UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q



(Mark
One)



[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended March 31, 2008



[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from ____________  to
______________



Commission File Number:  001-10608



FLORIDA PUBLIC UTILITIES COMPANY

(Exact name of registrant as specified in its charter)



|                                                               |                                     
|-------------------------------------------------------------- | ------------------------------------
|Florida                                                        | 59-0539080                          
|(State or other jurisdiction of incorporation or
organization) | (I.R.S. Employer Identification No.)



401 South Dixie Highway,

West Palm Beach, Fl.  33401

(Address of principal executive offices)



(561) 832-0872

(Registrants telephone number, including area code)



Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes  [ X ]     No  [  ]



Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
 See the definitions of large accelerated filer, accelerated filer and
smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



Large
accelerated filer  [  ]

Accelerated filer [  ]

Non-accelerated
filer [X]

Smaller
reporting company [  ]

(Do
not check if a smaller reporting company)



Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).   Yes  [  ]
     No [X]



On
May 2, 2008, there were 6,191,279 shares of $1.50 par value common stock
outstanding.









INDEX



Part I.

Financial
Information



Item 1.

Financial
Statements



Condensed Consolidated
Statements of Income

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Cash
Flows

Notes to Condensed Consolidated
Financial Statements



Item 2.

Managements Discussion and Analysis of
Financial Condition and
Results of Operations



Item
3.

Quantitative and
Qualitative Disclosures about Market Risk



Item 4T.

Controls and
Procedures



Part II.

Other
Information



Item 1A.

Risk Factors



Item 6.

Exhibits



Signatures









PART
I.

FINANCIAL
INFORMATION



Item
1.

Financial
Statements



|                                                                                                                      |                    |  |          
|--------------------------------------------------------------------------------------------------------------------- | ------------------ |  | ---------
|FLORIDA PUBLIC UTILITIES COMPANY                                                                                     
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)                                                              
|(Dollars in thousands, except share data)                                                                            
|                                                                                                                     
|                                                                                                                      | Three
Months Ended
|                                                                                                                      | March 31,         
|Revenues                                                                                                              | 2008               |  | 2007     
|Natural
gas                                                                                                           | $22,137            |  | $20,573  
|Electric                                                                                                              | 17,523             |  | 13,358   
|Propane
gas                                                                                                           | 5,370              |  | 4,681    
|Total
revenues                                                                                                        | 45,030             |  | 38,612   
|Cost of Fuel and
Other Pass Through Costs                                                                             | 30,912             |  | 24,769   
|Gross
Profit                                                                                                          | 14,118             |  | 13,843   
|                                                                                                                      |                    |  |          
|Operating
Expenses                                                                                                    |                    |  |          
|Operation
and maintenance                                                                                             | 6,981              |  | 7,173    
|Depreciation
and amortization                                                                                         | 2,253              |  | 2,072    
|Taxes
other than income taxes                                                                                         | 873                |  | 860      
|Total
operating expenses                                                                                              | 10,107             |  | 10,105   
|Operating Income                                                                                                      | 4,011              |  | 3,738    
|                                                                                                                      |                    |  |          
|Other Income
and (Deductions)                                                                                         |                    |  |          
|Merchandise
and service revenue                                                                                       | 722                |  | 915      
|Merchandise
and service expenses                                                                                      | (624)              |  | (810)    
|Other
income                                                                                                          | 130                |  | 151      
|Interest
expense                                                                                                      | (1,223)            |  | (1,167)  
|Total
other deductions  net                                                                                          | (995)              |  | (911)    
|Earnings Before
Income Taxes                                                                                          | 3,016              |  | 2,827    
|Income
Taxes                                                                                                          | (1,066)            |  | (1,029)  
|Net Income                                                                                                            | 1,950              |  | 1,798    
|Preferred Stock
Dividends                                                                                             | 7                  |  | 7        
|Earnings for
Common Stock                                                                                             | $1,943             |  | $1,791   
|                                                                                                                      |                    |  |          
|(Basic and
Diluted):                                                                                                  |                    |  |          
|Earnings
Per Common Share                                                                                             | $0.32              |  | $0.30    
|                                                                                                                      |                    |  |          
|Dividends
Declared Per Common Share                                                                                   | $0.1125            |  | $0.1075  
|                                                                                                                      |                    |  |          
|Average
Shares Outstanding                                                                                            | 6,071,565          |  | 6,024,739
|These financial statements should be read with the
accompanying Notes to Condensed Consolidated Financial
Statements.













|                                                                                                                      |           |  |             
|--------------------------------------------------------------------------------------------------------------------- | --------- |  | ------------
|FLORIDA PUBLIC UTILITIES COMPANY                                                                                     
|CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)                                                                    
|(Dollars in thousands)                                                                                               
|                                                                                                                      |           |  |             
|ASSETS                                                                                                                | March 31, |  | December 31,
|                                                                                                                      | 2008      |  | 2007        
|Utility
Plant                                                                                                         |           |  |             
|Utility
Plant                                                                                                         | $204,725  |  | $202,384    
|Less
Accumulated depreciation                                                                                         | 64,984    |  | 64,012      
|Net
utility plant                                                                                                     | 139,741   |  | 138,372     
|                                                                                                                      |           |  |             
|Current
Assets                                                                                                        |           |  |             
|Cash                                                                                                                  | 2,521     |  | 3,478       
|Accounts
receivable                                                                                                   | 15,425    |  | 12,269      
|Allowance
for uncollectible accounts                                                                                  | (399)     |  | (326)       
|Unbilled
receivables                                                                                                  | 1,937     |  | 1,879       
|Notes
receivable                                                                                                      | 289       |  | 298         
|Inventories
(at average unit cost)                                                                                    | 4,315     |  | 4,251       
|Prepaid
expenses                                                                                                      | 709       |  | 861         
|Deferred
income taxes-current                                                                                         | 1,362     |  | 949         
|Other
regulatory assets-environmental                                                                                 | 456       |  | 456         
|Deferred
charges-current                                                                                              | 682       |  | 399         
|Investments
held for environmental costs-current                                                                      | 3,491     |  | 3,444       
|Total current
assets                                                                                                  | 30,788    |  | 27,958      
|                                                                                                                      |           |  |             
|Other
Assets                                                                                                          |           |  |             
|Other
regulatory assets-environmental                                                                                 | 7,036     |  | 7,197       
|Long-term
receivables and other investments                                                                           | 5,408     |  | 5,622       
|Deferred
charges                                                                                                      | 6,304     |  | 6,360       
|Goodwill                                                                                                              | 2,405     |  | 2,405       
|Intangible
assets (net)                                                                                               | 4,346     |  | 4,430       
|Total
other assets                                                                                                    | 25,499    |  | 26,014      
|Total
Assets                                                                                                          | $196,028  |  | $192,344    
|                                                                                                                      |           |  |             
|These financial statements should be read with the
accompanying Notes to Condensed Consolidated Financial
Statements.











