Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, August 29, 1993 TAG: 9308270058
SECTION: BUSINESS PAGE: F1 EDITION: METRO
SOURCE: GREG EDWARDS STAFF WRITER
DATELINE: LENGTH: Long
Nearly two weeks ago when the city's threat to take control of Roanoke Gas' operations in the city still loomed darkly over the company, Robert Glenn, the utility's vice president for marketing and strategic planning, warned that a takeover would kill the company's plans to grow.
Roanoke Gas, he said, "did not want to become the next Dominion Bank." A takeover by the city of the company's core service area could have put the remainder of the company on the block, he said.
But City Council collapsed under the weight of public opinion, abandoned its takeover plans and agreed to extend the company's franchise for six months while another document giving the company the right to cross city streets is negotiated.
And Roanoke Gas was left free to pursue its expansion plans.
Last year, a gas industry publication, The Pipeline and Gas Journal, ranked Roanoke Gas 124th among the nation's top 300 gas distribution companies in terms of customers served. The company, including its Bluefield Gas subsidiary, served more than 46,000 in 1992.
The most significant element of a strategic plan Roanoke Gas completed this spring calls for turning the company into a mid-Atlantic regional holding company for smaller gas utilities similar to the 3,500-customer Bluefield Gas Co., which Roanoke Gas bought in 1987.
The company also has plans to increase its sales of liquefied natural gas to other utilities, become a local supplier for vehicles run on natural gas, boost its already significant appliance sales and increase customer numbers and gas sales in places it already serves.
Rather than a local gas company, "we really need to start thinking in terms of being an energy supplier," Glenn said.
New federal laws - the Energy Policy Act of 1992 and the Clean Air Act - are improving the business climate for Roanoke Gas, even as too-warm winters in recent years have threatened gas company profits.
But the most significant change facing Roanoke Gas and the rest of the natural gas industry comes at the end of this year when an order by the Federal Energy Regulatory Commission takes effect, drastically changing the way gas is moved from the wellhead to the residential and commercial consumer in this country.
The energy commission's order restructures the nation's 280,000-mile interstate pipeline network. It is intended to increase competition among natural gas suppliers and improve the ability of the gas industry to compete for new markets.
First issued in April 1992 and revised last August, the order is the final step in a federal policy of deregulation of gas prices that began in the early 1980s.
For Roanoke Gas, the federal order should lead to more sources of gas supply, increasing the reliability of supply and decreasing gas costs.
What the order does is alter the traditional three-tier relationship within the gas industry.
Under the past practice, well owners produced gas and sold it to pipeline companies. The pipelines then sold and transported the gas to local distribution companies such as Roanoke Gas, which, in turn, sold it to residential or commercial users.
The federal order separates the gas marketing and the transportation functions of the pipeline companies. In the future, gas transportation rights will not be tied to the purchase of gas from the pipelines.
After deregulation, local distributors such as Roanoke Gas no longer will buy their gas with pipeline companies acting as middlemen. But they won't have a guaranteed supply from pipeline companies they've had in the past. Roanoke Gas and other distribution companies will have to go on the open market to find their own gas supplies.
Roanoke Gas has already contracted with Stone & Webster, a New York-based consulting firm, to provide the expertise needed to secure reliable gas supplies after deregulation. The company has a long-standing relationship with Stone & Webster, which owned Roanoke Gas during the first half of this century.
It's the difficulty of having to find and maintain a reliable supply of gas after deregulation that Glenn feels will force many smaller companies to offer themselves for sale to larger outfits.
A "fair number" of smaller companies like Bluefield Gas are still around, Glenn said. "Roanoke Gas would like to be in the position to acquire a number of those smaller companies and use our management expertise from Roanoke, Va., to oversee those operations."
Roanoke Gas has actively researched the possible acquisition of a couple of such companies. Although he wouldn't identify the companies, Glenn said his firm probably would not reach farther north than Maryland or south past Georgia in its search for smaller companies to buy.
Another opportunity created for Roanoke Gas by deregulation, Glenn said, is for the increased sale of liquefied natural gas.
Roanoke Gas, he said, is one of the few distribution companies in the country to operate its own LNG plant.
Located next to Interstate 81 near Daleville, the plant has the capability of producing the liquid equivalent of 250 million cubic feet of natural gas per year. The process involves cooling natural gas to minus 260 degrees Fahrenheit.
The company converts gas primarily so it can easily store it for future use, but Roanoke Gas also sells some of its LNG to other companies once or twice a year, Glenn said.
As deregulation sends distribution companies looking for reliable supplies of natural gas, Roanoke Gas sees an opportunity for increased sales at the plant, Glenn said.
The company might even consider expanding the current plant or building an additional liquefied natural gas plant somewhere in the Roanoke Valley, Glenn said. Such construction could be done under the company's nonregulated, propane-sales subsidiary with the costs borne by the shareholders rather than Roanoke Gas rate-payers, he said.
