Florida regulators unanimously voted Thursday to continue allowing the state’s electric utilities to hedge the price of natural gas despite $6 billion in losses and calls by customer groups to end the practice.
“It is a tool that in many years has proven to benefit the customers as it was intended to do,” said Lisa Edgar, a commissioner on the Florida Public Service Commission. “Some form of hedging most businesses do. We’d probably be critical of [utilities] if they weren’t at least considering it.”
In a hedge, a utility agrees to buy fuel in the future at a fixed price. A decision to hedge looks great if fuel prices then climb beyond that fixed price, resulting in savings. But when prices fall, hedging losses can mount.
Commissioners said hedging is meant to reduce volatility, or wide swings in the cost of electricity for consumers, and indicated the program has worked successfully doing that. They rejected calls by groups representing consumers and businesses that the practice be ended because of losses that include $789 million in 2015 alone.
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They also noted that, while natural gas prices are low today resulting in hedging losses, future volatility in price can never be ruled out.
“The market is not a sure thing,” Edgar said.
State Rep. Dwight Dudley, D-St. Petersburg, ranking member of the House’s energy and utilities subcommittee, said he was disappointed in the vote.
“We can count on the sun coming up and the PSC doing favors for the utility industry,” Dudley said. “It’s all about giving the industry whatever it wants even if it’s a dead dog loser. How much more proof do you need that something doesn’t work when you have $6 billion in losses? How is that beneficial to consumers?”
Jon Moyle, representing Florida Industrial Power Users Group, told commissioners at a November hearing his clients would rather “pay at the pump.”
“You’ll hear from the witnesses who will say hedging is for the customers, we’re doing it for the customers’ benefit, but you will not hear any customer witness take the stand and say, “Yeah, this is great, let’s continue this.’ Because they won’t,” Moyle said.
Commissioners said they wanted to revisit hedging next year to see if there are other options to limit losses, including whether the PSC should cap how much hedging utilities are allowed to conduct.
They otherwise expressed reluctance to discontinue the practice.
Florida’s investor-owned utilities, including Tampa Electric and Duke Energy Florida, all say hedging is beneficial for customers by eliminating big swings in electric bills. Only Duke has no official position on whether hedging should continue, calling it a policy decision for the PSC.
Duke Energy Florida lost $1.48 billion from 2002 to 2015 hedging natural gas. Tampa Electric lost $421 million; Florida Power & Light lost $4 billion and Gulf Power lost $171 million.
The cost of hedging is paid by customers, who also reap savings when hedges make money. Utilities note that they make no profit on the practice.
Contact William R. Levesque at email@example.com. Follow @Times_Levesque.