The North Carolina Utilities Commission on Dec 8 approved an Aug. 19 application from Virginia Electric and Power d/b/a Dominion North Carolina Power for a fuel charge adjustment.
The application was accompanied by the testimony and exhibits of officials including Gregory A. Workman, Director-Fuels.
The test period for purposes of this proceeding is the twelve months ended June 30, 2015. The company’s fuel procurement and power purchasing practices during the test period were reasonable and prudent, the commission ruled.
“In his direct testimony, Company witness Workman discussed commodity prices, the Company’s fuel procurement policy, and coal, natural gas, oil, and biomass procurement,” said the commission order. “He explained that commodity prices (including coal, natural gas, and crude oil) worldwide fell considerably during the test period. Witness Workman described the Company’s fossil fuel procurement practices and explained that the Company continues to follow the same procurement practices it has in the past in accordance with its report filed in Docket No. E-100, Sub 47A.
“In regard to coal procurement, Witness Workman noted that the Company followed a multi-year plan accomplished primarily through periodic solicitations and secondarily on the open market, allowing the Company to layer in coal contracts of staggered terms and blended prices to mitigate exposure to significant price swings.
“Company witness Workman noted that the Company had determined that it was prudent to modify its gas procurement practices to include more firm transportation agreements from diverse locations and for longer terms (terms greater than day-ahead or intra-day) as compared to the current approach of terms of only day-ahead or intra-day. Witness Workman explained that this approach would promote greater certainty of supply and is consistent with the Company’s approach to coal procurement. As with coal, the Company will issue periodic solicitations and use the open market to meet its requirements. Further, when appropriate, the Company will use financial hedging instruments to mitigate price volatility. Additionally, DNCP evaluates its diverse portfolio of pipeline and storage contracts and participates in the interstate pipeline capacity release and physical supply markets as well as longer-term, pipeline expansion projects to enhance reliability at a reasonable cost.
“Witness Workman pointed out the increasing importance of natural gas as a percentage of the Company’s energy requirements. He noted that while during the test period the Company met approximately 20% of its annual energy requirements with natural gas, this percentage is expected to grow to as much as 40% by 2019 as new gas-fired generation becomes operational.
“Company witness Workman indicated that the Company used a price hedging program as one way to stabilize fuel rates. Under the Company’s Marginal Fuel Hedging Program for natural gas, the Company has hedged using 25% of the forecasted volumes during the summer and winter months in the low load case. In addition, the Company has hedged on-peak power using the forecasted volumes for all twelve months in the low load case. While the Company expects purchased power volumes to decrease over time, the Company plans to continue its financial hedges of a portion of these volumes when beneficial for customers.
“DNCP also plans to expand its forward price hedging activity for natural gas from one year up to three years and to increase price hedging levels to a target range of 20% to 50% of forecasted volumes to be purchased in the first year of a three-year period. The Company expects to achieve these targets through the pricing associated with the gas supply and transportation procurement activities as described above, as well as the use of derivative instruments to financially hedge a portion of these volumes.
“Witness Workman further testified that the Company procures its No. 2 fuel oil and No. 6 oil requirements on the spot market. Wood chips and other woody material for four biomass-fired plants are procured via long-term contracts, supplemented with short-term contracts, and the Company procures biomass for its Virginia City Hybrid Energy Center (VCHEC) facility via short-term contracts.”