Florida Power and Light approved for Oklahoma gas investment

Florida Power & Light, following a Dec. 1-2 Florida Public Service Commission hearing on its fuel issues, filed a Dec. 12 post-hearing brief with the commission outlining its latest arguments for it to be allowed to buy natural gas reserves in the western U.S. to hedge its increased use of gas for power generation.

“In recent years, FPL has made significant investments in clean, fuel-efficient natural gas generation and transportation,” said this NextEra Energy (NYSE: NEE) subsidiary. “FPL currently supplies 62% of the electricity consumed in Florida, with approximately 65% of this coming from natural gas fired generation. FPL’s investments in natural gas have saved customers more than $7 billion in fuel costs since 2001, and these investments will continue to provide customer savings for decades. With such a large demand for natural gas, establishing a predictable, reliable, and low cost fuel supply is imperative for FPL and its customers. FPL now looks to continue its efforts to ensure a reliable and stable source of delivery of clean electricity for its customers, by making targeted investments in natural gas production.

“As a means to achieve this goal, FPL is seeking a Commission determination that the Woodford Gas Reserves Project (the ‘Woodford Project’), a joint venture with PetroQuest Energy, Inc. (‘PetroQuest’) to invest in gas production in the Woodford Shale region, is prudent and that the revenue requirements associated with this investment may be recovered through the Fuel and Purchased Power Cost Recovery Clause (‘Fuel Clause’). In effect, FPL is asking to replace one type of cost (commodity purchase costs) with another (production costs), with respect to a portion of the gas it burns in its power plants. The Woodford Project will provide significant benefits to customers in two important ways.”

  • “First, it will provide a hedge against volatile natural gas prices. As the single largest electric utility purchaser of natural gas in the United States, FPL currently uses short-term financial hedges to mitigate price volatility for customers in what is an inherently volatile market. While that program has been successful, the price stability it provides is temporally limited. The gas reserves proposal at issue in this proceeding would replace a portion of this existing short-term financial hedging program with a longer-term physical hedge that will provide price stability over a much longer time horizon.”
  • “Second, the Woodford Project is projected to deliver very substantial fuel savings for customers. Under the same gas price forecast that FPL used for its recent [demand side management] goals and Ten Year Site Plan filings, the project is estimated to deliver $107 million of fuel savings on a net present value (‘NPV’) basis. And, these savings are estimated to start in year one and continue for each and every year of the project.”

The state Office of Public Counsel and the Florida Industrial Power Users Group have filed testimony opposing FPL’s requests. The utility responded: “FPL is disappointed that the intervenors are opposing a project that FPL projects will provide real value for customers. Their opposition is strident, but not well-founded. They erroneously argue that the Woodford Project shifts risks from investors to customers, that the risks to customers are significant with little benefit to customers, and that the project provides a windfall for FPL’s shareholders. Each of these arguments lacks merit and has been thoroughly rebutted.”

FPL noted that it currently purchases – and projects well into the future that it will purchase – up to 600 billion cubic feet (Bcf) of gas annually. Roughly 70% of FPL’s natural gas supply portfolio is made up of shale gas, with the growth of shale gas in recent years helping to key its decision to pursue its own natural gas production.

“FPL was ultimately able to make arrangements with PetroQuest to enter into a joint venture for investment in gas reserves and production in the Woodford Shale,” the utility explained. “The region of the Woodford Shale in the Arkoma Basin of southeastern Oklahoma, where the Area of Mutual Interest (‘AMI’) acreage with PetroQuest is located, produces dry natural gas and is viewed by PetroQuest as the ‘crown jewel’ of its gas production portfolio. With the advent of technological advances in horizontal drilling and completion methods, many exploration and production companies are actively drilling the Woodford Shale.”

The commission on Dec. 18 approved the FPL request, only adding some conditions related to financial accounting.

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.