Florida Public Utilities Company

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Florida Public Utilities Company

401 S. Dixie Highway
West Palm Beach, Florida 33401
U.S.A.
Telephone: (561) 832-0872
Fax: (561) 833-8562
Web site: http://www.fpuc.com

Public Company
Incorporated: 1924 as Palm Beach Company
Employees: 337
Sales: $102.7 million (2003)
Stock Exchanges: American
Ticker Symbol: FPU
NAIC: 221112 Fossil Fuel Electric Power Generation; 221210 Natural Gas Distribution

Florida Public Utilities Company (FPU) is a small but growing publicly traded energy company, providing electricity, natural gas, and propane to some 91,000 customers in a number of Florida communities. Traditionally FPU has been a conservatively run company, an approach that has allowed it to pay a dividend for more than 50 consecutive years, but has also led to only modest growth over the past half-century. In recent years, however, a new management team led by CEO John "Jack" T. English has launched an expansion effort, especially in the propane business. The West Palm Beach, Florida-based company is listed on the American Stock Exchange.

Formation of Company: 1920s

FPU was founded in 1924 as Palm Beach Gas Company. With 14 miles of gas mains, the company served 1,300 customers located in Palm Beach, West Palm Beach, and Lake Worth, Florida. While gas companies in the 1800s had focused on lighting, with the rise of electricity in the early years of the 20th century, gas companies turned to cooking and heating applications. Early in the 1900s, gas ranges began replacing coal ranges because gas was a more efficient fuel that resulted in less waste. Moreover, gas required no hauling or clean-up like coal. Gas used to heat homes offered these same advantages and more: Units were smaller, quicker to heat a room, and required far less maintenance. Palm Beach Gas was just one of a multitude of small gas companies that cropped up to meet a community's cooking and heating needs, producing its product in local plants. Typically, gas was made by reducing coal to coke in a retort house, which was then piped to another facility where it was purified by lime. The gas was then piped to an immense tank called a gasholder or "gasometer," from which it would be delivered to customers through the company's network of mains. This method of producing gas would remain essentially unchanged and predominant until natural gas provided by wells in the southwestern United States began to be distributed throughout the country by a vast network of pipelines.

In 1926 Palm Beach Gas became part of Consolidated Electric and Gas Company, a public utility holding company. A year later Palm Beach Gas acquired Gas Service Co. of Key West and added its gas manufacturing plant, prompting a change in name to Florida Public Utilities Company. FPU made another purchase in 1929, picking up Pensacola Gas Company and another gas-making facility.

During the 1930s FPU adjusted its business mix. In 1931 it shut down the Pensacola plant and three years later sold the Pensacola Gas business to Gulf Power Co. The Key West operation was then divested in 1938. On the other hand, FPU expanded beyond gas during this period. In 1935 it acquired Southern States Power Company, operating in Marianna and Fernandina Beach, Florida. The deal brought with it electric and water utilities, as well as ice assets. While FPU would remain in the electricity and water businesses, ice would be phased out as electric refrigerators replaced iceboxes.

Post-World War II Move into Propane

In April 1945 FPU underwent a change of ownership when Jesse L. Terry bought the company from Consolidated Electric and Gas Company. In July 1946 he took FPU public. Another major development during the post-World War II period was the 1949 creation of Flo-Gas Corporation, which supplied bottled propane gas to customers who lived too far from FPU mains. But a much bigger development in the gas industry was beginning to take place during this time: the rise of natural gas.

Natural gas, which is found like other petroleum products trapped within Earth's strata, became a viable product in the Southwest in the 1930s, and in fact had been used for centuries. But natural gas was no better than manufactured gas because it was only available in its immediate area, limited to a local network of mains. That situation changed with the improvement of pipeline technology made necessary with the advent of World War II. Even before the United States entered the war, the government began preparing the country for its participation. A vital consideration was the protection of the petroleum products that a modern army, and economy, depended on. Given the success German submarines enjoyed during World War I in disrupting shipping, it was deemed essential that the country build a pipeline system to deliver fuels underground. The idea of establishing a pipeline system in the southeastern United States had been in the exploratory stages during the 1930s, but the prospect of war was the key factor in making the concept a reality. After the war the pipeline system was expanded, and in the 1950s natural gas provided by wells in the southwestern United States began to be distributed throughout the country. In Florida the primary reason for the introduction of natural gas during the 1950s was to fuel electric power plants. But eventually, residential gas customers were also converted from "town gas" to natural gas. FPU made the transition in 1959, when it began selling natural gas in Palm Beach County. Local gas plants now became obsolete and were gradually closed in the 1960s. But the property on which the plants had been located became a matter of concern for gas companies as local governments began forcing them to clean up leftover contaminants, a problem that FPU would face as well.

Although it held onto its water company operating in Fernandina Beach, FPU concentrated on building its natural gas assets during the 1960s. In 1965 it acquired Sanford Gas Company and inherited some cleanup problems that would only come to the surface years later. In 1967 it added Deland-based Florida Home Gas Company and its natural gas system. In addition, FPU sold off its Marianna water business to North Florida Water Company in 1967. The company now settled into a long stretch of conservative management, a period of more than 30 years in which FPU made no acquisitions and simply operated the assets in hand. It was generally the lowest cost provider in Florida and consistently turned a profit, maintaining an uninterrupted string of years in which it paid a dividend.

