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The Late Great Gas Utility

By abandoning R&D and marketing, the gas industry may have sealed its own fate.

Fortnightly Magazine - April 2008

this through their own extensive marketing and advertising programs. This was complemented by the advertising and marketing programs of the gas utilities’ national association—the American Gas Association. Unfortunately, these programs mostly have been eliminated.

Sales: At one time, many gas utilities had large and aggressive sales staffs. The goal of the residential sales people was to convince builders to install five, six or seven burner tips or appliances per house. Not just a furnace and water heater, but a gas clothes dryer, range, oven, fireplace and outdoor grill. Some gas utilities also had industrial energy experts available. These were cadres of engineers who were experts in iron and steel, heat treating, industrial drying, smelting, etc. They routinely would visit local factories and identify where new gas technologies could be used to increase efficiency or reduce cost. Many gas utilities had similar experts to serve the commercial market. But for the most part, these programs are no longer funded by gas utilities (and, in fact, now that this expertise has been dismantled, it might no longer exist). The total number of sales people employed by gas utilities is a tiny fraction of what it once was.

Eliminating product R&D, marketing, advertising and sales is hardly a prescription for success. It’s no coincidence that the rapid drop in natural gas consumption in the residential, commercial and industrial markets coincided with the decimation of these programs. This contrasts with growth in the use of propane, largely attributed to the industry’s very aggressive marketing and R&D programs.

Laying Blame

Many gas utilities now are recognizing this downward demand trend. They’re concerned and want to do something about it. But do they want to resurrect R&D, marketing, advertising and sales programs, and compete more aggressively in the marketplace? Unfortunately, in general, the answer is no.

Instead, the industry is looking to state regulators to solve this problem. Specifically, the industry as a whole is advocating the use of decoupled rates, where the gas utilities’ profitability per customer is disconnected from the amount of gas that a customer uses. 4 Decoupled rates, as a concept, have some significant benefits for society. However, regulators must implement this concept with great care. Otherwise, it could further exacerbate the downward trend in gas use in the non-electricity generation markets, and accelerate the slide of the gas utility industry toward oblivion.

Clearly, this would be a problem for the gas industry and their shareholders. It also would be a problem for the country because, in general, customers won’t be using less energy. They simply will shift to other forms of energy—mostly electricity, and some petroleum. For almost all thermal applications, much less energy is used when converting natural gas to heat at the point of use (such as a furnace) than when converting energy to electricity and then converting that electricity to heat at the point of use. Cooking, clothes drying, water heating and space heating all are examples of applications that use less energy, on a full-cycle basis, when natural gas is burned at the point of use. 5 It