Ms. Carlotta S. Stauffer Commission Clerk

AUSLEY MCMULLEN ATTORNEYS AND COUNSELORS AT LAW

123 SOUTH CALHOUN STREET

P.O. BOX 391 ( ZIP 32302 )

TALLAHASSEE. F"LORIOA 32301

1850) 224·9115 F"AX 1850) 222· 7560

October 6, 2017

l-IAND DELIVERED

Florida Public Service Commission 2540 Shumard Oak Boulevard Tallahassee. Florida 32399-0850

REDACTEJ)

,. ~

' -· n ~") ,., l -J

C""':t: I ,-

1'"1:...: G'l - ( ')

~.:() ~

C' -.. -Re: Fuel and Purchased Power Cost Recovery Clause with Generating Performance

Incentive Factor; FPSC Docket No. 2017000 l -EI

Dear Ms. Stauffer:

We submit on behalf of Tampa Electric Company one redacted version of Staffs Audit Work Papers pursuant to Audit Control No. 17-048-2-2. This filing is being accompanied by a Request for Confidential Classification and Motion for Temporary Protective Order being separately filed this date with your office.

Please acknowledge receipt and filing of the above by stamping the duplicate copy of this letter and returning same to this writer.

Thank you for your assistance in connection with this matter.

JDB/pp Enclosure

cc: All parties of record (w/o enc.)

Sincerely,

TIAL DOCKET NO. 170001-EI

I 1ampll Elee1ric Company ~ Hedging Acttvities 08J0112016 07/3112017 Docket No. 110001-FI ACN 17-0411-2-2 Tampa Electric Company Subject \ , \_

1 ""~

0 8} 1 'l _rj Natural Gas Hedging Activities

2016 HEDGING ACTIVITY TRUE-UP EXHIBIT NO __ (JBC-1) DOCUMENT NO. 1 PAGE 3 OF6

SOURCE

(..) January 1, 2016 through December 31, 2016

Type Settlement Hedged

Consumption Percent Budget Hedge Settle of Volume Hedge Saving/(loss)

(MMBTU) (MMBTU) Hedged Prk:e Prk:e Pree

Jan-16 Swaps $2.37 Feb-16 Swaps $219 Mar-16 Swaps $1.71 Apr-16 Swaps $190 May-16 Swaps $2.00 Jun-16 Swaps $1 96 Jul-1 6 Swaps $2.92

6 Swaps $2.67 Sep-16 $2.85 Oct-16

$2.95 Nov-16

$2.76 Dec-16

$323 Total

Consistent with Tampa Electric's non-speculative risk ma~9Uf~~EN,I~le. Tampa Electnc's natural gas hedging plan provided price stability and certainty dunng 2016. For 2016, the calendar year net position for natural gas hedges was higher than the closing price of natural gas. resulting In a settlement net loss of $19 3 million Natural gas prices dropped sigmficantly in 2016 due to an abundance of natural gas production and m1ld weather

Tampa Electnc maintains natural gas storage capacity of 1,500,000 MMBtu in order to enhance tts physical reliability of gas supply. The storage provides Tampa Electric with improved access to ·intraday" natural gas when an operational need arises, provides improved hurricane coverage, and can be used to cost-effectively manage swings in gas supply needs during extreme weather conditions, weekends, holidays and unplanned power plant outages.

Tampa Electric also continues to tmprove its physical access to natural gas supply by diversifymg 1ts receipt points along the Gulf Coast and other areas when opportunities arise

In summary, financial hedg1ng activities for natural gas resulted in a net settlement loss of approximately $19.3 million 1n 2016; more importantly, Tampa Electric was su ssful in reducing price uncertainty and mamtaining fuel supply reliability for ~ m rs for both its phys1cal and financial hedges

13

DOCKET NO. 170001-EI 2016 HEDGING ACTIVITY TRUE-UP EXHIBIT NO. __ (JBC-1) DOCUMENT NO. 1 1 nmpa l:.lectric Compan)

tledginr Activ ill~ 0&10112016 - 0713112017 Docket No. 170001-EI At'"N 17-048-2-2

PAGE4 OF 6

Subject ~ 1 L \ "\ t'O J, '1 J t

SO R

2016 Market Pricing Tampa Electric provides a companson of 2016 fuel prices to the market price for the respective commodity in the following section.

