Clean Energy Fuels Corp. 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed by Clean Energy Fuels Corp. on June 19, 2008. The report addresses a significant development regarding the company's supply contract with the City of Phoenix and the Public Transit Department, Tempe.
Key Financial Metrics and Hedging Activity
- Contract Volume: The existing contract with the City of Phoenix accounted for approximately 11.8 million LNG gallons during the period from April 1, 2007, to March 31, 2008.
- Revenue Share: This volume represented approximately 29% of the total LNG gallons supplied to all customers during the same period.
- Profitability: The company currently fulfills this fixed-price contract at a loss due to increases in natural gas commodity costs since the contract began in July 2003.
- Hedging Position: As of June 18, 2008, natural gas futures contracts purchased on April 18, 2008, to hedge exposure to the fixed-price contract had appreciated in value by approximately $5.1 million.
Material Changes and Events
On June 19, 2008, the Public Transit Department of the City of Phoenix recommended selecting a competitor to supply LNG fuel for a one-year period commencing June 30, 2008. This date marks the expiration of Clean Energy Fuels' current contract. The company intends to protest this recommendation pursuant to the bidding documentation procedures.
Outlook, Risks, and Management Commentary
Management plans to liquidate the natural gas futures contracts in an orderly fashion if the protest is unsuccessful and the City of Phoenix enters into a contract with a competitor. The purchase of these futures was in accordance with the company's revised natural gas hedging policy, which was further updated and adopted by the board of directors on May 29, 2008. The filing includes standard forward-looking statement disclaimers regarding risks and uncertainties.
Investor Verification Checklist
- Verify the outcome of the protest against the City of Phoenix's recommendation to select a competitor.
- Monitor the liquidation status and realized gains/losses of the $5.1 million appreciated futures contracts.
- Assess the impact of losing the Phoenix contract (29% of volume) on future revenue and cash flow.
- Review the revised Natural Gas Hedging Policy (Exhibit 99.1) for future risk management strategies.