FPL's hedging on fuel costs similar to insurance policy
The Herald's editorial on fuel hedging used by Florida utilities equated the program to gambling, when the reality is that hedging is like buying insurance.
People buy insurance to cover them in case something unfortunate occurs in the future. Many of us carry insurance for years without ever filing a claim. Have you "gambled away your money" by paying your insurance premiums?
Of course not. The real gamble would be not having insurance.
Utilities must buy natural gas and other fuels to generate electricity for their customers every day, but market fuel prices fluctuate constantly. To reduce the impact of this price volatility, utilities purchase some of their fuel in advance instead of buying it all at daily market prices.
Fuel hedging provides a degree of insurance for customers should future market prices rise. When spikes occur, hedging saves money. However, if prices drop, hedging results in costs -- similar to premiums for insurance you didn't need to use.
It's important to recognize that hedging is just one piece of our broader, strategic approach to keeping costs for customers lower and stable over the long term. We operate our system extremely efficiently, saving customers nearly $2 billion a year compared with an average utility.
And we've worked hard for many years to drive our fuel consumption down. Since 2001, the smart investments we've made in fuel efficient technologies have saved customers more than $8 billion on fuel costs and prevented more than 95 million tons of carbon emissions.
It's no accident that Florida Power & Light customers pay about 30 percent less than the national average for electric service that's cleaner and more reliable than ever before. Our customers are benefiting because we've stayed focused on the long term with their best interests in mind, and that's what we're going to continue to do.
Sam Forrest, Vice President, Energy Marketing and Trading, Florida Power & Light
Juno Beach
This story was originally published December 18, 2015 at 12:00 AM with the headline "FPL's hedging on fuel costs similar to insurance policy ."