supply acquisition and management
FGU's natural gas acquisition strategy, based on analysis of factors such as member-specific pricing objectives, long-term market opportunities, supply and receipt point availability, and pricing forecasts, has historically resulted in competitively priced gas for its members. To secure the most economically priced reliable gas deliveries possible, FGU utilizes a combination of long-term, monthly, and daily swing purchases through agreements with numerous suppliers of natural gas.
FGU purchases and arranges for the delivery of natural gas to meet its members’ requirements for gas distribution and electric generation. FGU maintains gas purchase contracts with over 60 producers, marketers and other suppliers and is constantly looking to expand its supplier base. By maintaining a large supplier base, FGU can provide low cost, reliable natural gas to its members.
In addition to the cost of member-specific purchases of baseload gas, members are allocated their proportionate share of FGU's aggregated monthly purchases. These aggregated purchases, which typically blend some amount of monthly and daily acquisitions, comprise the FGU "system supply". FGU's weighted average cost for system supply during Fiscal Year 2009 was $3.97 per Dth - an average of $.03 per Dth below relevant market benchmarks. This is $4.96 below the previous fiscal year's system supply weighted average cost of $8.93 per Dth.
Long-Term Gas Supply
From time to time, natural gas supply projects have been created to secure long-term supply at terms and conditions that assure security of the supply at prices that are below market prices.
Gas Supply Acquisition Project #1 (GSAP#1)
In 1998, FGU issued tax-exempt revenue bonds in the amount of $115,590,000 to finance the prepayment of a ten-year supply of natural gas on a firm basis, the Gas Supply Acquisition Project #1 ("GSAP #1"). FGU's GSAP #1 contract, under which participants began taking deliveries in December 1998, assured firm supplies of gas at a below-market price. Participants in the ten-year project have contracted for delivery of over 5.9 million Dth of GSAP #1 gas per year at a discount of $0.19 per Dth compared to a standard Florida first of the month price index, resulting in cumulative cost savings to project participants in excess of $11 million compared to market prices. The gas supply from the GSAP #1 project provided approximately 27% of the natural gas requirements of the GSAP #1 project participants. The final deliveries of gas under the GSAP#1 project were made on November 30, 2008, which terminated the project.
Gas Supply Acquisition Project #2 (GSAP#2)
Late in FY 2006, FGU completed Gas Supply Acquisition Project # 2 (GSAP#2), the second tax-exempt revenue bond financed prepayment for natural gas. Similar to the GSAP#1 transaction completed in 1998, GSAP#2 provided for a 20 year supply of natural gas on a firm basis at a total cost that was below market prices. Participants in the GSAP#2 project contracted for an average of 21,039 Dth per day for 20 years and expected to receive the gas priced at approximately $.57 per Dth below a Florida first of the month price index. FGU issued $694,175,000 in tax-exempt revenue bonds to finance the prepayment to UBS AG. UBS was obligated to deliver gas to FGU's participants over the next 20 years. Participants expected to save on average $ 4.4 million each year when compared to the market price.
GSAP#2 was expected to provide approximately 15% of the total natural gas requirements of the project participants. In May 2009, FGU entered into an Unwind Agreement with UBS to early terminate the transaction in consideration of settlement payments by UBS to FGU and its participants. As of the termination of the project, Participants realized a cumulative savings below market price of $7.5 million. Total savings for the Project, including the early termination settlement, were over $42 million. Further details of the Unwind can be found in the FY 2009 Annual Report, Notes to the Financial Statements.