|                                                                                                                      |           |  |             
|--------------------------------------------------------------------------------------------------------------------- | --------- |  | ------------
|FLORIDA PUBLIC UTILITIES COMPANY                                                                                     
|CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)                                                                    
|(Dollars in thousands)                                                                                               
|                                                                                                                     
|                                                                                                                      |           |  |             
|CAPITALIZATION
AND LIABILITIES                                                                                        | March 31, |  | December 31,
|                                                                                                                      | 2008      |  | 2007        
|Capitalization                                                                                                        |           |  |             
|Common
shareholders' equity                                                                                           | $50,435   |  | $48,946     
|Preferred
stock                                                                                                       | 600       |  | 600         
|Long-term
debt                                                                                                        | 49,383    |  | 49,363      
|Total
capitalization                                                                                                  | 100,418   |  | 98,909      
|                                                                                                                      |           |  |             
|Current
Liabilities                                                                                                   |           |  |             
|Line
of credit                                                                                                        | 9,680     |  | 11,122      
|Accounts
payable                                                                                                      | 11,419    |  | 9,901       
|Current
portion of long-term debt                                                                                     | 1,409     |  | 1,409       
|Insurance
accrued                                                                                                     | 209       |  | 218         
|Interest
accrued                                                                                                      | 1,529     |  | 1,163       
|Other
accruals and payables                                                                                           | 2,888     |  | 2,729       
|Environmental
Liability  current                                                                                     | 335       |  | 1,379       
|Taxes
accrued                                                                                                         | 3,672     |  | 2,168       
|Over-earnings
liability                                                                                               | 27        |  | 26          
|Over-recovery
of fuel costs and other                                                                                 | 2,542     |  | 3,207       
|Customer
deposits                                                                                                     | 10,576    |  | 10,547      
|Total
current liabilities                                                                                             | 44,286    |  | 43,869      
|                                                                                                                      |           |  |             
|Other
Liabilities                                                                                                     |           |  |             
|Deferred
income taxes                                                                                                 | 16,823    |  | 16,896      
|Environmental
liability                                                                                               | 13,264    |  | 12,250      
|Regulatory
liability-storm reserve                                                                                    | 2,418     |  | 2,387       
|Regulatory
liabilities-other                                                                                          | 11,295    |  | 10,719      
|Other
liabilities                                                                                                     | 7,524     |  | 7,314       
|Total
other liabilities                                                                                               | 51,324    |  | 49,566      
|Total
Capitalization and Liabilities                                                                                  | $196,028  |  | $192,344    
|                                                                                                                      |           |  |             
|These financial statements should be read with the
accompanying Notes to Condensed Consolidated Financial
Statements.











|                                                                                                                      |                    |  |         | 
|--------------------------------------------------------------------------------------------------------------------- | ------------------ |  | ------- | 
|FLORIDA PUBLIC UTILITIES COMPANY                                                                                     
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)                                                          
|(Dollars in thousands)                                                                                               
|                                                                                                                      |                    |  |        
|                                                                                                                      | Three Months Ended
|                                                                                                                      | March 31,         
|                                                                                                                      | 2008               |  | 2007   
|                                                                                                                      |                    |  |        
|Net cash provided
by operating activities                                                                             | $3,785             |  | $6,416 
|                                                                                                                      |                    |  |        
|Investing
Activities                                                                                                  |                    |  |        
|Construction
expenditures                                                                                             | (2,969)            |  | (3,087)
|Proceeds
received on notes receivable                                                                                 | 283                |  | 346    
|Other                                                                                                                 | (120)              |  | 87     
|Net
cash used in investing activities                                                                                 | (2,806)            |  | (2,654)
|                                                                                                                      |                    |  |        
|                                                                                                                      |                    |  |        
|Financing
Activities                                                                                                  |                    |  |        
|Net
decrease in short-term borrowings                                                                                 | (1,442)            |  | (1,251)
|Dividends
paid                                                                                                        | (688)              |  | (653)  
|Other
increases                                                                                                       | 194                |  | 131    
|Net
cash used in financing activities                                                                                 | (1,936)            |  | (1,773)
|                                                                                                                      |                    |  |        
|Net (decrease)
increase in cash                                                                                       | (957)              |  | 1,989  
|                                                                                                                      |                    |  |        
|Cash at beginning
of period                                                                                           | 3,478              |  | 84     
|                                                                                                                      |                    |  |        
|Cash at end of
period                                                                                                 | $2,521             |  | $2,073 
|These financial statements should be read with the
accompanying Notes to Condensed Consolidated Financial
Statements.







FLORIDA PUBLIC UTILITIES COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

March 31, 2008



1.

Basis
of Presentation

The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the generally accepted accounting principles in the
United States (GAAP) for interim financial information and with the instructions
for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments necessary for fair
presentation have been included. The operating results for the period are not
necessarily indicative of the results that may be expected for the full year.
For further information, refer to the audited consolidated financial statements
and footnotes included in the Companys Annual Report on Form 10-K for the year
ended December 31, 2007.



2.

Use
of Estimates

The
preparation of financial statements in conformity with GAAP requires the Company
to make certain estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of any contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Significant estimates include allowances,
accruals for pensions, environmental liabilities, liability reserves, regulatory
deferred tax liabilities, unbilled revenue and over-earnings liability. Actual
results may differ from these estimates.



3.

Regulation

The
financial statements are prepared in accordance with the provisions of Statement
of Financial Accounting Standards (SFAS) No. 71  "Accounting for the Effects of
Certain Types of Regulation".  SFAS No. 71 recognizes that accounting for
rate-regulated enterprises should reflect the relationship of costs and revenues
introduced by rate regulation. A regulated utility may defer recognition of a
cost (a regulatory asset) or show recognition of an obligation (a regulatory
liability) if it is probable that, through the ratemaking process, there will be
a corresponding increase or decrease in revenues. The Company has recognized
certain regulatory assets and liabilities in the condensed consolidated balance
sheets.



As
a result, Florida Public Service Commission (FPSC) regulation has a significant
effect on the Companys results of operations. The FPSC approves rates that are
intended to permit a specified rate of return on investment. Rate tariffs allow
the flexibility of automatically passing through the cost of natural gas and
electricity to customers. Increases in the operating expenses of the regulated
segments may require a request for increases in the rates charged to
customers.



The
Companys electric segment received interim rate relief for partial recovery of
increased expenditures. Interim rates which will produce additional annual
revenues of approximately $800,000 went into effect for meter readings on and
after November 22, 2007.



As
a subsequent event in April 2008, the FPSC approved a final annual electric rate
increase of approximately $3,900,000 a year, with the new rates beginning May
22, 2008.  These revenues should provide an increase to the Companys
overall profitability for the electric segment and recovery of increased
expenditures including depreciation, storm readiness mandates and initiatives
and other expenses beginning in 2008.



4.

Pledged
Assets

Substantially
all of the Companys utility plant and the shares of its wholly owned
subsidiary, Flo-Gas Corporation, collateralize the Companys First Mortgage
Bonds (long-term debt).  Cash, accounts receivable and inventory are
collateral for the line of credit.



5.

Restriction
on Dividends

The
Companys Fifteenth Supplemental Indenture of Mortgage and Deed of Trust
restricts the amount that is available for cash dividends. At March 31, 2008,
approximately $10.8 million of retained earnings were free of such restriction
and available for the payment of dividends. The Companys line of credit
agreement contains covenants that, if violated, could restrict or prevent the
payment of dividends. The Company is not in violation of these covenants.



6.

Allowance
for Uncollectible Accounts

The
Company records an allowance for uncollectible accounts based on historical
information and trended current economic conditions.  The following is a
summary of bad debt activity for the first quarter as of March 31:



|                                |      |     
|------------------------------- | ---- | ----
|Allowance for Doubtful Accounts
|(Dollars in thousands)         
|                                | 2008 | 2007
|Bad
Debt Write-offs             | $114 | $177
|Bad
Debt Accrual Provision      | $187 | $174



7.

Storm
Reserves

As
of March 31, 2008, the Company had a storm reserve of approximately $1.8 million
for the electric segment and approximately $613,000 for the natural gas segment.
The Company does not have a storm reserve for the propane gas segment. For
additional information on the Companys storm reserve, see Note 10,
Over-earnings  Natural Gas Segment.



8.

Goodwill
and Other Intangible Assets

The
Company does not amortize goodwill or intangibles with indefinite lives. The
Company periodically tests the applicable reporting segments, natural gas and
propane gas, for impairment. In the event goodwill or intangible assets related
to a segment are determined to be impaired, the Company would write down such
assets to fair value. The impairment tests performed in 2007 showed no
impairment for either reporting segment. The Company does not believe the 2008
impairment test will indicate impairment for either reporting segment. Final
results are expected in the second or third quarter of 2008.



