Florida Power and Light rebuts critics of planned gas investment

Florida Power & Light’s customers will benefit over the long-term through the utility’s planned investment in natural gas reserves in the Woodford Shale region of southeastern Oklahoma, utility representatives told the Florida Public Service Commission.

With this NextEra Energy (NYSE: NEE) subsidiary in the middle of an aggressive program to add new gas-fired capacity, the utility had announced June 25 that it will invest in natural gas production to secure cost-effective gas supply for those new/rebuilt power plants. By investing in natural gas production at the source rather than paying full market prices, FPL is projecting customer savings of up to $107m over the life of the first project.

“With a growing fleet of cleaner, fuel-efficient natural gas-fired power plants and contracts for reliable and diverse gas transportation in place, we believe this to be the next logical step in providing clean electricity for our customers at affordable prices,” said Eric Silagy, president and chief executive officer of FPL, at the time.

FPL is partnering with PetroQuest Energy on a new venture to develop up to 38 natural gas production wells in the Woodford Shale region in southeastern Oklahoma. PetroQuest, an independent oil and gas company, will oversee and operate those wells. FPL will receive a portion of the natural gas produced from each well for its use.

FPL on June 25 asked the Florida Public Service Commission (PSC) for approval of this investment. Since then, several witnesses for outside parties have criticized the deal, with FPL on Oct. 13 filing rebuttals from various officials.

FPL’s Sam Forrest said in his rebuttal: “Despite the misguided claims of the intervenor witnesses, FPL proposed the Woodford Project to benefit FPL’s customers. The Woodford Project is the result of FPL creatively looking for ways to capitalize on the low price environment for natural gas that has arisen out of the prolific production from unconventional gas discoveries like the Woodford shale formation. FPL’s customers will benefit from the Woodford Project in two significant ways.”

  • First, there is a very strong probability that the Woodford Project will lower the fuel costs that FPL customers pay through the commission-overseen Fuel Clause. In eight out of nine sensitivity scenarios that FPL analyzed, the Woodford Project is projected to achieve natural gas price savings for FPL’s customers, with the most likely scenario resulting in net present value savings of $107m. There is an 85% chance that customers will see savings from the Woodford Project. And Forrest said that even in the one sensitivity scenario under which customers would not see savings from the project, the additional cost would be small (about $14m) while FPL customers’ overall fuel costs would be dramatically lower because that scenario envisions market gas prices far below FPL’s current projections.
  • Second, and regardless of where gas prices actually end up, customers will benefit from the Woodford Project because it is a long-term physical hedge against highly volatile gas prices, he added. “It is curious, if not completely inconsistent, that the intervenor witnesses seek to downplay this valuable role of the Woodford Project as a long-term hedge, because if they are right that there is a high degree of uncertainty about future gas prices, then that environment is exactly where a long-term hedge would be most valuable,” Forrest added.

Forrest went on: “FPL proposes to invest up to $191 million in 2015 to achieve enormous customer fuel savings. For this investment of $191 million, customers are projected to receive fuel cost savings of $395 million on a nominal basis over the life of the Woodford Project – more than doubling the investment in the project. These fuel savings equate to the net reduction in cost to customers of $107 million (net  present value) that I refer to in my direct testimony. This is an exceptional value creation for customers. While the Woodford Project is relatively modest in size compared to FPL’s overall natural gas requirements, it clearly represents the sort of first step that FPL’s customers should be very happy to see FPL take.”

Another FPL witness, Tim Taylor, rebutted the direct testimony of the Office of Public Counsel and the Florida Industrial Power Users Group about the risks of natural gas production by stating that: “Natural gas production is a well understood technology, and the operating costs associated with gas production are highly predictable. Furthermore, PetroQuest has a long history of production in the Arkoma-Woodford region, and it is very familiar with operations in the region. That is one of the great benefits of selecting PetroQuest as a partner in this Joint Venture.”

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.