FPU also benefited from having consistent management, with only four presidents heading the company from its founding until 1998. Leading them through the critical years of the 1980s and 1990s, when the gas industry moved toward deregulation, was Franklin Charles Cressman, Jr., who spent his entire working career at FPU. Even before he graduated from the University of Florida's School of Engineering in 1960, Cressman worked part-time as a meter reader and serviceman during summers and vacations. He worked his way up through the company and in 1985 was named president and chief operating officer. He became CEO in 1991. In addition, Cressman served as a member of the Florida Natural Gas Association for over 20 years, including a stint as president. He retired in 1998 at the age of 65 and died three years later from lung cancer.

Aggressive New Leadership in Late 1990s

Replacing Cressman as CEO was 54-year-old Jack English, who also enjoyed a long tenure at FPU. A native of Long Island, English earned undergraduate and graduate degrees in electrical engineering from Georgia Institute of Technology before joining the company in 1973 as division superintendent in the Northeast Division. He was named vice-president of the company in 1991, made senior vice-president in 1993, and a year before Cressman retired, English took over as president and COO. Although on one level English maintained the company's continuity in management, he recognized that FPU would have to become more aggressive in order to remain successful. In 2000 the company expanded its propane business to its northeast Florida territories, but more importantly it began to map plans for the future. FPU hired consultant Decision Processes International and created a 13-person management team that by the end of the year determined a corporate strategy for the next five to seven years. Initially the team planned to build upon its infrastructure to offer additional products, but it soon became apparent that FPU was simply too small and lacked the capital required to launch major new products and services. Instead, FPU elected to expand on its customer base: Rather than sell more products, it would sell more of the same products to more energy customers, whether they be residential, commercial, or industrial. In the end, FPU planned to become a total energy company instead of a mere supplier of gas and electricity.

While management was developing its new strategy in 2000, FPU played an unwitting role in a hostile corporate takeover attempt. The United States' largest power plant developer, AES Corp., was attempting to gain control of CA Electricidad de Caracas, Venezuela's largest power company, which was caught off guard by the unsolicited bid. In an attempt to ward off AES, Electricidad bought a 9.9 percent interest in FPU at a cost of $7 million. Because the Venezuelan company now owned more than a 5 percent stake in a U.S. power company, the maneuver hindered AES, which would now have to gain SEC approval before completing the deal. Electricidad made it clear that it had no intention of seeking control of FPU. Despite this clever ploy, however, Electricidad eventually succumbed to the inevitable and was swallowed up by AES, and FPU returned to relative obscurity.

Company Perspectives:

FPU is a publicly traded utility company, which since 1924 has provided safe, reliable and competitively priced energy as well as value added services to 90,000 customers in growing markets throughout Florida.

A major part of FPU's new business strategy was to grow its propane business, to become in the words of its CEO the "Publix of propane." The goal was to acquire one propane company each year. English's first move in this effort was the 2001 purchase of Z-Gas Company, Inc., which had 1,100 customers in Nassau County in northeast Florida. A few months later, FPU also added the Nassau County propane business of Atlantic Utilities. In 2002 FPU acquired another propane business, purchasing Nature Coast Gas, Inc., an Inglis, Florida-based company with more than 1,300 customers. After completing the acquisition, FPU folded its Dunnellon, Florida, operation and its 1,200 customers into the Nature Coast unit, which would continue to use the Nature Coast Gas name.

As FPU formulated its new growth strategy, it had no intention of expanding on its water business, which was generating close to $3 million in annual revenues. When the City of Fernandina Beach in 2002 offered to buy the water division, management jumped at the opportunity to focus its efforts on energy while at the same time gaining more money to make further acquisitions. The two parties reached an agreement in December 2002 and closed the deal in March 2003. FPU received a total of $25 million, of which $19.2 million was in cash and the balance in future considerations.

FPU held off making any further acquisitions in 2003, instead devoting its energies to reorganizing the Nature Coast Gas unit. The company also sought state approval to combine its two electric divisions, a precursor to a rate increase request. In addition, FPU took a number of steps in 2003 to cut costs. It established a customer payment processing center in its Northwest Florida Division to better automate the customer payment process, a system that not only saved money but freed up customer service representatives to spend more time with customers, in keeping with the goal of improving customer service to help facilitate internal growth. Also to this end, the company introduced new customer service training programs. Other cost-saving efforts in 2003 included a switch in medical insurance brokers and the company's auditing firm.

FPU also began to display a more aggressive posture under English. In 2002 the company came into conflict with Peoples Gas System. In 1991 the two companies had established a territorial agreement that divided Palm Beach County between them, but 11 years later Peoples Gas became upset when FPU built a gas line extension into Juno Beach, an area that Peoples Gas believed was its territory. They reworked their agreement, but found themselves in conflict again in 2004, as both vied to supply gas to a 6,000-acre site in Palm Beach County, the future home of The Scripps Research Institutes' Florida expansion, where thousands of potential customers would be found in the form of new biotechnology companies, other businesses, and homes. The research center was not scheduled to open until 2006 at the earliest, and no matter how state regulators ruled on which gas company was to serve the area, it was clear that the days of FPU simply minding its own knitting were well in the past. In 2004 Fortune magazine named FPU as one of the 100 fastest growing small companies in the United States, slotted at number 77, as revenues grew from $88.5 million in 2002 to $102.7 million in 2003. There was every reason to believe that FPU's management team was taking steps to continue moving up in the rankings.