Goodwill
associated with the Companys acquisitions consists of $500,000 in the natural
gas segment and $1.9 million in the propane gas segment. The summary of
intangible assets at March 31, 2008 and December 31, 2007, is as follows:



|                                             |                          |                |                  
|-------------------------------------------- | ------------------------ | -------------- | -----------------
|Intangible Assets
(Dollars in thousands)    
|                                             |                          | March 31,
2008 | December 31,
2007
|Customer
distribution rights                 | (Indefinite
life)        | $
1,900        | $
1,900          
|Customer
relationships                       | (Indefinite
life)        | 900            | 900              
|Software                                     | (Five to nine year
life) | 3,519          | 3,499            
|Accumulated
amortization                     | (1,973)                  | (1,869)       
|Total
intangible assets, net of amortization | $
4,346                  | $ 4,430       



The
amortization expense of intangible assets was approximately $104,000 and $86,000
for the three months ended March 31, 2008 and 2007, respectively.



9.

Common
Shareholders Equity

Items
impacting common shareholders equity other than income and dividends are the
dividend reinvestment program, employee stock purchase program, stock
compensation plans, treasury stock and accumulated other comprehensive income
(AOCI). The net impact of these additional items increased common shareholders
equity approximately $228,000 for the three months ended March 31, 2008.



|                                                       |              |           |         |          |          |          |        |              
|------------------------------------------------------ | ------------ | --------- | ------- | -------- | -------- | -------- | ------ | -------------
|CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS'
EQUITY
|(dollars in thousands)                                
|                                                       | Common Stock |           |         |          | Treasury |          | Common
|                                                       | Shares       | Aggregate | Paid-in | Retained | Treasury | Shares   |        | Shareholders'
|                                                       | Issued       | Par Value | Capital | Earnings | Shares   | Cost     | AOCI   | Equity       
|Balances
as of December 31, 2007                       | 6,182,983    | $9,275    | $6,076  | $35,797  | 129,223  | $(2,290) | $88    | $48,946      
|Net
income                                             |              |           |         | 1,950    |          |          |        | 1,950        
|Dividends                                              |              |           |         | (689)    |          |          |        | (689)        
|AOCI                                                   |              |           |         |          |          |          | 22     | 22           
|Stock
plans                                            | 4,192        | 6         | (41)    |          | (13,613) | 241      |        | 206          
|Balances
as of March 31, 2008                          | 6,187,175    | $9,281    | $6,035  | $37,058  | 115,610  | $(2,049) | $110   | $50,435      
|                                                      
|                                                      



Accumulated
other comprehensive income, comprised of the deferred cost of employee benefit
plans net of deferred tax, totaled approximately $110,000 and $88,000 as of
March 31, 2008 and December 31, 2007, respectively. The change to other
comprehensive income was a gain, net of deferred tax, of approximately $22,000,
for the quarter ending March 31, 2008 compared to a gain, net of deferred tax,
of approximately $24,000 for the quarter ending March 31, 2007.



|                                                                           |     
|-------------------------------------------------------------------------- | ----
|Statement of Accumulated Other Comprehensive
Income
(Dollars in thousands)
|Balance at
December 31, 2007                                               | $88 
|Adjustments-retirement
plan gain:                                          | 22  
|Balance at March
31, 2008                                                  | $110



10.

Over-earnings
 Natural Gas Segment

The
FPSC approves rates that are intended to permit a specified rate of return on
investment and limits the maximum amount of earnings of regulated operations.
The Company has agreed with the FPSC staff to limit the earned return on equity
for regulated natural gas and electric operations.



Management
does not anticipate any natural gas over earnings for 2008.



The
Company recorded estimated 2006 over-earnings for regulated natural gas
operations and subsequent interest accruals of $26,544. This over-earnings
liability is included in the over-earnings liability on the Companys
consolidated balance sheet as of March 31, 2008 and December 31, 2007. The
calculations supporting these liabilities are complex and involve a variety of
projections and estimates before the ultimate settlement of such obligations.
Estimates may be revised as expectations change and factors become known and
determinable.



The
2006 over-earnings liability and the estimate that there is no 2007 overearnings
liability is based on the Companys best estimate, but the amount could change
upon the FPSC finalization expected later this year. The FPSC determines the
disposition of over-earnings with alternatives that include refunding to
customers, increasing storm damage or environmental reserves or reducing any
depreciation reserve deficiency.



11.

Environmental
Contingencies

The
Company is subject to federal and state legislation with respect to soil,
groundwater and employee health and safety matters and to environmental
regulations issued by the Florida Department of Environmental Protection (FDEP),
the United States Environmental Protection Agency (EPA) and other federal and
state agencies. Except as discussed below, the Company does not expect to
incurmaterial future expenditures for compliance
with existing environmental laws and regulations.



|                       |              |           
|---------------------- | ------------ | ----------
|(Dollars in thousands)
|Site                   | Range From   | Range To  
|West
Palm Beach        | $      4,906 | $   18,132
|Sanford                | 720          | 720       
|Pensacola
and Key West | 123          | 123       
|Total                  | $      5,749 | $   18,975



The
Company currently has $13.6 million recorded as our best estimate of the
environmental liability.The FPSC approved up to $14
million for total recovery from insurance and rates based on the original 2005
projections as a basis for rate recovery.The Company
has recovered a total of $6 millionfrom insurance
and rate recovery, net of costs incurred to date.  The remaining balance of
$7.6 million is recorded as a regulatory asset.On October 18, 2004 the FPSC approved recovery of $9.1 million for
environmental liabilities.  The amortization of this recovery and reduction
to the regulatory asset began on January 1, 2005. The majority of environmental
cash expenditures is expected to be incurred before 2010, but may continue for
another 10 years.



West
Palm Beach Site

The
Company is currently evaluating remedial options to respond to environmental
impacts to soil and groundwater at and in the immediate vicinity of a parcel of
property owned by it in West Palm Beach, Florida upon which the Company
previously operated a gasification plant.  Pursuant to a Consent Order
between the Company and the FDEP effective April 8, 1991, the Company recently
completed the delineation of soil and groundwater impacts at the site.  On
November 30, 2006, the Company transmitted a feasibility study evaluating
appropriate remedies for the site, to FDEP.



The
feasibility study evaluated a wide range of remedial alternatives based on
criteria provided by applicable laws and regulations.  The total costs for
the remedies evaluated in the feasibility study ranged from a low of $2.8
million to a high of $54.6 million.  Based on the likely acceptability of
proven remedial technologies described in the feasibility study and implemented
at similar sites, consulting/remediation costs to address the impacts now
characterized at the West Palm Beach site are projected to range from $4.6
million to $17.9 million. This range of costs covers such remedies as in situ
solidification for deeper soil impacts, excavation of surficial soils impacts,
installation of a barrier wall with a permeable biotreatment zone, monitored
natural attenuation of dissolved impacts in groundwater, or some combination of
these remedies.  The feasibility study proposed a remedy of surficial soil
excavation, installation of a hanging barrier wall with PBZ, and MNA, the cost
of which is projected to range from $4.6 million to $9.9 million.



On
September 14, 2007 the Company met with FDEP to discuss FDEPs comments to the
feasibility study.  Negotiations between the Company and FDEP on a final
remedy for the site continue.  Prior to the conclusion of those
negotiations, we are unable to determine, to a reasonable degree of certainty,
the complete extent or cost of remedial action that may be required.  As of
March 30, 2008, and subject to the limitations described above, the Companys
remediation expenses, plus attorneys fees and costs, are projected to range
from approximately $4.9 million to $18.1 million for this site.



