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Fla. utilities volunteer to curtail fuel hedging programs

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Fla. utilities volunteer to curtail fuel hedging programs

Florida'sfour major investor-owned utilities volunteered to reduce their fuel hedgingprograms which after several years have failed to result in savings forcustomers.

In apetition to the Florida Public Service Commission, however, subsidiaryFlorida Power & Light Co.,Duke Energy Corp.subsidiary Duke Energy FloridaLLC, Southern Co.subsidiary Gulf Power Co.and TECO Energy Inc.subsidiary Tampa Electric Co.maintained that fuel hedging programs have benefitted customers and willcontinue to do so.

Thefuel hedging programs have been under heavy criticism over the last year byFlorida's Office of Public Counsel, whichhas argued for their suspension. In hearings during 2015, expertson behalf of the public counsel testified the natural gas hedging programs ofFlorida's four investor-owned utilities have lost approximately $5.3 billionover the 2002-2014 period and forecast losses of $789 million in 2015. AlthoughFlorida regulators ultimately signed off on the utilities' proposed gas hedgingprograms in December 2015 for the following year, they also signaled theirintent to consider changes to the gas hedging programs in 2016 proceedings.

Thecurrent gas hedging program was established by the PSC in 2002 in response tothe impact on customers of gas and fuel oil price fluctuations in 2000 and2001. The utilities in the April 22 letter noted the program's key goal was toreduce customer exposure to volatility, not to reduce fuel costs. In recentyears, however, gas prices have been low and Florida utilities have come toshift their generation mix away from coal in favor of gas.

In2016, Duke Florida estimates 66% of its forecast energy mix for generation willbe from natural gas, according to the filing. For Florida Power, that estimateis 71%; for TECO, 50%; and for Gulf Power, 65%. Asserting that hedging programsshould continue, the utilities warned that this increased dependence on gaswould expose customers to significant volatility were the programs to besuspended. And given uncertainty around factors like environmental regulations,price impacts of gas exports, and production costs, the utilities noted futuregas prices are difficult to predict.

Theutilities proposed reducing their remaining total projected fuel purchases tobe hedged in 2017 by 25%. Beginning in 2018, under the 2017 plan, the utilitiesproposed reducing their fuel hedging percentage by 25% from the range approvedby the PSC in the 2016 plan. The exact hedging ranges proposed by each of thefour utilities were redacted. Additionally, the utilities proposed committingto limits on future time horizons over which their fuel hedging programs may beplaced, though details on that too were redacted. (Florida Docket No. 160096-EI)