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Florida's electric utilities agree to reduce fuel hedging by 25 percent

The state's electric utilities have unexpectedly volunteered to limit by up to 25 percent their hedging the price of fuel after $6 billion in losses for consumers since 2002.

But the utilities do not directly say they are doing so to save money.

In fact, they argue in an April 22 filing with the Florida Public Service Commission that the practice of hedging still benefits customers by reducing wide swings in customer bills. And the PSC has agreed.

Previous coverage: Staff for Florida utility regulators say hedging works despite $6 billion loss

But the utilities — Duke Energy Florida, Tampa Electric, Florida Power & Light and Gulf Power — said the commission directed it last year to "explore possible changes" to their hedging programs "that will minimize potential losses to customers." Groups representing consumers and businesses had asked the PSC to eliminate hedging.

In a hedge, a utility agrees to buy a volume of fuel in the future at a fixed price. If they agree to buy 1,000 gallons of oil to be delivered next year at $100 a barrel, utilities win if the market price climbs above $100. They lose if it falls below that.

With record-low natural gas prices in recent years, hedging has consistently proven a bad bet.

"We stand by our position that hedging should be discontinued completely," said J.R. Kelly, the public counsel whose office represents consumers before the PSC. "While this is a nice gesture by the utilities, we stand by our position."

The utilities continue to defend hedging as a means to prevent volatility and have likened it to insurance.

"While natural gas prices have trended downward in recent years, neither future gas prices nor the level of price volatility can be predicted with any certain," the utilities said in a joint filing. "Additionally, the recent downward trend in natural gas market prices cannot continue indefinitely."

The utilities note that the goal of hedging is not to reduce fuel costs. Their filing said the amount of hedging taken on by a utility "is a matter of business judgment reflecting a necessary balance between" preventing bill volatility and the cost of hedges should the price of fuel decline.

The PSC must approve the utilities decision to reduce hedging. Commissioners are expected to do so.

Kelly said if the hedging contracts in place in 2015 had been reduced by a quarter, consumers would have saved $205 million.

"The premium customers are paying for the insurance against volatile natural gas prices is not worth it," Kelly said. "It's way too much to pay."

Contact William R. Levesque at levesque@tampabay.com. Follow @Times_Levesque.

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