Sanford
Site

The
Company owns a parcel of property located in Sanford, Florida, upon which a
gasification plant was operated prior to the Companys acquisition of the
property. On March 25, 1998, the Company executed an Administrative Order on
Consent (AOC) with the four former owners and operators (collectively, the
Group) and the EPA that obligated the Group to implement a Remedial
Investigation/Feasibility Study (RI/FS) and to pay EPA's past and future
oversight costs. The Group also entered into a Participation Agreement and an
Escrow Agreement on or about April 13, 1998 (RI/FS Participation Agreement).
Work under the RI/FS AOC and RI/FS Participation Agreement is now complete and
the Company has no further obligations under either document.



In
late September 2006, the EPA sent a Special Notice Letter to the Company,
notifying it of EPA's selection of a final remedy for OU1 (soils), OU2
(groundwater), and OU3 (sediments), and giving the Company and the other Group
members sixty (60) days within which to submit a good faith offer to EPA to
provide for implementation of the selected remedies. The Special Notice Letter
included an Amended Record of Decision (ROD) for OU1 (the ROD for OU1 was
amended to account for a significant increase in the volume of off-site soil
impacts and a change in the selected remedy), the original ROD for OU2, and a
ROD for OU3.  The total estimated remediation costs for the Sanford
gasification plant site are now projected to be $12.9 million.  A revised
Consent Decree was signed by all Group Members in February 2008, providing for
the implementation by the Group of the approved remedies as set forth in the
RODs for OU1-OU3, and the payment of EPAs past and future oversight costs. The
Consent Decree is projected to be lodged with the Court later in 2008.



In
January 2007, the Company and other members of the Group signed a Third
Participation Agreement, which provides for funding the remediation work
specified in the RODs for OU1-OU3 and supersedes and replaces the Second
Participation Agreement.  The Company's share of remediation costs under
the Third Participation Agreement is set at 5% of a maximum of $13 million or
$650,000. If the total cost of remediation exceeds $13 million, the Group
members have agreed to negotiate in good faith to allocate the excess costs at
such time that it reasonably appears that the total remediation cost will exceed
$13 million.  In any such event, we do not expect the Companys share of
such additional costs to be greater than 5%; its share of such additional costs
may be less than 5%.



As
of March 30, 2008, the Companys share of remediation expenses, plus attorneys
fees and costs, are currently projected to be approximately $720,000 for this
site.



Pensacola
Site

We
are the prior owner/operator of the former Pensacola gasification plant, located
in Pensacola, Florida. Following notification on October 5, 1990 that FDEP had
determined that we were one of several responsible parties for any environmental
impacts associated with the former gasification plant site, we entered into cost
sharing agreements with three other responsible parties providing for the
funding of certain contamination assessment activities at the site.



Following
field investigations performed on behalf of the responsible parties, on July 16,
1997, FDEP approved a final remedy for the site that provides for annual
sampling of selected monitoring wells.  Such annual sampling has been
undertaken at the site since 1998.  The Companys share of these costs is
less than $2 million annually.



In
March 1999, EPA requested site access in order to undertake an Expanded Site
Inspection (ESI).  The ESI was completed by EPAs contractor in 1999 and an
ESI Report was transmitted to the Company in January 2000.  The ESI Report
recommends additional work at the site.  The responsible parties met with
FDEP on February 7, 2000 to discuss EPAs plans for the site.  In February
2000, EPA indicated preliminarily that it will defer management of the site to
FDEP; as of April 2008, the Company has not received any written confirmation
from EPA or FDEP regarding this matter.  Prior to receipt of EPAs written
determination regarding this site management, we are unable to determine whether
additional field work or site remediation will be required by EPA and, if so,
the scope or costs of such work.



Key
West Site

From
1927-1938, we owned and operated a gasification plant in Key West, Florida. The
plant discontinued operations in the late 1940s; the property on which the plant
was located is currently used for a propane gas distribution business. In March
1993, a Preliminary Contamination Assessment Report (PCAR) was prepared by a
consultant jointly retained by the current site owner and the Company and was
delivered to FDEP. The PCAR reported that very limited soil and groundwater
impacts were present at the site. By letter dated December 20, 1993, FDEP
notified us that the site did not warrant further "CERCLA consideration and a
Site Evaluation Accomplished disposition is recommended." FDEP then referred the
matter to its Marathon office for consideration of whether additional work would
be required by FDEP's district office under Florida law. As of September 30,
2007, the Company has received no further communication from FDEP with respect
to the site.  At this time we are unable to determine whether additional
field work will be required by FDEP and, if so, the scope or costs of such work.
 In 1999, the Company received an estimate from its consultant that
additional costs to assess and remediate the reported impacts would be
approximately $166,000.  Assuming the current owner shared in such costs
according to the allocation agreed upon by the parties for the PCAR, the
Companys share of remediation expenses, plus attorneys fees and costs, is
projected to be $93,000 for this site.



12.

IRS
Examination

In
February of 2007, the IRS completed our 2003 and 2004 tax years examination.
  We reclassified the tax liability recognized in 2007 as it relates
to this audit, and classified it as a current tax payable. We expect to pay this
tax liability and the interest on this liability of approximately $195,000 and
$48,000 respectively in the second quarter of 2008.  This adjustment does
not affect our annual effective income tax rate, and did not result in a
material change in our financial position.



The
Company is amending its 2004 federal and Florida corporate income tax returns to
reflect the IRS audit adjustments.



In
the second quarter of 2008, the IRS informed us that it has selected our 2005
and 2006 tax years for examination.  As our tax positions have remained
consistent with those from the previously audited tax years, we do not expect
any material adverse findings as the result of the current IRS audit that have
not been included in our current tax payable or a tax liability. Due to the
forthcoming IRS examination, we anticipate that it is reasonably possible that
our unrecognized tax benefits may increase or decrease, but we are unable to
estimate the range.



13.

Employee
Benefit Plans

The
Company sponsors a qualified defined benefit pension plan for non-union
employees hired before January 1, 2005 and for unionized employees that work
under one of the six Company union contracts and were hired before their
respective contract dates in 2005, our Northwest division was in 2006. Employees
hired after December 31, 2004 and union employees hired after the above time
frames are not eligible for the defined benefit pension plan and are in a 401k
match plan. The Company also sponsors a post-retirement medical plan.



The
following table provides the components of the net periodic benefit cost for our
pension plan and postretirement benefit plan for the three months ended March
31, 2007 and 2008.





|                                         |                    |  |       | 
|---------------------------------------- | ------------------ |  | ----- | 
|FLORIDA PUBLIC UTILITIES COMPANY        
|Net Periodic Benefit Costs              
|(Dollars in
thousands)                  
|                                         |                    |  |      
|                                         | Three Months Ended
|                                         | March 31,         
|                                         | 2008               |  | 2007 
|                                         |                    |  |      
|Pension Plan:                            |                    |  |      
|Service
Cost                             | $273               |  | $283 
|Interest
Cost                            | 642                |  | 566  
|Expected Return on
Plan Assets           | (648)              |  | (610)
|Amortization of
Prior Service Cost       | 184                |  | 184  
|Net
Periodic Pension Cost                | $451               |  | $423 
|                                         |                    |  |      
|Postretirement
Benefit Plan:             |                    |  |      
|Service
Cost                             | $14                |  | $16  
|Interest
Cost                            | 25                 |  | 26   
|Amortization of
Transition Obligation    | 11                 |  | 11   
|Amortization of
Net Gain                 | (13)               |  | (5)  
|Net
Periodic Postretirement Benefit Cost | $37                |  | $48  
|                                        





For
additional information related to our employee benefit plans, please see Notes
to Consolidated Financial Statements in the Companys Form 10-K for the year
ended December 31, 2007.



FASB
issued Statement No. 158, Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, that requires the Company to show the funded status
of its pension and retiree health care plan as a prepaid asset or accrued
liability, and to show the net deferred and unrecognized gains and losses
related to the retirement plans, net of tax, as part of accumulated other
comprehensive income (loss) (AOCI) in shareholders equity.This resulted in a gain in AOCI, net of deferred tax, ofapproximately $22,000 and $24,000 as of March 31, 2008 and
March 31, 2007, respectively. Previously, the net deferred and unrecognized
gains and losses were included in the prepaid asset or accrued liability
recorded for the retirement plans.



