – and, thus, at least in theory, stabilizing the market.
In their briefs to the commission, intervenors to the case – among them, the Florida Industrial Power Users Group (FIPUG) and the Office of Public Counsel (OPC) – argued that hedging should be discontinued, due to the large cumulative net losses already experienced by the program.
Conversely, in their briefs, the IOUs stated that the purpose of hedging is to reduce price volatility, that gains and losses can occur, and that assessing the hedging programs based on gains and losses would encourage speculation.
According to TECO, “These hedging programs have worked exactly as intended by the commission and the utilities, by eliminating the volatility of fuel costs that utility customers have to pay. The intervenors have failed to demonstrate that these programs should be revised or discontinued. Future natural gas market price risk and price volatility remain for natural gas purchases.
“However,” TECO said, “should the commission conclude that the programs should cease, it should occur prospectively, with existing hedges remaining in place to their maturities. Any cessation should remain in place until such time as the commission orders approval of new risk management plans.”
The commissioners agreed that, while natural gas prices have recently trended downward, the volatility of those prices can vary considerably.
In the end, the PSC directed staff to work with stakeholders on a collaborative process to offer hedging program changes that benefit customers for commissioners to consider next year.
