Clearwater explores selling its natural gas system, with 30,000 customers

A sale could net the city $115 million but impact 90 employees.
Clearwater Gas System’s headquarters, on Wednesday, Oct. 13, 2021, at 777 Maple St. in downtown Clearwater.
Clearwater Gas System’s headquarters, on Wednesday, Oct. 13, 2021, at 777 Maple St. in downtown Clearwater. [ DOUGLAS R. CLIFFORD | Times ]
Published May 12, 2022

CLEARWATER — The City Council next week will discuss whether to explore selling Clearwater Gas System in what would be a significant shift for the natural gas utility that serves 30,000 customers in Pinellas, Pasco and Hillsborough counties.

City Manager Jon Jennings said he began investigating the idea after several council members asked his opinion on the future of the gas company when he took over city administration in November.

Clearwater is one of 27 towns or cities in Florida that own a natural gas utility, and Clearwater Gas is the fourth-largest of the municipally owned systems. Every year, the utility pays the city’s general fund at least 50 percent of its net income, a dividend that has averaged $3 million annually over the past decade.

A valuation completed by Raymond James in March projected the city could sell the utility for an average of $115 million.

If the council agrees to pursue a sale during a work session discussion expected on Monday, Jennings said the next step would be to hire a broker to market Clearwater Gas System to potential buyers.

“There’s a lot of information that’s needed before any determination is made, this is simply an exploration,” Jennings said. “At any given point, you as a city have to do an assessment of what you’re doing. Being a new person here ... it is appropriate certainly for me and the council who I report to to look at everything we do.”

Clearwater Gas System has tripled its customer base over the past 30 years for residential and commercial water heaters, cooking ranges, dryers and other appliances. The average 2,000 new hook-ups per year makes it the fastest-growing utility in the U.S., according to executive director Chuck Warrington.

Jennings said the most likely buyer would be a company that would maintain the natural gas services such as TECO Peoples Gas or Florida Public Utilities.

But Warrington said the municipal-owned model serves residents better because the focus is service over profit. He said Clearwater Gas System regularly extends lines for individual customers who need service, while investor-owned utilities focus more on installing lines for new subdivisions and bulk customers.

“We’re all about Main Street not Wall Street,” Warrington said. “We serve the customers, where the investor-owned company is out to make the buck and their focus is that.”

In March, Warrington announced he would retire on July 1 after 30 years leading the Clearwater Gas System. He said his decision was not related to the potential sale but made after he met with Jennings, who “gave me the signal he wanted to move into a different direction.”

For example, Jennings said if the city retains the utility, he would not want to continue its long-standing sponsorship program, which distributes more ratepayer money to the community than any other municipally owned utility in Florida. Since 2015, Clearwater Gas System has contributed nearly $2.3 million of ratepayer money to local nonprofits and businesses. In exchange, those organizations provide city officials access to events and exposure of the gas brand.

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Mayor Frank Hibbard said he had been questioning the city’s role in owning a gas utility for some time and broached the idea of selling it with former City Manager Bill Horne.

Hibbard said the potential for legislative restrictions on natural gas, and the financial impacts that could have on the city, make him concerned that the value of the public asset has hit its peak.

The Florida Legislature passed a series of bills last year that blocked municipalities from banning or regulating fossil fuels. But natural gas has been a focus of the environmental movement amid the need to lower greenhouse gases to stave off the impacts of climate change.

Though natural gas is a cleaner energy source than coal or oil, it is still a fossil fuel that creates emissions when burned. Utilities like Duke Energy and TECO have set goals to drastically reduce the portion of their electric grids that natural gas generates.

“I am in the business of buying low and selling high,” said Hibbard, a wealth manager. “So is there the potential that the legislation changes in the future or if federal mandates start to pare back gas? I don’t think in the next 20 years but beyond it might be, and technology also may force it out.”

If a sale goes through, Hibbard said he’d want to put the money in an investment fund that could “spin off close to an equivalent amount of money that the current dividend is paying out” as opposed to spending it on new programs or capital projects that have ongoing costs.

Hibbard said city attorney David Margolis had questioned the legality of certain investment options with public funds, but Margolis declined to clarify his position to the Tampa Bay Times before the council has a public discussion.

Council member Kathleen Beckman, who has voiced concerns over the city’s natural gas utility conflicting with environmental goals, said she’s looking at the discussion of a potential sale as “good due diligence.”

“It’s good to look at all of the city operations and how is it doing and what does the future look like and are we managing it well?” Beckman said. “Those are all the prudent questions to ask every now and then about whatever assets we hold.”

Officials have also acknowledged the impact a sale would have on the 90 Clearwater Gas System employees.

Although a private utility would likely absorb some, most employees could be displaced by a sale.

“The human aspect of this is excruciating,” Hibbard said. “This is a very difficult topic because we are talking about employees and livelihoods. If in fact we sell, you may have a very different structure than what our employees are accustomed to and that is not lost on me.”