14.

Impact
of Recent Accounting Standards

Financial
Accounting Standard No. 160

In
December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements  an amendment of ARB No. 51.  This
standard requires noncontrolling ownership interests be disclosed separately in
equity, separate disclosure of income contributable to each party, changes in
controlling interests be reported consistently, and deconsolidation be measured
at fair value. As the company does not currently have any
noncontrolling interests this standard will not have an impact on our financial
condition or results of operations until the Company acquires a noncontrolling
interest.



Financial
Accounting Standard No. 161

In
March 2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities  an amendment of FASB Statement No. 133
This standard requires enhanced disclosures about an entitys derivative and
hedging activities and thereby improves the transparency of financial reporting.
This Statement is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008.   The Company
expects to adopt SFAS No. 161 effective January 1, 2009. The Company is
assessing the potential impact that the adoption of SFAS No. 161 may have on its
financial statements and the required disclosures.



15.

Fair Value of Financial Instruments

In
September 2006, the FASB issued SFAS No. 157, Fair Value
Measurements (SFAS 157), which defines fair value, establishes a
framework for measuring fair value in GAAP, and expands disclosures about fair
value measurements. SFAS 157 does not require any new fair value
measurements, but provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the information. In February
2008, the FASB deferred the effective date of SFAS 157 by one year for
certain non-financial assets and non-financial liabilities, except those that
are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). On January 1, 2008, we adopted the
provisions of SFAS 157, except as it applies to those nonfinancial assets
and nonfinancial liabilities for which the effective date has been delayed by
one year. The adoption of SFAS 157 did not have a material effect on our
financial position or results of operations.



The
carrying amounts reported in the balance sheet for investments held in escrow
for environmental costs, notes payable, taxes accrued and other accrued
liabilities approximate fair value.  The fair value of long-term debt
excluding the unamortized debt discount is estimated by discounting the future
cash flows of each issuance at rates currently offered to the Company for
similar debt instruments of comparable maturities. The indentures governing our
two first mortgage bond series outstanding contain "make-whole" provisions
(pre-payment penalties that charge for lost interest). The values at March 31,
2008 and December 31, 2007 are shown below.



|                       |                  |                        |                  |                       
|---------------------- | ---------------- | ---------------------- | ---------------- | ----------------------
|(Dollars
in thousands) | March 31, 2008   | December 31, 2007     
|                       | Carrying
Amounts | Approximate Fair Value | Carrying
Amounts | Approximate Fair Value
|Long-term
debt         | $52,490          | $57,770                | $52,490          | $ 60,000              





On
January 1, 2008, we adopted the provisions of SFAS No. 159 The Fair
Value Option for Financial Assets and Financial Liabilities  including an
amendment of FASB Statement No. 115 (SFAS 159). SFAS 159
provides companies with an option to report selected financial assets and
financial liabilities at fair value. Unrealized gains and losses on items for
which the fair value option has been elected are reported in earnings at each
subsequent reporting date. The fair value option: (i) may be applied
instrument by instrument, with a few exceptions, such as investments accounted
for by the equity method; (ii) is irrevocable (unless a new election date
occurs); and (iii) is applied only to entire instruments and not to
portions of instruments. We did not elect to record any additional assets or
liabilities at fair value and accordingly, the adoption of SFAS 159 did not
have a material effect on our financial position or results of operations.



16.

Segment
Information

The
Company is organized into two regulated business segments: natural gas and
electric, and one non-regulated business segment, propane gas. There are no
material inter-segment sales or transfers.



Identifiable
assets are those assets used in the Companys operations in each business
segment.  Common assets are principally cash and overnight investments,
deferred tax assets and common plant.



Business
segment information at March 31, 2008, and December 31, 2007 is summarized as
follows:



|                       |   |         |   |         | 
|---------------------- | - | ------- | - | ------- | 
|(Dollars
in thousands) |   | 2008    |   | 2007    | 
|Identifiable
assets    |   |         |   |         | 
|Natural
gas            | $ | 101,895 | $ | 99,295  | 
|Electric               |   | 56,053  |   | 54,202  | 
|Propane
gas            |   | 19,223  |   | 19,371  | 
|Common                 |   | 18,857  |   | 19,476  | 
|Consolidated           | $ | 196,028 | $ | 192,344 | 





Business
segment information for the quarter ending March 31, 2008, and March 31, 2007 is
summarized as follows:



|                                       |   |        |   |        |  |  |  |  | 
|-------------------------------------- | - | ------ | - | ------ |  |  |  |  | 
|(Dollars
in thousands)                 |   | 2008   |   | 2007  
|Revenues                               |   |        |   |       
|Natural
gas                            | $ | 22,137 | $ | 20,573
|Electric                               |   | 17,523 |   | 13,358
|Propane
gas                            |   | 5,370  |   | 4,681 
|Consolidated                           | $ | 45,030 | $ | 38,612
|Operating
income, excluding income tax |   |        |   |       
|Natural
gas                            | $ | 2,392  | $ | 2,439 
|Electric                               |   | 735    |   | 575   
|Propane
gas                            |   | 884    |   | 724   
|Consolidated                           | $ | 4,011  | $ | 3,738 
|Depreciation
and amortization          |   |        |   |       
|Natural
gas                            | $ | 1,188  | $ | 1,126 
|Electric                               |   | 787    |   | 669   
|Propane
gas                            |   | 201    |   | 206   
|Common                                 |   | 77     |   | 71    
|Consolidated                           | $ | 2,253  | $ | 2,072 
|Income
tax expense                     |   |        |   |       
|Natural
gas                            | $ | 579    | $ | 635   
|Electric                               |   | 142    |   | 123   
|Propane
gas                            |   | 276    |   | 194   
|Common                                 |   | 69     |   | 77    
|Consolidated                           | $ | 1,066  | $ | 1,029 
|Construction
expenditures              |   |        |   |       
|Natural
gas                            | $ | 1,255  | $ | 1,678 
|Electric                               |   | 1,492  |   | 915   
|Propane
gas                            |   | 186    |   | 375   
|Common                                 |   | 36     |   | 119   
|Consolidated                           | $ | 2,969  | $ | 3,087 



17.

Reclassification

Certain
amounts in the 2007 financial statements have been reclassified to conform to
the 2008 presentation.





**Item
2.     Managements Discussion and Analysis of Financial
Condition and Results of Operations**





Overview

We
have three primary business segments: natural gas, electric and propane gas. The
Florida Public Service Commission (FPSC) regulates the natural gas and electric
segments. The effects of seasonal weather conditions, timing of rate increases,
economic conditions, fluctuations in demand due to the cost of fuel passed on to
customers, and the migration of winter residents and tourists to Florida during
the winter season have a significant impact on income.



Earnings
for 2008 are higher for the quarter compared to 2007 primarily because of the
interim rate relief in our electric operations.  Interim rate relief of
approximately $800,000, annually, was approved beginning in November 2007. Final
electric base rate relief of approximately $3.9 million per year was approved in
April 2008 with new rates beginning May 22, 2008.



The
new fuel contracts, effective January 1, 2007 in our Northeast division, and
effective January 1, 2008 in our Northwest division, significantly increased our
electricity fuel costs and revenues. We expect our electric customers will
continue to take conservation measures to help offset the recent large fuel
increases. We are unable to precisely estimate what impact the higher rates
could have on electric consumption, but we expect there could be as much as a
reduction of 10% in unit sales. Management does not expect a significant impact
to electric gross profit from this expected reduction in sales units since this
reduction was considered in our recent electric base rate increase approved in
April 2008 and the rates were changed to compensate for this reduction.



Earnings
continue to be impacted by the overall economic slow-down and management expects
current conditions to continue through 2008 with an ongoing impact to our
customer growth rates, unit sales and sales expense. Management continues to
look for ways to help offset the negative impacts of the current economic
condition.