\ Within markets it already serves, Roanoke Gas has two initiatives under way to increase its sales.
One is aimed at persuading the company's 10,000 customers who heat their homes with gas but not their hot water to replace their electric water heaters with gas-powered heaters.
The other program seeks new customers in areas where the company already has gas lines. But in some areas served by the company such as Roanoke city, nine of 10 residents already are Roanoke Gas customers, Glenn said.
The Energy Policy Act of 1992 helps further expand the market opportunities for natural gas as a clean fuel for vehicles. Roanoke Gas bought its first compressed natural gas vehicle for its own use in 1992 and expects to buy more.
Roanoke Gas views transportation fuels as a new market for the company, Glenn said. Natural gas is cleaner burning than gasoline and costs about two-thirds as much, he said.
The company has talked with several fleet operators in the Roanoke Valley, including city government, about switching to natural gas, he said.
But the company is faced with a chicken vs. the egg situation, Glenn said. Fleet owners want to know when the company will build a fueling station, while the company wants assurances of a market before it builds the facility.
Roanoke Gas has been on the growth track for at least the past decade, adding roughly 14,000 customers since 1983.
Although the costs of gas and other operating expenses were up moderately last year, Roanoke Gas' revenues increased at a rate slightly more than expenses despite a winter heating season that was warmer than normal.
The company added 1,396 gas customers in 1992, an increase of 3.1 percent. It was the largest increase in customers since the company acquired Bluefield Gas in 1987.
Approximately three-fourths of Roanoke Gas' sales are to residential customers. The remainder are to commercial accounts.
The company's largest commercial account in the valley is Roanoke Electric Steel Corp., whose management Glenn asked for help in the company's fight against City Council's thwarted takeover.
Other large commercial customers include Yokohama Tire Corp. and the Veterans Affairs Medical Center, both in Salem.
The company's propane gas subsidiary, Highland Propane, also continued to grow in 1992 with an increase of 10.2 percent in gallons sold.
Moreover, Roanoke Gas' income from sources other than the sale of gas was up last year. Money made from the sale of gas appliances and of gas to other utilities increased 175 percent, from $40,000 to $110,000.
The State Corporation Commission granted Roanoke Gas a rate increase of $657,167 or 1.6 percent on Dec. 28. The company had asked for an increase of $1.12 million.
The commission allows Roanoke Gas a return on its equity - its net worth - of between 11.23 percent and 12.25 percent, a range similar to what is allowed other gas companies in the state.
After winning a smaller increase than it wanted, Roanoke Gas filed in March for another rate increase, seeking $1.3 million or 2.9 percent. While waiting for the SCC to act, the company plans to put it into effect on Sept. 1, subject to rejection of all or part of it later by the SCC. The company would have to repay customers for any charges not approved by the commission.
Glenn said the rate increase effective Wednesday would add $1.35 to the monthly bill of its average residential customer.
This week's rate increase should only slightly change the company's position as having one of the lowest residential rates among Virginia's private and public gas companies.
Roanoke Gas will continue its rank as having next to the lowest residential gas rates among nine major private gas companies in Virginia, according to the State Corporation Commission. United Cities Gas Co. of Bristol has the lowest residential rates.
Roanoke Gas' current rates also are lower than those of the three municipally owned gas companies in the state - in Richmond, Charlottesville and Danville - according to figures provided by those companies. But the increase could make Roanoke Gas' rates slightly higherthan the Danville utility's.
The efficiency with which the company operates has helped it maintain its low rates, Glenn said.
"We're extremely cost conscious around here," he said, using a well-worn chair in the company's reception area as an example of the company's frugality.
"As we hold down costs, we're able to hold down the price," he said.
Still, the company sees great opportunity for improving its operations, Glenn said. Roanoke Gas is undergoing a "head-to-toe" computerization of its operations, he said.
The current installation of a computerized work-order and service-order system is one example. When it's complete, customer calls to the company automatically will fill the company operator's computer screen with information on the caller's account. That will allow for quicker, more efficient scheduling of work.
\ Nationwide, consumer prices for natural gas have dropped significantly since FERC began deregulating the industry with an "open-access" order to pipelines in 1984.
The wellhead price for natural gas declined by $1.78 per 1,000 cubic feet between 1984 and 1991, the Department of Energy says. And prices to consumers have dropped by an even larger amount due to the lower wellhead and transportation charges. Since 1984, the delivered price of gas to residential and commercial users has declined an average of $2.05 to $2.33 per 1,000 cubic feet.
The natural gas market has grown substantially since 1986, according to the Department of Energy. Natural gas use totaled 19.8 trillion cubic feet in 1992, the highest level since 1980.
Roanoke Gas is poised to take advantage of the changes that deregulation has brought to the natural gas industry, Glenn said. "Management really believes that we've got a lean and mean company.
"We think our mission is very achievable," Glenn said. "There's a real niche in the industry for a company our size."
by CNB