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GasMart 2009: Integrys Utility Chief Says Gas Is the Answer

Natural gas is not just a bridge to renewables but rather is the fuel of the future in an era when beating global warming tops agendas in Washington, DC, and gas producers have stoked supplies with unconventional drilling success, a leading utility executive said last Wednesday.

Larry Borgard, president of the utilities business of Integrys Energy Group Inc., told attendees at Intelligence Press Inc.'s GasMart 2009 in Chicago that while gas used to be thought of as a bridge fuel, he thinks gas is here to stay as a long-term solution for a nation that's thirsty for energy, even while in the grip of economic recession.

"We need to make sure that our legislators and regulators understand that message," Borgard said.

Integrys was formed by the merger of Peoples Energy and WPS Resources Corp. (see NGI, Feb. 26, 2007). The Integrys regulated gas utilities are Peoples Gas and North Shore Gas in Illinois as well as Minnesota Energy Resources and Michigan Gas Utilities. Regulated electric utilities are Upper Peninsula Power Co. in Michigan and Wisconsin Public Service. Integrys is in the process of unloading its nonregulated Integrys Energy Services unit (see NGI, March 9), not because the business hasn't been a success, Borgard said, but because the Integrys corporate balance sheet is not big enough to handle the business' risk management exposure.

The recession has been clearly felt by customers of Integrys utilities, Borgard noted, as the companies have been forced to disconnect record numbers of customers across their service territories due to nonpayment of bills. While unemployment had held pretty steady for the three years preceding 2008, last year saw a spike in job losses, which has continued this year. Borgard said 200,000 jobs have been lost in the service territories of the Integrys utilities just in the last 12 months. Any benefit of lower gas prices has been more than offset by job losses and other economic troubles among consumers, Borgard told NGI.

That has made Integrys focus even more on bad debt, which is "one of the key drivers in terms of our cost structure," Borgard said. Nonpayment of utility bills gets worse closer to big cities, he said. For instance, in Chicago Integrys is seeing bad debt equivalent to 2.5-3% of total revenue at its utility serving the city. That translates into about $40 million in bad debt. "Clearly a significant number," Borgard said. In upper Michigan and rural Wisconsin bad debt is much lower, about 0.5%, he said.

About 80% of customers of Integrys utilities are on decoupled rates, Borgard said. This lessens the impact of customer conservation on utility revenues and is intended to be an incentive for conservation and efficiency among consumers.

"Decoupling's been used in I think 22 different states across the United states and the National Association of Regulatory Utility Commissioners supports it. Congress supports it. There's been some pushback here in Illinois, particularly from the attorney general, but really the benefit of decoupling is making sure the utility is on the same side as the customer when it comes to conservation and energy efficiency," Borgard said. "We think it's a benefit for customers and in fact in Illinois through decoupling we've actually returned over $10 million to customers since we first started decoupling."

Despite the economy and Wall Street upheavals, utilities are seen by many investors as a relatively safe haven for their money, particularly because of the dividends paid by utility stocks. For this reason Borgard said Congress should make permanent a reduction in taxes on dividends, which was a boon to utilities when it came out of tax cuts by the Bush administration (see Daily GPI, Jan. 8, 2003).

"Many many of our shareholders appreciate the fact that we pay big dividends," Borgard said. "You know the old story about utilities being the stock of widows and orphans. I think that's largely true today as we all kind of get back to basics and back to our core utility operations."

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