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News
Releases
Rising Fuel Costs Force FMPA to Raise Wholesale
Energy Rates
ORLANDO,
Fla., Sept. 30, 2005 – Sustained, record-high
fuel prices have forced the Florida Municipal Power Agency
(FMPA) to raise its wholesale energy rate effective Oct.
1.
FMPA is a nonprofit organization that supplies the wholesale
power needs of 15 municipal electric utilities in Florida.
The cities are Bushnell, Clewiston, Fort Meade, Fort Pierce,
Green Cove Springs, Havana, Jacksonville Beach, Key West,
Kissimmee, Lake Worth, Leesburg, Newberry, Ocala, Starke
and Vero Beach. Owned by the municipal utilities it serves,
FMPA provides economies of scale in power generation and
related services to support community-owned electric utilities.
Electric power plants in Florida use a variety of fuels
to generate electricity. One of the most commonly used fuels
today is natural gas. Approximately 30 percent to 35 percent
of electricity statewide comes from natural gas-fueled power
plants. While natural gas is a clean-burning source of electric
power, the downside is that natural gas prices have demonstrated
a high level of volatility during the past few years and
long-term forward prices have continued to rise dramatically.
Most
natural gas industry participants projected in early spring
2005 that the average gas price would remain between $6
and $7 per million British thermal units (Btu) throughout
the summer. FMPA’s wholesale power rates were based
on those projections. Unfortunately, unusually warm weather
throughout the United States has caused actual results to
vary widely from projections. As demand for natural gas began
to increase, prices reacted by moving higher.
Unusually
high temperatures in the Southeast, Southwest and Northeast
United States increased consumers’ demand
for electricity beginning in June. For many electric utilities
in Florida, including FMPA, customers’ demand for power
set all-time records. Since a major portion of Florida’s
electricity comes from natural gas power plants, utilities’ fuel
demands increased, steadily driving prices upward. By August,
futures prices for natural gas on the New York Mercantile
Exchange reached an all-time record high of more than $10
per million Btu.
The
supply situation worsened in late summer as Hurricanes
Dennis, Katrina and Rita all passed through the Gulf of
Mexico, decreasing the region’s natural gas production, which
accounts for nearly 25 percent of the United States’ natural
gas supply. A majority of the natural gas production facilities
in the Gulf of Mexico remain shut-in due to these storms.
Prices have remained high since the post-hurricane price
spikes, and at the time of this writing, prices still remain
above $14 per million Btu for gas supply this winter. This
is more than double the price that utilities nationwide had
expected. Because these supply disruptions also decreased
the amount of natural gas that can be stored for winter heating
needs, these high natural gas prices are expected to persist
or even continue to rise throughout the coming year and,
possibly, longer.
While
FMPA has an active program for managing natural gas prices,
these extreme natural gas price swings coupled with brief
natural gas supply interruptions have pushed FMPA’s
expected costs above its current budget forecast. Without
FMPA’s fuel price risk management program—known
as hedging—the necessary energy rate increase would
have been nearly twice as large. Other electric utilities
are experiencing similar cost increases that are likely to
result in rate increases.
Because
of this situation, the members of FMPA recently voted to
increase the rate charged to recover fuel costs. Fuel costs
are passed along at cost and represent one portion of FMPA’s total wholesale electric bill. As a result
of the rate change, FMPA’s cost to its wholesale customers
is projected to rise approximately 23 percent. Actual costs
for individual cities may vary from the overall average depending
on a city’s electric use characteristics and rate structure.
FMPA does not earn a profit from its electric sales because
the Agency is a nonprofit, member-owned organization.
In
most of FMPA’s member cities, the wholesale rate
increase is likely to result in increased retail costs. How
much and when this might impact the bills of retail customers
is determined by each individual city.
Besides continuing its fuel price risk management program,
FMPA and its member cities have additional long-term plans
to deal with the rising cost of natural gas. For example,
FMPA is a co-founder of a new, first-of-its-kind partnership
between municipal electric and gas utilities in the southeast
United States. These utilities are seeking to protect a portion
of their fuel supply from the volatility of natural gas markets
by purchasing fuel directly from its source in the form of
natural gas reserves or by other long-term purchase agreements.
FMPA is also committed to maintaining a modern, efficient
and fuel-diverse fleet of power plants. It is prudent for
an electric utility to have a diversified portfolio that
includes a balance of natural gas, coal, oil and nuclear
energy, just as it is prudent for individuals to have diversified
investment portfolios. A diversified fuel mix provides more
stable electric prices for consumers and a secure electricity
supply that protects against fuel supply disruptions.
FMPA and its members are working together to address the
challenges in their business and continue providing the most
reliable, affordable power possible.
# # #
Florida
Municipal Power Agency (FMPA) is a wholesale power company
owned by 29 municipal electric utilities. FMPA provides
economies of scale in power generation and related services
to support community-owned electric utilities. The members
of FMPA serve approximately 1.8 million Floridians. FMPA’s
members include Alachua, Bartow, Bushnell, Chattahoochee,
Clewiston, Fort Meade, Fort Pierce, Gainesville, Green Cove
Springs, Havana, Homestead, Jacksonville Beach, Key West,
Kissimmee, Lake Worth, Lakeland, Leesburg, Moore Haven, Mount
Dora, New Smyrna Beach, Newberry, Ocala, Orlando, Quincy,
St. Cloud, Starke, Vero Beach, Wauchula and Williston. Additional
information is available on the Internet at www.fmpa.com.
FMPA Contact:
Mark McCain
Public Relations/Public Affairs Manager
(407) 355-7767
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