Stephen Ewing Always Welcomed Challenges

April 2013, Vol. 240 No. 4

Michael Reed, Managing Editor

As a fitting testament to Stephen Ewing’s contributions to the energy industry, he was honored by the American Gas Association as its 2012 Distinguished Service Award recipient. At that Boston conference then-AGA Chairman Lawrence Borgard called him “a leader and champion of the natural gas industry.”

During his 40-year career, Ewing served as both vice chairman of Detroit-based diversified energy company DTE Energy and as group president of the gas division. This followed his tenure as president and CEO of Michigan Consolidated Gas Company (MichCon), which was acquired by DTE in 2006. As head of both natural gas distribution and midstream for DTE, Ewing was in a unique position to gain familiarity and perspective concerning operations in both the Antrim and Barnett shales.

In this interview, the 14-year veteran of the AGA Policy Committee describes some of the biggest changes in the energy sector, including the deregulation of the utility industry, the unexpected availability of natural gas and the new era of environmental regulations. He also offers his thoughts on the need for those in high-management positions to be more accessible to their employees as a means of inspiring stronger workplace commitment, while placing greater emphasis on customers.

P&GJ: What led you to choose the energy industry for your career? Did a particular event or person influence that decision?

EWING: A campus interview in 1971 at the Michigan State University graduate school placement center. I thought I would go through the interview for practice but it turned out to be a career. Prior to that, I had worked for General Electric and had served as a captain in the U.S. Air Force.

P&GJ: You began in the industry in 1971 at MichCon where you later held a series of executive positions and were serving as CEO when it was acquired by DTE Energy in 2006. How big of a transition was that for you?

EWING: It was a very significant change. From being a stand-alone gas company to becoming the smallest part of a combination company entails a number of big changes from capital allocation to customer service. For example, gas companies usually provide service inside the customer’s home. For electric companies, service stops at the meter. I think, though I am sure some will disagree, that the public looks at gas and electric service differently. On the gas side we are often judged by how well we prevent problems/outages. Those on the electric side are most often evaluated by how they respond to a storm or outage.

P&GJ: What were the biggest changes to the industry between the early 1970s and now?

EWING: I think the biggest changes were deregulation of the utility industry, and the sources and availability of gas supply and environmental regulation.

P&GJ: How would you characterize your management style? Did it evolve over the years as the workplace changed?

EWING: I tried to create an environment built on trust and personal responsibility that would encourage people to contribute their best efforts. I tried to be very accessible to people. Also, very customer-focused.

P&GJ: What do you see as the most significant short-term challenge facing gas utilities in North America? How about biggest long-term challenge?

EWING: In the short-term, system safety and integrity. For the long term, supply accessibility and price stability, as well as cybersecurity, the shift in fuel use for electric generation and energy sprawl – the large amounts of land required to accommodate wind turbine farms and solar farms.

There have been a series of incidents including those in Bellingham, WA and San Bruno, CA that have prompted legislation requiring the inspection of and, where needed, repair of gas transmission systems. This has been expanded to include distributions systems as well. Meeting these requirements is putting more and more pressure on capital budgets, which in turn is putting upward pressure on customer rates. In the near term, the decline in commodity prices has provided “head room” for these costs. But with low interest rates pushing down allowable rates of return and capital costs increasing – for which there is no incremental revenue – meeting earnings goals will be more and more difficult.

Supply accessibility is directly related to the resolution of the fracking debate. There is pressure to have national standards and rules for fracking instead of the historic practice of state regulation. To the extent this debate ends in more restrictive drilling, the shale gas that exists in such abundance might not be open to development. New York is a case in point.

Until recently coal has been the fuel used to generate 51-52 % of the electricity used in the U.S. Nuclear supplied about 20%. Now, with the combination of low gas prices and environmental restrictions on SOx, NOx, Hg (mercury) and potentially carbon are drastically changing the economics of power generation. Old coal plants are being phased out because the required retrofit is too expensive, and it is nearly impossible to license and build a new coal plant.

And, today some gas plants are being dispatched ahead of some nuclear plants because of the high fixed costs/MWh associated with those plants. The new nuclear plant being constructed by Southern Company [Plant Vogtle, near Waynesboro, GA] appears to be significantly over budget, raising questions about the viability of expanding the nuclear fleet.