J> Coal Coal is a commodity with a great range of quality characteristics Market indexes provide a guide to current market pricmg but are not always specific enough to accurately demonstrate the market price of a particular coal. Market prices for coal are most accurately determined by competitive bid solicitations that specify the required coal quality or charactenstics. With the exception of purchases for reliability reasons. short-term purchases for changing plant operation needs and spot market purdlases to take advantage of favorable pricing, Tampa Electric purchases coal at prices determined by competitive bid solicitations: therefore, the company's purchases are at market. A companson of coal contract pnces for 2016 to the average acceptable bid price or index price Is provided m the following table. Unless otherwise stated. the prices represent the market at the ttme each contract was entered mto and are not representative of today's market. Any comparison to current market prices overlooks the market conditions that existed at the time the coal was procured

Tampa Electric CONFIDENTIAL Coal Contract to Mar1<et Indicator Price Comparisons

Supplier

Vale·o Mar1c.etilg and Supply Company

Armstrong Coal Company INC.

Armstrong Coal Company INC. -----Trafigura AG Branch

Office St<rnford

Koctl Carbon LLC

14

Market lndic.tor Source

(email issued 6/10114) -­

Argus/Coaldcsk Index purchase w/call opt~ 7/15116 7124116

Sale/Purchase buyback for lnven1ory M~tgabon

ArgusJPace Petroleum Coke Indexes (June 20~

Note

1,7

1

2

6

8

3

REDACTED

Jar'!-17 Feb 17 Mar 17 Apr-17 May-17 Jun-17 ul-17

I I amp3 Uectnc CompWI)' ~ lledgmg ACll"~<lh t."<: 08.'0112016. 07/3112017 Dod.et N~ 170001-EI ACN 17-048-2 2

SubJL"Ct f- ; ~'"""a oJ) 1'7 tT Tampa Electric

Natural Gas Hedging Activities January 1, 2016 through July 31, 2017

• Requ1red per FPSC Order No PSC-06-0316-PAA El

SOURCE_~G-~-----

CONFIDENTIAL

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REDACTED

Tampa EIK1rlc eon.p.r.y Kedllna Au<ltt Oocbt Ho.170001·fl

Period lncled July 31. 2017 Control No. 17~2-2

Tren~n Instrument

B1nk of Montre~

Bank of Monttul

Bank of Montrc~·

JPMoraan

Soctet t Grotratc

Well• Fargo

Stotliban~

Scon~ballk

Octob.r T ra nsactlons

Ottgroup fncriY, Inc

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Stotobank

~COIIObank

·1

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CONFIDENTIAL Transaction Num~r Volu­

A M~rbt ~~'rico> ~nt Price Galn/k>s> on Kedslnl Tran.anlon.

711406

B79U8

JPMU8687f v S ,[. '{~ -t·

JPM1l8687f

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"\.s -\' 1026!19

~$ ·\· 1&2!>9)4

1h 1-1825914

'f~A-

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26H2

2625)

100912

100912

100912

1609011

100915

2067817 '15> -\-

1841924 "{!>--\

J6&4b

26648

76&411 '{s. I

8 ~'~----------~"~·~~~~--------

>·Vl 2.a'l110

S-l-'1 Hiso

.\! 3 79!>

-\j "L ~.837

S-CI L 2.920

~> -I.J <... 2U

'\

230,400.00

l5.90000

60000

s,ssooo

1,200.00

16,560.00

(5,700.00)

228,90000

5,70000

(42.80000)

(188,250.00)

90000

26.450 00

(188,100 OOJ

150.00

168.600.00 @ H2.7SOOO \

(4,8CXl.OO)

(141,300.00)

(17,20000)

(S7,30000J

l76,60000

14.650.00)

l40,2SOOO

(17,.40000)

(57,30000)

FOR AUDIT CONTROL NO. 17-048-2-2

PAGES 45-1 THROUGH 45-1.25

ALL INFORMATION

IS REDACTED

--~

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Tampa Electnc

Summary of Natural Gas Hedge Volumes Relative to Actual Consumption August, 2016- July, 2017

Month-Year Tar1et Minimum Tara~t Maximum "of Actual

Consumption

Hedl'ed

Above Maximum 1 Below Minimum?