Results
of Operations



Revenues
and Gross Profit Summary

Revenues
include cost recovery revenues. The FPSC allows cost recovery revenues to
directly recover costs of fuel, conservation and revenue-based taxes in our
natural gas and electric segments. Revenues collected for these costs and
expenses have no effect on results of operations and fluctuations could distort
the relationship of revenues between periods. Gross profit is defined as gross
operating revenues less fuel, conservation and revenue-based taxes that are
passed directly through to customers. Because gross profit eliminates these cost
recovery revenues, we believe it provides a more meaningful basis for evaluating
utility revenues. We believe data regarding units sold and number of customers
provides additional information helpful in comparing periods.  The
following summary compares gross profit between periods and units sold in one
thousand Dekatherm (MDth) (gas) and Megawatt Hour (MWH) (electric).





|                                          |                    |  |        
|----------------------------------------- | ------------------ |  | -------
|Revenues and Gross
Profit                
|(Dollars in thousands)                   
|                                          | Three Months Ended
|                                          | March 31,         
|                                          | 2008               |  | 2007   
|Natural
Gas                               |                    |  |        
|Revenues                                  | $22,137            |  | $20,573
|Cost
of fuel and other pass through costs | 14,082             |  | 12,522 
|Gross
Profit                              | $
8,055            |  | $
8,051
|Units sold:
 (MDth)                       | 1,861              |  | 1,840  
|Customers (average
for the period)        | 52,166             |  | 51,754 
|Electric                                  |                    |  |        
|Revenues                                  | $17,523            |  | $13,358
|Cost
of fuel and other pass through costs | 13,859             |  | 9,899  
|Gross
Profit                              | $
3,664            |  | $
3,459
|Units sold:
(MWH)                         | 173,276            |  | 185,636
|Customers(average
for the period)         | 31,221             |  | 30,936 
|Propane
Gas                               |                    |  |        
|Revenues                                  | $5,370             |  | $4,681 
|Cost of
fuel                              | 2,971              |  | 2,348  
|Gross
Profit                              | $2,399             |  | $2,333 
|Units sold:
 (MDth)                       | 170                |  | 192    
|Customers (average
for the period)        | 12,666             |  | 13,378 
|Consolidated                              |                    |  |        
|Revenues                                  | $45,030            |  | $38,612
|Cost of
fuel                              | 30,912             |  | 24,769 
|Gross
Profit                              | $14,118            |  | $13,843
|Customers(average
for the period)         | 96,053             |  | 96,068 
|                                          |                    |  |        





Three
Months Ended March 31, 2008 Compared with Three Months Ended March 31,
2007.



Revenues
and Gross Profit

Natural
Gas

Natural
gas service revenues increased $1.6 million in the first quarter of 2008 from
the same period in 2007 due to increased revenues to recover our cost of fuel
and other costs passed through to customers.  These costs do not impact our
gross profit, which remained flat between the two periods. Although we had a
marginal increase in customers from the conversion of approximately 500
customers in our Central Florida division from propane to natural gas, gross
profit remained relatively unchanged due to a prior year over-earnings estimate
that increased the prior years gross profit by $46,000.  Excluding this
prior year adjustment, units sold and gross profit increased slightly.



Electric

Electric
service revenues increased $4.2 million in the first quarter of 2008 over the
same period in 2007.Higher cost of fuel and other
costs that were passed through to customers accounted for $4.0 million of this
increase. A new fuel contract in our Northwest division effective January 1,
2008, significantly increased the cost of fuel to market rates.



Gross
profit this quarter increased by $205,000 or 6% compared to the first quarter of
2007 primarily due to the interim base rate increase effective November
2007.Other factors slightly impacting gross profit
were a 1% increase in customer growth, offset by a 1% decrease in usage per
customer, excluding two large industrial customers. The decrease in usage per
customers possibly relates to conservation measures taken by our customers as a
result of the recent fuel cost increases.



Propane
Gas

Propane
revenues increased $689,000 in the first quarter of 2008 compared to the same
period in 2007.  The cost of fuel contributed to most of the revenue
increase as gross profit only slightly increased by $66,000.



Increases
to our propane rates, which increased profit margins, offset the 5% decrease in
customers and 11% decrease in units sold. This decrease in customers is
primarily due to the recent conversion of approximately 500 customers in the
Summer Glen development located in our Central Florida division from the use of
propane to natural gas. This conversion, warmer weather, and possibly
conservation measures taken by our customers reduced the number of units
sold.



Operating
Expenses

Operating
expenses remained flat overall in the first quarter of 2008 as compared to the
same period in 2007.



There
were increases in depreciation expense from new plant additions in our operating
segments, along with increased electric depreciation rates that were effective
January 1, 2008. Overall depreciation expense increased $188,000 in the first
quarter of 2008 compared to the prior quarter ending March 31, 2007.



The
new electric depreciation rates are expected to increase annual depreciation
expense by approximately $280,000 in 2008.  A portion of the 2008
depreciation increase was not recovered in 2008 through the increased electric
base rates due to the timing of final rate recovery.



Sales
and other operating expenses were lower this quarter by approximately $200,000
compared to the prior year.  We reduced the number of sales staff and other
related sales expense due to the slow-down in the construction industry and the
overall economy.



Other
Income and Deductions

Merchandise
and service revenue and expense decreased by $193,000 and $186,000 respectively
in the first quarter of 2008 compared to the same period last year. We continue
to experience a decrease in merchandise sales and expenses as the effects of the
slowdown of new construction and housing projects continue.



Total
interest expense increased $56,000 in the first quarter of 2008 compared to the
same period last year. This is primarily due to the interest on additional
funding used to purchase the Water Tower Business Park for the relocation of our
South Florida operations.



Liquidity
and Capital Resources



Cash
Flows

Operating
Activities

Net
cash flow provided by operating activities for the three months ended March 31,
2008 decreased by approximately $2.6 million over the same period in 2007.
 The timing of the receipt of customer accounts receivable which increased
due to the recent fuel price increases, offset by the accounts payable increase
from the fuel price increase contributed to this decrease. The over-recovered
fuel costs collected in 2007 and subsequently refunded in 2008 accounted for
approximately $700,000 of the decrease in the current years net cash flow as
compared to the prior year.



Investing
Activities

Construction
expenditures in the three months ended March 31, 2008 remained consistent with
the same period last year. First quarter 2008 expenditures included
approximately $700,000 for a replacement 40MVA transformer at the Northeast
Florida electric division. This was offset by lower requirements of $100,000
related to office equipment in our propane divisions and a reduction for
distribution facilities and installations of approximately $600,000 as a result
of the slow-down in the construction industry and economy.



Financing
Activities

Cash
used for short-term loan payments decreased cash flow.  As of March 31,
2008, our line of credit was $9.7 million as compared to $11.1 million as of
December 31, 2007.



Capital
Resources

We
have a line of credit with Bank of America, which expires July 1,
2010.    In March 2008, we amended our line of credit to allow
us, upon 30 days notice, to increase our maximum credit line to $26 million from
the previous maximum of $20 million The amendment also reduces the interest rate
paid on borrowings by 0.10% or 10 basis points. The new interest rate terms, if
effective for 2007, would have reduced our overall average interest rate for
2007 to approximately 5.7% from 5.8% as of December 31, 2007. Effective April
29, 2008, we increased the LOC from $12 million to $15 million. The line of
credit contains affirmative and negative covenants that, if violated, would give
the bank the right to accelerate the due date of the loan to be immediately
payable. The covenants include certain financial ratios.  All ratios are
currently met and management believes we are in full compliance with all
covenants and anticipates continued compliance.