Because natural gas is relatively inexpensive and combined cycle plants are relatively inexpensive to build, it has emerged as the fuel of choice. That raises the question of whether that is the best use for natural gas. I am in the group that thinks not. Gas can be used for feedstock for chemical plants, fertilizer plants and traditional high-end uses like home heating and appliances. It seems to me the country would be best served by making full use of all of our energy options.

Finally, energy sprawl is a term that is increasingly becoming associated with renewable energy, specifically wind and solar farms. It addresses the fact that these new sources require large amounts of land to accommodate them and in the eyes of some are eyesores. An added burden for wind farms is the numbers of birds (and protected species like golden eagles and bald eagles) that are being killed in large numbers.

P&GJ: What would you tell an up-and-coming executive about the energy industry that might make his career path a little bit easier to negotiate?

EWING: Stay close to your customers. Understand and respond to their needs.

P&GJ: You had responsibility for DTE’s exploration and production subsidiary, DTE Gas Resources, which had operations in the Barnett Shale. With the rapid growth in the Dallas-Fort Worth area, what are some of production concerns and limitations in such a heavily populated area?

EWING: Over the years, I’ve been involved in three different shale gas plays: the Antrim in Michigan, the Barnett in Texas, and the Marcellus in Pennsylvania and New York. In all cases, the big issues were the state’s approach to regulation and, where it occurred, the separation of property rights and mineral rights. At one end of the spectrum, Texas is a relatively easy place for the oil and gas business to operate. This enabled the industry to drill near the Dallas-Fort Worth airport and in residential neighborhoods under close supervision and oversight.

Clearly, there was some inconvenience, but there was also reasonable accommodation. As a result, the Barnett play has flourished and royalty owners, customers and the state have enjoyed significant benefits. At the other end of the spectrum is New York, which due to its restrictive regulation, has prevented virtually any development of the Marcellus Shale within its borders.

P&GJ: In recent years, how much of an economic challenge has it become to replace aging infrastructure that does not necessarily bring in new customers, compared to years past?

EWING: This is a huge issue. Historically, there was new revenue associated with capital expenditures. And, as the cost of service was built into rates, there was new revenue to offset it. That is very different today. Large chunks of capital budgets are now allocated to pipeline safety, distribution system integrity, and environmental protection. On the gas side there is a temporary cushion because commodity prices have declined. So customer bills are actually decreasing as capital spending is increasing. But there is a limit to that and when it is reached there will be some kind of push back –from customers or regulators or both.

Another important variable in this equation is the declining use per customer caused by conservation, improved building standards, and improved appliance efficiency. This creates a shrinking base across which to spread fixed costs, thereby exacerbating the problem.

P&GJ: What do you think were the most significant policy changes adopted by AGA during your time on the Policy Committee between 1992 and 2006?

EWING: Advocating for increased federal funding to help meet the needs of low-income customers (LIHEAP), the exploration for and development of all sources of natural gas including offshore drilling and what was then called unconventional sources but now is broadly referred to as shale gas. Also, our work on energy conservation as well as system integrity and safety, especially following the gasoline pipeline explosion in Bellingham, WA in 1999.

P&GJ: What would you consider your biggest successes or moments you are most proud of over the course of your career?

EWING: Perhaps the biggest is the cultural change that took place at MichCon in the early ’90’s that really focused the company on customers vs. thinking about them as “rate payers.” Others would be the move into and growth of our shale gas and E&P business. The expansions of our midstream pipeline and storage business, including projects like the Vector and Millennium pipelines.

P&GJ: Why does it at least seem that the distribution utilities show more gender and ethnic diversity than any other sector of the energy industry?

EWING: I think part of the answer is distribution tends to be closest to the communities that are being served. From that standpoint, distribution employees mirror the makeup of those communities. Midstream and other operations have roots closer to Oklahoma and Texas. Historically, that means there are more white males.

P&GJ: Was there a person who served as a big influence or role model in shaping your career?

EWING: Yes. Robert W. Stewart, who has since passed away, but was the chairman and CEO of MichCon and, subsequently, its holding company, Primark Corporation. He was a remarkable man – a principled and courageous leader.

P&GJ: What have you been doing to occupy your time during retirement?

EWING: I have the good fortune to serve on four boards: CMS, NFG, The Auto Club Group (AAA) and the Skillman Foundation. These boards enable me to stay involved with the industry that I love and continue to serve our community. In my personal life, my wife, Jeannie, and I enjoy our grandchildren, travel, golf and fly fishing. All in all, it’s been a great run, and we both feel very blessed.

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