Failed fuel hedging program cost Florida utility customers $6.6 billion
Under fire for overcharging Florida customers $6.6 billion in fuel costs since 2002, Florida's largest utilities agreed to reduce their fuel hedging program Thursday for the first time since the program began.
The decision by the Florida Public Service Commission allows the company to reduce the program that allows them to lock in fuel prices in advance by 25 percent but regulators rejected calls to eliminate the failed program.
The program, known as fuel hedging, has been a bad bet for customers since it began in 2002 after significant fluctuations in natural gas and oil prices led to unexpected increases in customers' utility bills.
Over that time, Florida Power & Light, Duke Energy of Florida, Tampa Electric Co. and Gulf Power Co. were able to lock in fuel prices at high rates when the market price was dropping, leading customers to pay an estimated $6.6 billion more than the market costs.
In 2015, utilities charged customers $820 million more than the market cost for natural gas, according to PSC staff because of the hedging program and they are expected to lose another $560 milllion this year. FPL customers lost $504 million in hedging costs in 2015, Duke Energy of Florida customers lost $226 million, Gulf Power customers lost $50 million and Tampa Electric Co. customers lost $39 million.
The program was designed to allow companies to enter into fuel hedging contracts, essentially betting on a fixed price and agreeing to pay it whether the price rises or falls. The expectation was that the companies would offset the losses with gains when the price of natural gas rose.
But with the advent of new extraction technology, such as fracking, the price of natural gas has dropped in recent years and companies have overpaid on their fixed fuel costs.
Lawyers representing utility customers urged regulators to discontinue the hedging program but the utilities argued they should only be required to reduce the program by 25 percent.
"The suggestion by the utilities is putting a Band-Aid on a gaping gunshot wound and we would ask you to go further than what the utilities propose,'' said Jon Moyle of the Florida Industrial Power Users Group. "It's not working well for consumers. It's a big loser for consumers...Stop the bleeding."
"The cost of financial hedging activities still greatly outweigh any potential benefits that the companies may receive,'' said Eric Sailor of the Office of Public Counsel, which represents the public in utility matters.
Several PSC members said they would have preferred to see the company reduce the amount they hedge by 50 percent but they PSC agreed to 25 percent reduction nonetheless.
James Beasley of Tampa Electric said they utilities decided that reducing their hedging contracts by 25 percent seemed "a reasonable judgment call."
"We are hedging now for 2017 and we are already pretty deeply into it,'' said John Butler, lawyer for FPL.
Commissioner Art Graham applauded the utilities for coming forward with the proposal and said he had hoped they would have asked for 50 percent reduction.
"I know it's not easy for you to come together,'' he said. "Maybe we could have done more but overall this is better than not."