AGA Sees Promise in Regulatory Changes Ahead
Despite the increasing pressure of retail competition, the
future is bright for gas utilities, American Gas Association
Chairman Dick Terry told investors last week. Terry, who also is
CEO of Chicago-based Peoples Energy, told the New York Society of
Security Analysts he's optimistic that federal and state regulators
are headed in the right direction.
FERC's Notice of Proposed Rulemaking on short-term
transportation and its Notice of Inquiry on pipeline negotiated
terms and conditions show FERC's strong desire to move toward "a
lighter-handed, more flexible approach to pipeline contracts and
resale of excess capacity," and that will benefit LDCs, he said.
There's also promise on the state regulatory front, according to
Terry. "State natural gas restructuring programs are each different
- as they should be - because all of the participating utilities
have different corporate philosophies, different geographic
challenges, different competitors, different access to pipeline
suppliers and different customer bases. This underscores the point
that the state public utility commissions are the proper regulatory
repository of these programs because they are the most familiar
with the unique characteristics of the local gas utility and the
territory is serves," he said.
Terry's favorable forecast was echoed by Salomon Smith Barney
Energy Analyst Joanne Fairechio, who attended the AGA conference.
She said her outlook for LDCs is "pretty positive. I mean we're
moving along with unbundling and restructuring, but it's slow, and
that's good [for LDCs]. I do believe that LDCs will continue to be
the providers to most customers. I just don't see masses of
customers moving over to marketers. As you probably know must
customers are happy with their gas service."
She noted last year was tough for gas utilities, but it was
mainly because of the record warm temperatures which reduced
throughput and earnings. Her index of 30 LDCs shows stock prices
declined about 4% on average for the year compared to 1997.
"Most of the investors I speak to are still pretty happy with
the LDCs," she added. "Granted, they are not the growth type of
investment, but with the market being kind of skittish, there's a
nice safety factor that's still there [despite the regulatory
changes taking place]. It's changed a bit, but every time there's
concern about the market, you see a little bit more of an emphasis
on the utilities again."
Fairechio said the LDCs that had the toughest year were MCN,
whose stock price was down 53%; and Indiana Energy, down 25%. The
big winners last year were the companies involved in mergers: North
Carolina Natural, was up 43%. It is merging with Carolina Power and
Light. Colonial Gas, which is merging with Eastern Enterprise, was
up 21%. And Southwest Gas was a big gainer late in the year,
following its merger announcement with Oneok.
"I don't anticipate great growth from a stock price perspective,
but I think in 1999 they are going to do better than in 1998.
Obviously we had a warm year in 1998, and we had a couple of
problems like MCN, and that put a lot of question marks in
investors minds about whether they should go with utilities that
are involved in other areas. I'd probably say their stock prices
will grow 5% on average in 1999."