|
 Fuel is the largest recurring expense incurred by JEA. In FY08, fuel expenses comprised nearly half (46%) of JEA’s cost to generate and distribute electric power. Fuel cost recovery is a pass-through cost to the customers that we serve. Accordingly, fuel charge revenues recovered from customers must equal JEA’s fuel expenses. Generally, JEA customers benefit from the diverse mix of fuels JEA uses to generate electricity. When the price of one fuel increases relative to the cost of other fuels JEA shifts generation capacity towards the more economical fuels. Recent history, however, has seen a dramatic increase in the price of all of the fuels used by JEA.
Prediction of future fuel expenditures is a complex and speculative procedure involving global market, climate and financial inputs. Complex models are used by JEA and other utility companies to predict future fuel expenses as accurately as possible. Predicted fuel expenses are used to determine the fuel charge rate per KWH on customer bills. Over time, the revenue from fuel charges balances fuel expenses. By definition, there can be no long term gain or loss in this fund, it is a pass-through cost. Greater variability in fuel expenses necessitated implementation of a mechanism for more frequent balancing of fuel expense and revenue projections. Since its inception, the variable fuel charge mechanism has ensured inclusion of market changes into the prediction model on an increased frequency, increasing fund accuracy and reducing subsequent adjustments.
Fuel expenses increased in FY08 rapidly during the last three quarters. In July, in the midst of the year’s highest coal and natural gas prices, JEA implemented an increase in the fuel rate to recover increased expenditures.
FY09 fuel expense and fuel fund revenue were projected on October 9, 2008. Using the current fuel charge rate, the FY09 fuel fund balance is expected to remain on target, and is expected to have a 0.7% ($4 Million) surplus on September 30, 2009. Market trends in natural gas pricing during the fourth quarter of FY08 fostered cautious optimism of relief in the fuel markets. Optimism, however, was balanced by the price of petroleum coke, which finished FY08 at twice the year end FY07 cost. JEA’s projected FY09 fuel expenses are shown below.
JEA strives to deliver electric power to our customers at a low, stable cost. The strategy continues to include fuel diversification together with disciplined purchasing and price hedging. A significant investment in nuclear power was made in 2008 to help address long range fuel cost and carbon emission issues. Strategic long range purchasing and price hedging continue to reduce the effect of market volatility on rates. All together, JEA’s value strategy has succeeded in mitigating the effect of rising global fuel costs. We remain committed to optimizing our customers’ value by minimizing costs in every area under our control. Competitive rates are a tenet of JEA’s value strategy.
Every investor owned utility in Florida is planning rate action effective January 2009. Those rate actions are not included in the chart above, which reflects October 2008 pricing. JEA does not intend to increase electric rates during FY09, so JEA’s price relative to other Florida utilities should improve during the period. However, unanticipated rate actions may become necessary. Projections in this document are estimates that are subject to change.
|