Ex pia lliltJOn

Aug-16

Sep-16

Oct-16

Nov-16

Dec-16

Jan-17

Feb-17

Mar-17

Apr-17

May-17

Jun-17

12-Month Cumulative

. -I II I

'I I I

I Yes

I I

Yes

I Yes

I I I Yes

I I

Yes

Gas-fired aene•ation n1gher rnan pro1ected Clue to ower than proJectcCI coal fired generat·on.

Gas-fred generatio~ h1gner than pro;ected due to 10Ner than projected co.JI·flrl'O generation

Gas-hred eenerali:m h.g"ler than pro,ected due to lower

proJected coal-fored generatiOn

Natural gas hedgtng ~uspended at e'ld of 2016

gas heos :18 suspenaed at end of 2016.

ral gas hedgmg suspended at end oi 2016

I gas nedg ng suspended at end of 2016

gas hedging suspended at end of 2016.

I

\

lampa Electric Compa~1) Hedgmg Acli\ilie$ ()! 0112016. 07.'3112017

3.

DOCKET NO. 150001-EI 2016 RISK MANAGEMENT PLAN EXHIBIT NO _ _ (JBC-2) PAGE 8 OF 10

Natural Gas: Tampa Electnc continues to implement prudent financtal hedging strategies for natural gas requirements In 2015, the company used swap agreements-the exchange of a payment tied to the value of a natural gas index for a fixed payment-to hedge natural gas. In keeping with the company's approved risk · · 1agement plan. Tampa Electric plans to hedge a significant

:entage of its projected natural gas usage 1n 2016.

Oocl.ctNo. 170001-EIACN 17-048-2·2 npa Electric uses the forward pricing information of the New SubJeCI. R 1 ~ k Nv-

0 J p ~ i< Mercantile Exchange ("NYMEX") natural gas forward price ve in developing natural gas price hedging strategy. Tampa

0 J> / ? Electric also subscribes to industry publications that provtde 1 information about underlying issues affecting the availability and 11 pnce of natural gas and other commodities The purpose of Tampa Electric's natural gas hedge plan IS to reduce natural gas pnce volatility by utilizing financial tnstruments relying on three key variables· pnce, volume and time

Tampa Electric projects prices during the company's annual fuel budgeting process. The volume of natural gas that the company will hedge falls between a mintmum and a maximum percentage of the expected natural gas burn The percentages vary according to the time remaining until the contract month In 2016, Tampa Electric will be testing the performance of 1ts coal un1ts at Big Bend Station with co-fired natural gas. Due to the operational uncertainty associated With the co-firing of the Big Bend coal units, the volumes of gas used in the co-firing will be exduded from the volume hedged

Tampa Electric's approved Risk Management Plan describes the following key elements of the company's natural gas hedging strategy: (1) natural gas prices can be hedged up to 24 months into the future; (2) nearer months can be hedged for a greater percentage of the expected volume than outer months, and (3) natural gas options can be used for financial hedging

Currently, Tampa Electric estimates about . percent of its total 2015 natural gas purchases will be covered by financtal ~s The net is estimated to be a - of approximately For ;>016, Tampa Electric has - ely percent hedged With a currently estJmated II of

4. Purchased Power: Total forecasted purchased power for 2016 is 421 GWH As of July 2015, Tampa Electric has physically hedged 227 GWH's of its 2016 expected purchased power needs through pre scheduled purchased power agreements The remainmg

10 ~ONFIOENTIAI