On June 15th the City of Clearwater Council approved an agreement with Florida Gas Utility (FGU) for the prepayment of a 20-year supply of natural gas. This prepay would cover approximately 30% of Clearwater Gas Systems (CGS) daily volume requirements and would be at a discounted price relative to the daily market. CGS is currently a member of FGU and purchases all of its gas supply needs through FGU. Bonds will be issued by FGU to cover the prepay transaction, and then CGS will pay on a monthly basis for gas delivered under the agreement. FGU plans to close on the transaction with UBS AG in mid-August. FGU is a not for profit joint action agency made up of 23 Florida Cities including CGS. It’s anticipated that 14 members of FGU will ultimately in the prepay deal.

This agreement is another purchasing mechanism to better control the supply and cost of gas in a volatile energy market. Anticipated savings will be approximately 40 - 45 cents per MMBtu lower than the daily market, which translates to $8 million in savings over the life of the contract. These savings will be passed on to our customers through our Purchased Gas Adjustment (PGA) rate on our customer’s monthly bill. ♦

Call before you dig - it's the Law

Before excavation of any kind takes place, state law requires that you call the Sunshine State toll-free One-Call number (800-432-4770), so utility lines can be professionally marked prior to digging. State laws require you to call at least 48 or more hours in advance before excavation takes place. The service is free of charge and applies to digging, ditching, drilling, leveling and plowing by hand or machine. When excavating near a transmission pipeline, a representative of the operating company must be present. ♦

The spread widens between natural gas and crude oil

It’s been a while since we’ve seen prices lower than $6 per MMBtu, however, for the first half of July we’ve experienced prices in the mid to upper $5 range. This is opposite of crude oil pricing, which is clearly shown in the graphs below. The general trend for 2006 has been natural gas on the decline and crude oil increasing. Historically natural gas has tracked crude oil, but with high levels of storage in the ground natural gas has disassociated from crude, at least for the short-term. With injection season running from April through October; many expect natural gas storage to be completely full before the end of season. If this happens, prices may drop even lower than current levels. Unfortunately, there’s no guarantee this will occur, especially with the ongoing threat of hurricane season. The market could experience some extreme volatility when the first “significant” storm hits in the gulf coast region. This could send prices well above $10 per MMBtu for short periods of time. In addition, the ongoing hostility in Iran and North Korea has placed a premium on natural gas prices, which is the primary reason for breaking above the $6 mark last week.



With crude oil trading in the $70 per barrel range, a $6 natural gas price is right in-line with the historical price relationship between the two commodities. Unfortunately $6 natural gas is only available on the daily market and does not reflect the pricing on NYMEX futures market. December 2006 contracts are still trading at $10 level in spite of record storage levels. We are in a situation where present conditions have very little impact on future pricing. As a result, purchasing long-term gas comes at a hefty premium. This has forced many utilities and marketers to only hedge gas for the summer and fall months and hold off on any major winter purchases. The expectation is that winter prices will drop as we approach the winter season. ♦