Gulf Power runs gas capacity harder due to cheap gas

Citing unusually cheap natural gas, the Gulf Power unit of Southern Co. (NYSE: SO) filed a May 25 request with the Florida Public Service Commission for a mid-course reduction to its fuel cost recovery factors for all customers.

On Jan. 20, Gulf had filed its actual fuel cost recovery results through Dec. 31, 2011. Due in large part to a decline in actual natural gas prices below the prices reflected in Gulf’s fuel cost projections, Gulf actually experienced a $13,538,423 over recovery for the January-December 2011 period as compared to the estimated under recovery of $8,441,457 for the same period. This yielded a net over recovery of $21,979,880.

As a result of the unexpected over recovery in 2011 and the continuation of lower market prices for natural gas from the price projections prepared during July-August 2011, Gulf updated its natural gas cost projections for its Smith Unit 3 for the period January-December 2012 to reflect the decline in the projected cost of natural gas over that period. The updated natural gas projection resulted in a $10,689,884 reduction in fuel cost for 2012. The combination of this reduction in fuel cost and the 2011 over recovery of $21,979,880 yielded a projected over-recovery balance of $32,311,821 for the period ending December 2012.

On Jan. 24, Gulf filed a petition for mid-course reduction to its 2012 fuel cost recovery factors to address the projected over-recovery balance. On Feb. 24, the commission approved Gulf’s petition for mid-course reduction and the revised fuel cost recovery factors necessary for Gulf to refund the projected over recovery.

“Since receiving approval in February of the requested mid-course reduction and revised fuel cost recovery factors effective beginning March 2012, Gulf has seen a continuation of the lower market prices for natural gas,” said the May 25 filing. “The combination of these lower market prices for natural gas and the actual availability of firm transmission service on a month to month basis for the gas-fired Central Alabama combined cycle facility available to Gulf pursuant to the purchased power agreement between Gulf and Shell Energy has resulted in a continued over recovery of fuel costs through April 2012.”

Gulf Power added: “In May 2012, Gulf was notified that firm transmission service will be available to Gulf for generation from the Central Alabama combined cycle facility for each of the months of June through September. The projected availability of firm transmission service allows Gulf to further reduce projected fuel costs for its customers through expected economic dispatch of the Central Alabama combined cycle facility over the high load summer months. As a result, based on current fuel factors, Gulf projects a fuel cost over-recovery balance of $58,790,205 at December 31, 2012. Gulf is requesting that the Commission allow the Company to adjust the fuel cost recovery factors for the period July through December 2012 to reflect the reduction in fuel costs resulting from the actual operation of the Central Alabama combined cycle facility during January through April 2012 and the projected operation of the facility for May through September 2012.”

The May 25 filing also shows unit-by-unit burn projections for the July-December 2012 period for Gulf Power’s coal plants, with total coal burn for the period projected at 1.6 million tons at an average cost of $102.61/ton. The coal units in Florida are at Crist, Smith and Scholz. There are also projections for the two coal units at the Daniel plant in Mississippi that Gulf Power co-owns with Mississippi Power.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.