Photo: Jason Myers
Energy in Florida
Energy: Power traders in Florida
From offices at FPL’s corporate campus, a group of 35 traders, analysts and managers deals in the business of buying and selling power and procuring fuel.
The atmosphere at Florida Power & Light’s energy trading group is more accounting department than Wolf of Wall Street. But while the office may not buzz with the frenzy of a stock exchange floor, the men and women who work here share their Wall Street brethren’s desire for power. Loads of it.
Power — measured in megawatt hours — is a commodity that utilities such as FPL buy and sell to each other every day on the wholesale market. If FPL generates more power than it needs and can sell a megawatt hour for more than it costs to generate, off the power goes to a utility that’s willing to pay the price [“Transactions,” page 72].
Conversely, FPL’s “power traders” often buy power from utilities such as Tampa Electric and Duke Energy when market prices are below FPL’s cost of generation. “Those gains on sales and all of those savings on purchases get passed back ... to our customers,” says Sam Forrest, vice president of FPL’s Energy Marketing & Trading division.
“Fuel is where all of our dollars are spent,” says Gerry Yupp, senior director of wholesale operations at FPL’s Energy Marketing & Trading division. The utility expects to spend $3.2 billion on fuel this year.
The group of 35 traders, analysts and managers occupies space in the corporate campus of FPL’s parent, NextEra Energy, just off State Road A1A in Juno Beach.
Each day begins with analysts using software to run projections for fuel consumption. The GenTrader program also computes FPL’s marginal cost of power. Traders seek to sell power at prices above the marginal cost or buy power below FPL’s benchmark cost, says Gerry Yupp, the trading unit’s senior director of wholesale operations. Utilities “all valuate ... costs the same way,” he adds. “It’s a very transparent process.”
Over the course of a typical morning, traders connect with their counterparts at other utilities, usually by instant messaging but sometimes by phone, to discuss purchases. Traders have the flexibility to negotiate final transaction prices, but there’s not much wheeling and dealing. The Federal Energy Regulatory Commission controls the “adders” utilities can apply to their marginal cost of power when selling energy, eliminating the opportunity to price gouge.
Power trading is usually a low-key affair. But a sudden plant shutdown or the onslaught of severe weather condi-tions, particularly cold spells, can turn the normally calm bunch of power traders into a direct-to-video version of Hollywood’s stock market hustlers.
So it was in early 2010 when a cold front pulled into south Florida. With no power available from other utilities, which were also coping with the weather, the operations group focused on fuel management and maintaining adequate supplies of oil. On Jan. 11 alone, demand hit a record 24,512 megawatts, 1,488 megawatts shy of FPL’s capacity. As the system hit peak load, FPL was able to sell power to three other utilities in the state.
That year also stands out as FPL’s high-water mark for energy trading. The group racked up $82.7 million in savings, with savings on purchases accounting for all but $4.4 million of that amount. The total savings that year amounted to an 80-cent reduction on a typical monthly power bill for a year, Forrest estimates.
From 2001 through 2013, FPL’s energy trading unit recorded $557 million in savings that went to help lower monthly bills or offset rate increases.
Each type of fuel has its price. While nuclear has the lowest fuel cost, it makes up less than a quarter of FPL’s Output. About 67% of FPL’s generation comes from natural gas. Coal and oil, typically the more expensive fuels, and a smidgen of solar provide the remainder of the utility’s generation. The largest consumer of natural gas among all electric utilities in the country, FPL expects to spend $3.2 billion on fuels this year. “Fuel is where all of our dollars are spent,” says Yupp, who has been with the trading division since it was created in 1996.
Fuel procurement keeps senior trader Bill Miller glued to three computer monitors — two displaying color-coded spreadsheets. On one, he communicates with suppliers using AOL Instant Messenger.
“Sometimes I have 25 instant messages flashing at the same time,” says Miller, who on this particular day needs to buy 513,000 dekatherms of natural gas — enough power for about 600,000 homes and businesses for a day.
As the hour grows late, Miller continues to scan the monitors looking for fuel to buy at prices FPL is willing to pay. He has been here before and doesn’t seem worried about still being short several thousand dekatherms of natural gas.
“It’s hectic,” he says of the job, “but not stressful.”
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