Equitable Resources top executive last Wednesday called on local distribution companies (LDC) to think about “rational consolidation” as a response to increasing compliance costs, growing deliverability constraints and high natural gas commodity prices.
“I really think it is time for our industry [LDCs] to seriously consider some rational consolidation,” said Murry S. Gerber, president and CEO, at the Merrill Lynch Global Power & Gas Leaders Conference in New York City.
There are more than 200 investor-owned gas utilities in the United States, he told financial analysts. “There is a tremendous opportunity for us to be procuring gas and transportation services in a much more refined and sophisticated [manner] than each of the 200 procuring those services individually,” Gerber said.
“I think the response is not to go back to regulators and increase rates. I think the response is to do what some of our industries haven’t done — airlines [for example] — and move towards policies that stimulate and encourage the rational consolidation of the industry. Let’s have the best companies.”
Consolidation would trim operation and management (O&M) costs, Gerber said. He estimated that O&M costs for the 64 million gas utility customers in the U.S. total $12 billion annually (excluding transportation and the commodity piece). This translates into $190 in O&M costs per customer.
“If we were able to reduce O&M [costs] by 20%,” Gerber said that would be major step forward. “Over the last five years Equitable alone has reduced 25% of the people in the company at the same time we’ve doubled production,” he noted.
“We as an industry [LDCs] need to do something to manage the costs that we are responsible for,” he said. “The high energy prices are not good for this country.” In Pittsburgh, PA, where Equitable is based, the metal and glass industries are “gone or going” largely in response to the stepped-up gas prices, he told the conference.
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