The Florida Public Service Commission on Feb. 24 approved a “mid-course correction” for Gulf Power in its fuel cost passthroughs to ratepayers based on the fact that natural gas prices have plunged much lower than this Southern Co. (NYSE:SO) subsidiary had expected.
On Sept. 1, 2011, Gulf filed its projection testimony and exhibits for 2012. As part of the 2012 projections, Gulf prepared estimated fuel costs for the remainder of 2011, plus forecasted fuel costs for its two primary fuels used in its generating facilities, coal and natural gas. In a Jan. 25 petition, Gulf stated that falling natural gas prices during the latter months of 2011 yielded an unexpected over-recovery for its 2011 final true-up amount, and that higher (forecasted) natural gas prices were built into the currently authorized 2012 fuel factors which were set in a 2011 fuel order by the commission.
To project natural gas commodity prices for 2012, Gulf relied on NYMEX futures contract prices for each month of 2012. Those forward curve prices represent the price of gas for delivery in a particular month in the future. Futures contracts are actively traded and the prices can change hour-by-hour throughout a trading day. Gulf based its original 2012 projected cost for natural gas on a forward curve as of Aug. 1, 2011. In its petition, Gulf noted that projected gas prices have declined considerably and for its mid-course calculations, the company used a revised forward curve of gas prices as of Jan. 10, 2012.
The commission compared the 2012 projected gas prices from Gulf’s original projections to the mid-course projections based on the Jan. 10 data, and found that the average decline in natural gas futures for this period was $1.45/mmBtu, or just over 31%. For example, the August 2010 projection for February 2012 gas prices came in at $4.61/mmBtu, that was revised based on the Jan. 10 figures to $2.94/mmBtu.
While it didn’t state in the Jan. 25 petition how these low gas prices would impact its coal burn, Gulf Power has in the past backed down coal generation when gas prices get this cheap.