To better safeguard customers, the Florida Public Service Commission (PSC) approved on June 9 modifications to the risk management plans–or hedging practices–for Florida Power & Light Company, Gulf Power Company, and Tampa Electric Company (IOUs). Last November, Commissioners directed IOUs to consider plan changes to minimize potential losses to customers when natural gas prices are lower than forecasted.
Risk management plans define each IOU’s hedging practices. IOUs use hedging to reduce the risk of price increases when purchasing a portion of the fuel needed for generating plants. To reduce fuel hedging costs during downward price trends, each IOU proposed company-specific commitments for their 2016 plans to:
• Reduce annual fuel purchases targeted for hedges by up to 25 percent, and
• Shorten their respective time horizons for placing hedges.
Commissioners agreed that Duke Energy Florida, LLC’s current plan has the flexibility to meet the revised targets.
“While I think we all would have appreciated more robust changes to further minimize customer risk, this is at least a fair start,” said PSC Commissioner Art Graham. “It’s a prudent first step, and after we put this in place, we can consider further action in this year’s fuel clause proceeding.”
Weather, environmental regulations, production costs, and exportation–factors beyond the utilities’ control–affect natural gas prices. With these variables continually changing, fuel hedging programs provide a measure of price stability for customers.