April 2014, Vol. 241 No. 4

Features

GTS Finds Its Niche With Gas Utilities

You might justifiably say that Gas Transmission Services, Inc. is a model one-stop-shop if you’re in the natural gas business, especially in California. The company, better known as GTS, works for nearly anyone involved in the natural gas value chain, from gas pipeline owners and operators to gas producers to residential and commercial developers to public power and investor-owned utilities to producers of biomethane. Among their wide variety of services, hydrotesting heads the list. Last fall, GTS authored a study on hydrotesting for the INGAA Foundation.

The company is the brainchild of Katie and Scott Clapp; Katie is president and general manager of GTS and husband Scott is senior partner and natural gas engineering/consulting practice leader. They began their company in 1998, have grown from 40 to nearly 200 employees and now have offices in Chico, Walnut Creek and Fresno. In 2012 a San Francisco Bay business magazine listed GTS as one of the top 10 companies of its size to work for in the area. They are also a major supplier to Pacific Gas and Electric.

In this interview, Scott discusses the start of the company, its growth, its business strategy and the unique partnership with Katie that has made GTS an enviable success story.

P&GJ: Where did you grow up and what were some of your interests as a young man?

Clapp: I grew up in Gridley, a small Northern California agricultural community. I was most interested in hot rods. I bought my first ‘57 Chevy for $250 when I was 14 and had it running by my 16th birthday.

P&GJ: What led you to consider a career in the pipeline business and whom did you work for before starting up GTS? What were some of the earlier projects you worked prior to GTS?

Clapp: I started school as a mining engineering major in the MacKay School of Mines at the University of Nevada, Reno. I switched to mechanical engineering to pursue a commission with the U.S. Navy’s Aviation Officer’s program. After Katie and I got married, we decided that a Navy pilot and married man is a difficult combination. So I dropped on request from the Navy and looked to do something with my ME degree. My first professional job was with Pacific Gas Transmission Co. in Sand Point, ID. PG&E owned PGT at that time. I was with them for 14 years. I worked my way up through the operations engineering ranks and was the manager of Transmission Pipeline Engineering when I left and started GTS in 1998.

P&GJ: What led you and Katie to start GTS? How has your business strategy changed through the years?

Clapp: Katie’s degree is in business management. We have always had an entrepreneurial spirit and toyed with the idea of starting our own business all along. But we also have four children, which made us somewhat risk-averse. During my last four years at PG&E I was a weekend dad with young children at home. It was purely my decision not to relocate them to the “big city”, but when PG&E went through a downsizing in 1998, I volunteered for a severance package so that I could be home full time.

I had always looked back with some regret of not taking the risk of pursuing the Navy pilot career. I didn’t want to experience that same regret again. So we decided it would be better to try the business and to fail, rather than not to try at all. We leveraged Katie’s business background and what I had to offer from my experiences gained at PG&E and started a pipeline engineering/consulting business.

From the beginning our strategy has been to provide services to the utility industry with an operator’s perspective. All of our senior people are ex-utility professionals. We only serve the gas pipeline industry. We are organized like a utility rather than a consulting or engineering company. Katie is the president and I am the chief engineer. We have a pipeline department, a station department, compliance department, etc.

P&GJ: What specifically does GTS specialize in and why are natural gas pipelines your focal point?

Clapp: I would of course have to say our specialty is hydrostatic testing. GTS had done some very difficult hydro projects prior to the San Bruno incident that PG&E was aware of. PG&E took a big risk on our small company and contracted with us to prepare designs and test procedures for their program following the incident. We have been performing that service for them for the last three years and have roughly 700 miles of tests under our belt. We were awarded their Small Business Supplier of the Year in 2011 and the Gas Operations Supplier of the Year in 2012.

We also provide replacement engineering, integrity management retrofits, stations design, compliance reviews and quality control and assurance management service. Natural gas pipelines are what we know. Reputation and brand are really important to us. We would rather grow in a slower controlled fashion then get out over our skis and risk damaging our brand.

P&GJ: What are some of the projects that GTS is involved in today, or recently?

Clapp: We have expanded to Southern California and are one of the design firms supporting the PSEP (Pipeline Safety Enhancement Program) program for Southern California Gas Co. We are designing hydrotests and replacement projects for them. We are also doing test vs. replace studies, MAOP verifications and station record reviews for select companies outside California.

P&GJ: What do you think makes GTS unique in the industry? How has the company grown since it started, and are you looking into other areas to expand the business?

Clapp: We think we are unique in that our managers are ex-utility executives. We speak gas. We understand rates. We appreciate that the public are also your customers. We are serious about safety. We train and orient our people to the industry so our clients don’t have to. Employees are directed not to burden clients with questions before first seeking answers from within.

GTS has been very fortunate to hire experienced talented employees during the downsizing era of our industry. That experience pool allowed us to expand rapidly after the San Bruno incident. We had also been developing QC/QA programs for clients and applied those rigorous processes and checkpoints internally during that high growth period.

We would like to diversify our client base beyond California and are leveraging our hydro experience with select companies now. We realize it takes time and effort to develop relationships that ultimately result in significant business. We are in it for the long haul. We intend to control our growth to make sure quality doesn’t slip and adversely affect our brand.