We
reserve $1 million of the line of credit to cover expenses for any major storm
repairs in our electric segment and an additional $250,000 for a letter of
credit insuring propane gas facilities. As of March 31, 2008, the amount
borrowed on the line of credit was $9.7 million. The line of credit, long-term
debt and preferred stock as of March 31, 2008 comprised 55% of total debt and
equity capitalization.



Historically
we have periodically paid off short-term borrowings under lines of credit using
the net proceeds from the sale of long-term debt or equity securities.  We
continue to review our financing options including increasing our short-term
line of credit, issuing equity, or issuing debt. The choice of financing will be
dependent on prevailing market conditions, the impact to our financial covenants
and the effect on income. The timing of additional funding needs will be
dependent on projected environmental expenditures, building of the South Florida
operations facility, pension contributions, and other capital expenditures.



Our
1942 Indenture of Mortgage and Deed of Trust, which is a mortgage on all real
and personal property, permits the issuance of additional bonds based upon a
calculation of unencumbered net real and personal property.  At March 31,
2008, such calculation would permit the issuance of approximately $46.1 million
of additional bonds.



On
October 25, 2007 we received approval from the FPSC to issue and sell or
exchange an additional amount of $45 million in any combination of
long-term debt, short-term notes and equity securities and/or to assume
liabilities or obligations as guarantor, endorser or surety during calendar year
2008. In the event we choose not to proceed in 2008 with such a financing, we
may seek approval from the FPSC in 2008 for any possible financing in 2009.



We
have $3.5 million in invested funds for payment of future environmental costs.
We expect to use some of these funds in 2008.



There
is approximately $6.1 million in receivables from the 2003 sale of our water
assets, of which an estimated installment of $300,000 is anticipated to be
received in 2009.  The remaining balance of $5.8 million will be collected
in 2010.  The present value of this receivable is $5.7 million.



We
also received a $244,000 legal claim reimbursement in April 2008 from our
insurance company to reimburse us on a liability claim.



Capital
Requirements

Portions
of our business are seasonal and dependent upon weather conditions in Florida.
This factor affects the sale of electricity and gas and impacts the cash
provided by operations. Construction costs also impact cash requirements
throughout the year.  Cash needs for operations and construction are met
partially through short-term borrowings from our line of credit.



Capital
expenditures are expected to be lower for the remainder of 2008 compared to 2007
by approximately $1.7 million. The anticipated expenditures of $2.0 million for
the construction of the building for the new South Florida operations facility
in 2008 is lower than the $3.5 million related to the purchase of land for the
 facility that occurred in 2007. Also in 2007 we also had a $200,000
purchase of a mapping system.



We
currently have approximately $500,000 in commitments for capital expenditures
for the remainder of 2008. These commitments include vehicles for approximately
$340,000 and land in our Central Florida division for $174,000. We expect these
expenditures will occur over the remainder of 2008.



Cash
requirements will increase significantly in the future due to environmental
cleanup costs, sinking fund payments on long-term debt and pension
contributions. Environmental cleanup is forecast to require payments of
approximately $335,000 in 2008, with remaining payments, which could total
approximately $13.3 million, beginning in 2009. Annual long-term debt sinking
fund payments of approximately $1.4 million will begin in May 2008 and will
continue for eleven years. Based on current projections, we will make a
voluntary contribution in our defined benefit pension plan between $278,000 and
$1.9 million in 2008 for the 2007 plan and we will continue in future years to
make contributions as required by the Pension Protection Act funding rules.



Based
on our current expectations for 2008 cash needs, including the construction of
our South Florida operations facility, we may rely on the increased line of
credit or may choose to consider equity or debt financing. The need and timing
will depend upon operational requirements, the timing of environmental
expenditures, pension contributions and construction expenditures.  In
addition, if we experience significant environmental expenditures in the next
two or three years it is possible we may need to raise additional funds after
2008.   There can be no assurance, however, that equity or debt
transaction financing will be available on favorable terms or at all when we
make the decision to proceed with a financing transaction.



Outlook



Over-earnings-Natural
Gas Segment

We
recorded estimated 2006 over-earnings for the natural gas segment of $25,000.
Interest accrued on this estimated over-earnings as of March 31, 2008 is $1,544.
This liability is included in the over-earnings liability on our balance sheet.
The calculations supporting these liabilities are complex and involve a variety
of projections and estimates before the ultimate settlement of such obligations.
Estimates may be revised as expectations change and factors become known and
determinable.



Our
2006 estimates of our over-earnings liabilities could change upon the FPSC
finalization of our earnings expected during 2008. The FPSC determines the
disposition of over-earnings with alternatives that include refunds to
customers, funding storm or environmental reserves, or reducing any depreciation
reserve deficiency.



Medical
Insurance

Insurance
costs increased $49,000 in the first quarter of 2008 as compared to 2007.

We
continue to experience medical claims which are significantly above average over
the last several years. These high claims resulted in a significant increase to
our plan cost which has increased our medical premiums each year. In an effort
to better control these cost increases, the Company will be more proactive in
identifying healthcare options that will help control our overall medical costs
and strive to improve our employees health. We will be exploring various
wellness programs that could meet these goals of reduced costs and improved
employee health.



Land
Purchases

We
purchased land for $3.4 million in July 2007 for a new South Florida operations
facility.  We are in the process of preparing plans for a building on this
property and expect to begin construction within the next three years.



We
have a commitment to purchase additional land for approximately $200,000
adjacent to our Central Florida operations facility for additional parking. We
expect to close on this land purchase during the third quarter of 2008.



Storm
Related Expenditures

Regulators
continue to focus on hurricane preparedness and storm recovery issues for
utility companies. Newly mandated storm preparedness initiatives will impact our
operating expenses and capital expenditures in 2008.  Storm hardening
initiatives, recently mandated by the FPSC, will increase other electric
operating expenses for the remainder of 2008. However, we received recovery of
these storm related expenses in our recent electric base rate proceeding, and
management does not expect a negative impact to our 2008 earnings as a result of
these mandates. It is possible that additional regulation and rules will be
mandated regarding storm related expenditures over the next several years.



Electric
Base Rate Proceeding

We
filed a request with the FPSC in the third quarter of 2007 for a base rate
increase in our electric segment. This request included recovery of increased
expenses and capital expenditures since our last rate proceeding in 2004, as
well as additional storm-related expenditures. Finalization of this request and
FPSC approval of final permanent rates occurred on April 22, 2008.



Interim
rate relief for partial recovery of the increased expenditures was approved by
the FPSC on October 23, 2007. Interim rates which will produce additional annual
revenues of approximately $800,000 went into effect for meter readings on and
after November 22, 2007.



A
final annual electric rate increase of approximately $3,900,000 a year was
approved in April 2008, with the new rates beginning May 22, 2008.  These
revenues should provide an increase to our overall profitability for the
electric segment and recovery of increased expenditures including depreciation,
storm readiness mandates and initiatives and other expenses beginning in 2008.



Electric
Depreciation Study

On
January 29, 2008, the FPSC approved new electric depreciation rates effective
January 1, 2008 that are expected to increase annual depreciation expense by
approximately $280,000 in 2008. The FPSC also recently approved recovery of this
increased depreciation expense in our 2008 electric rate proceeding beginning
May 22, 2008. Since the new final permanent base rates are not effective until
May 22, 2008, a portion of the 2008 depreciation increase will not be recovered
in 2008.



Asphalt
Plant

A
new commercial customer in our natural gas segment in the South Florida division
is expected to be in service during the second quarter of 2008. The increase to
annual gross profit from this new customer is expected to be approximately
$86,000.



Forward-Looking
Statements (Cautionary Statement)

This
report contains forward-looking statements including those relating to the
following:



·

Based
on our current expectations for cash needs, including cash needs relating to
construction of the South Florida operations building, we may choose to consider
an equity or debt financing.

·

Our
anticipation of continued compliance in the foreseeable future with our LOC
covenants.

·

Our
expectation that cash requirements will increase significantly in the future due
to environmental clean-up costs, sinking fund payment on long-term debt and
pension contributions.

