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AGA Sees Promise in Regulatory Changes Ahead

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."

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