Despite the increasing pressure of retail competition, thefuture is bright for gas utilities, American Gas AssociationChairman Dick Terry told investors last week. Terry, who also isCEO of Chicago-based Peoples Energy, told the New York Society ofSecurity Analysts he’s optimistic that federal and state regulatorsare headed in the right direction.

FERC’s Notice of Proposed Rulemaking on short-termtransportation and its Notice of Inquiry on pipeline negotiatedterms and conditions show FERC’s strong desire to move toward “alighter-handed, more flexible approach to pipeline contracts andresale of excess capacity,” and that will benefit LDCs, he said.

There’s also promise on the state regulatory front, according toTerry. “State natural gas restructuring programs are each different- as they should be – because all of the participating utilitieshave different corporate philosophies, different geographicchallenges, different competitors, different access to pipelinesuppliers and different customer bases. This underscores the pointthat the state public utility commissions are the proper regulatoryrepository of these programs because they are the most familiarwith the unique characteristics of the local gas utility and theterritory is serves,” he said.

Terry’s favorable forecast was echoed by Salomon Smith BarneyEnergy Analyst Joanne Fairechio, who attended the AGA conference.She said her outlook for LDCs is “pretty positive. I mean we’removing along with unbundling and restructuring, but it’s slow, andthat’s good [for LDCs]. I do believe that LDCs will continue to bethe providers to most customers. I just don’t see masses ofcustomers moving over to marketers. As you probably know mustcustomers are happy with their gas service.”

She noted last year was tough for gas utilities, but it wasmainly because of the record warm temperatures which reducedthroughput and earnings. Her index of 30 LDCs shows stock pricesdeclined about 4% on average for the year compared to 1997.

“Most of the investors I speak to are still pretty happy withthe LDCs,” she added. “Granted, they are not the growth type ofinvestment, but with the market being kind of skittish, there’s anice safety factor that’s still there [despite the regulatorychanges taking place]. It’s changed a bit, but every time there’sconcern about the market, you see a little bit more of an emphasison 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%. Thebig winners last year were the companies involved in mergers: NorthCarolina Natural, was up 43%. It is merging with Carolina Power andLight. Colonial Gas, which is merging with Eastern Enterprise, wasup 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 ofproblems like MCN, and that put a lot of question marks ininvestors minds about whether they should go with utilities thatare involved in other areas. I’d probably say their stock priceswill grow 5% on average in 1999.”

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