·

Our
belief that cash from operations, coupled with short-term borrowings on our LOC,
will be sufficient to satisfy our operating expenses, normal construction
expenditure and dividend payments through 2008.

·

Our
2006 over-earnings liability in natural gas will materialize as estimated.

·

Realization
of actual additional revenues from the May 2008 electric base rate increase will
occur as expected.

·

Earnings
continue to be impacted by the overall economic conditions and management
expects the slow-down to continue through 2008 with ongoing impact to our
customer growth rates, unit sales and sales expense.

·

We
are unable to precisely estimate what impact the higher fuel rates could have on
electric consumption but we expect there could be as much as a reduction of 10%
in sales. Management does not expect a significant impact to electric gross
profit from this expected reduction in sales units since this reduction was
considered in our recent electric base rate increase approved in April 2008.

·

Storm
hardening initiatives recently mandated by the FPSC will increase other electric
operating expenses for the remainder of 2008 and management does not expect a
negative impact to our 2008 earnings as a result of these mandates due to the
recent base rate proceeding.

·

We
do not expect any material adverse findings as a result of the IRS audit of 2005
and 2006 tax years.

·

The
Asphalt customer will be in service by the expected date, and gross profit will
increase as estimated.



These
statements involve certain risks and uncertainties. Actual results may differ
materially from what is expressed in such forward-looking statements. Important
factors that could cause actual results to differ materially from those
expressed by the forward-looking statements include, but are not limited to,
those set forth in Risk Factors in our Form 10-K for the year ended December
31, 2007.



Item
3.

Quantitative
and Qualitative Disclosures about Market Risk



All
financial instruments held by us were entered into for purposes other than for
trading.  We have market risk exposure only from the potential loss in fair
value resulting from changes in interest rates. We have no material exposure
relating to commodity prices because under our regulatory jurisdictions, we are
fully compensated for the actual costs of commodities (natural gas and
electricity) used in our operations. Any commodity price increases for propane
gas are normally passed through monthly to propane gas customers as the fuel
charge portion of their rate.



None
of our gas or electric contracts are accounted for using the fair value method
of accounting. While some of our contracts meet the definition of a derivative,
we have designated these contracts as "normal purchases and sales" under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities".



We
have decided to suspend our previous plan of hedging through a combination of
purchasing caps and swaps.  We had decided to use a plan that, on a rolling
four-quarter basis, would have purchased a cap on approximately one-third of
our forecast propane volume purchases, performed a pre-buy or hedge with a swap
for one-third of our forecast anticipated propane purchases, and bought 1/3 at
market.  We are now fluctuating with the market or utilizing pre-purchased
propane gas. As of March 31, 2008, we had not entered into any hedging
activities or pre-purchased gas supplies.



We
have no exposure to equity risk, as we do not hold any equity instruments. Our
exposure to interest rate risk is limited to investments held for environmental
costs, the long-term notes receivable from the sale of our water division and
short-term borrowings on the line of credit. The investments held for
environmental costs are short-term fixed income debt securities whose carrying
amounts are not materially different than fair value. The short-term borrowings
were approximately $9.7 million at the end of March 31, 2008. We do not believe
we have material market risk exposure related to these instruments. The
indentures governing our two first mortgage bond series outstanding contain
"make-whole" provisions (pre-payment penalties that charge for lost interest),
which render refinancing impracticable until sometime after 2010.



Item
4T.

Controls
and Procedures



Disclosure
Controls and Procedures

In
accordance with Exchange Act Rules 13a-15 and 15d-15, we carried out an
evaluation, under the supervision and with the participation of management,
including our CEO and CFO, of the effectiveness of our disclosure controls and
procedures as of March 31, 2008. Based on evaluation, our CEO and CFO have
concluded that, as of March 31, 2008, our disclosure controls and
procedures were effective in that they provide reasonable assurance that
information required to be disclosed by us in our reports filed or submitted
under the Securities Exchange Act of 1934 (the Exchange Act) is recorded,
processed, summarized and reported within the time periods specified in the
SECs rules and forms.



Changes
in Internal Control over Financial Reporting

There
have not been any changes in the Companys internal control over financial
reporting during the fiscal quarter ended March 31, 2008 that have
materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.



PART
II.

OTHER
INFORMATION



Item
1A.

Risk
Factors



The
risk factors should be read in conjunction with those included in our most
recent Form 10-K for the year ending December 31, 2007.



The
financial performance of Florida Public Utilities Company may be adversely
affected if its divisions are unable to successfully operate their facilities.



Florida
Public Utilities Companys financial performance depends on the successful
operation of its electric, natural gas and propane facilities. Operating these
facilities involves many risks, including:



|  |  |                                                                                                                                                                                              
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | operator
error or failure of equipment or processes;                                                                                                                                         
|  |  |                                                                                                                                                                                              
| |  | operating
limitations that may be imposed by environmental or other regulatory
requirements;                                                                                                 
|  |  |                                                                                                                                                                                              
| |  | labor
disputes;                                                                                                                                                                              
|  |  |                                                                                                                                                                                              
| |  | fuel
or material supply interruptions;                                                                                                                                                       
|  |  |                                                                                                                                                                                              
| |  | compliance
with mandatory reliability standards; and                                                                                                                                         
|  |  |                                                                                                                                                                                              
| |  | catastrophic
events such as fires, earthquakes, explosions, floods, droughts,
hurricanes, terrorist attacks, pandemic health events such as an avian
influenza, or other similar occurrences.



A
decrease or elimination of revenues from any one of our facilities or an
increase in the cost of operating the facilities would reduce the net income and
cash flows and could adversely impact the financial condition.





Item
6.

Exhibits



3.1

Amended
Articles of Incorporation (incorporated herein by reference as Exhibit 3(i) to
our quarterly report on Form 10-Q for the period ended June 30, 2002).



3.2

Amended
By-Laws (incorporated herein by reference as Exhibit 3(ii) to our quarterly
report on Form 10-Q for the period ended June 30, 2002).



4.1

Indenture
of Mortgage and Deed of Trust of FPU dated as of September 1, 1942 (incorporated
by reference herein to Exhibit 7-A to Registration No. 2-6087).



4.2

Fourteenth
Supplemental Indenture dated September 1, 2001 (incorporated by reference to
exhibit 4.2 on our annual report on Form 10-K for the year ended December 31,
2001).



4.3

Fifteenth
Supplemental Indenture dated November 1, 2001 (incorporated by reference to
exhibit 4.3 on our annual report on Form 10-K for the year ended December 31,
2001).



10.1

Amended
Security Agreement and Promissory Note between FPU and Bank of America dated
March 21, 2008.



31.1

Certification
of Chief Executive Officer (CEO) per Section 302 of the Sarbanes-Oxley Act of
2002.



31.2

Certification
of Chief Financial Officer (CFO) per Section 302 of the Sarbanes-Oxley Act of
2002.



32

Certification
of Principal Executive Officer and Principal Financial Officer per Section 906
of the Sarbanes-Oxley Act of 2002.







SIGNATURES



Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.



FLORIDA PUBLIC UTILITIES COMPANY

(Registrant)











Date: May 14, 2008

By: /s/ George M. Bachman

George
M. Bachman

Chief
Financial Officer

(Principal
Accounting Officer)















FLORIDA PUBLIC UTILITIES COMPANY

EXHIBIT INDEX

Item
Number



10.1

Amended
Security Agreement and Promissory Note between FPU and Bank of America dated
March 21, 2008.



31.1

Certification
of Chief Executive Officer (CEO) per Section 302 of the Sarbanes-Oxley Act of
2002.



31.2

Certification
of Chief Financial Officer (CFO) per Section 302 of the Sarbanes-Oxley Act of
2002.



32

Certification
of Principal Executive Officer and Principal Financial Officer per Section 906
of the Sarbanes-Oxley Act of 2002.