P&GJ: How many employees do you have, and what do you look for in those you hire? What’s your favorite question to ask them?

Clapp: We are hovering at the 200 employee mark. We look for people that fit our culture. Our mantra is that GTS is a great place to work for high-performing individuals. And we believe high-performers are driven from within. You can train folks on technical and managerial aspects. But drive and aspiration are in your DNA.

I like to ask them to tell me about their best and worst bosses. I get a picture of how much freedom they want and/or direction they require from that question.

P&GJ: How would you describe your leadership style – hands-on? Have you had to revise it as the business has grown and has that growth changed your relationship with your employees?

Clapp: You should probably ask my employees this question, but I like to think I am a leader by example. I don’t tolerate mediocrity and I am a control freak. I used to personally mentor all the new engineers and PMs. Of course I have had to reluctantly change in that regard. But now those folks are managers and supervisors themselves. It’s rewarding to see them take new employees under their wings in much the same way.

My relationship with employees has changed. I used to know each one of them on a personal level and I miss that. Katie reaches out to all of our employees. I honestly don’t know how she keeps up with the birthdays, weddings, births, etc. She produces a yearbook annually with pictures of all employees. New hires are freshman and supervisors are staff. It’s fun and the employees really enjoy it.

P&GJ: When you talk to customers and others in the gas industry, what do they say are their greatest needs and challenges? Do you think operators are savvier as to the ways that specialty service companies such as GTS can help them?

Clapp: Everyone has their eye on the new IVP [Integrity Verification Process] regulations. It’s a whole new world post San Bruno. Dealing with records searches, unknown features, and conservative assumptions. Trying to apply new technology, establishing protocols for verifiable traceable and complete records. The idea of taking operating pipelines out of service for testing is a major concern. Nearly every company knows how to test a line. But the idea of securing funding and managing a major program with so many constraints keeps them up at night.

There is a broad spectrum of savvy when it comes to clients making the best use of specialty companies like GTS. The most successful ones are process-oriented and manage us on deliverables. What I mean is that they are clear on what they want us to deliver and when. The least successful are the ones that are looking for staff augmentation. There are also companies that are looking for an EPC provider and rely on the constructor to handle it all. We don’t like to operate that way. We are most comfortable when we are working directly for the owner and maintain our objectivity regarding their best interest. Sometimes hydrotesting is the answer and sometimes it’s not.

P&GJ: What are some of the biggest challenges facing the natural gas industry as we continue into the shale revolution?

Clapp: First, I think the shale revolution is great for America. It has created a tremendous number of jobs and revenue for the economy. I hope we can develop a true energy policy around it and lower our dependence on foreign oil. As far as the challenges go, I must admit I am probably a sleep at the wheel because we have been so immersed in the regulated utility IM world. But my intuition gives me concerns from the “boom effect”. By boom effect I mean all the new entrants into the pipeline design and construction space and the lack of regulation on collection lines. This business is not “as easy as laying pipe” (pardon the pun). You can make some expensive and hazardous mistakes if you don’t know what you’re doing. And we all know the whole industry suffers when one operator makes a mistake.

P&GJ: What factors do you think will determine the continued success of the gas industry—new technologies, regulatory events, LNG exports, gas-electric integration?

Clapp: I’m in the Boone Pickens camp. Gas is a clean and abundant fuel that can have immediate and positive effects on our environment and economy. We don’t need years of subsidized R&D like other energy sources such as solar to make it viable. I have to believe that the environmental fringe will ultimately realize this and not be so adversarial.

It is also apparent that the public understands and appreciate the need to address our aging infrastructure. The amount of pipelines built during the war and Baby Boom era is staggering. These pre-1970 pipelines have a lot of life left in them, but many were never commissioned with a hydrotest. It is my opinion that all seamed pipelines operating over 20% should be tested once to rule out manufacturing defects and other unknowns. Then we can deem these defects time-stable again and use typical MFL tools for periodic assessments.

P&GJ: Looking back on your career both with GTS and prior, what achievements are you most proud of?

Clapp: I have been married for 33 years to my best friend. I have children that take responsibility for their actions and are patriots. I have been blessed and mentored by others throughout my career. I get to work with my friends and mentor bright young people. Seeing GTS recognized at a national level is really gratifying. (Thank you Pipeline & Gas Journal, AGA and INGAA) Also, contributing to the INGAA Foundation paper on hydrostatic testing, along with all the other talented professionals is a career pinnacle for me.

P&GJ: How challenging is it to operate an energy service business in California? Does the stricter business climate offer an inducement?

Clapp: I suppose the California labor laws are more comprehensive than other states. But the professional market dictates us to meet or exceed those requirements in our benefit programs anyway. It seems there is reluctance for experienced people to relocate to California, probably do to the higher cost of living. This still surprises me, given the weather and incredible recreation this state has to offer.

There aren’t inducements (that I can see) beyond the rapid increase in work generated post San Bruno. The large gas utilities in California have self-performed most of their work in the past and are now faced with the need to outsource more. There are a lot of out-of-state companies working here now. There are some growing pains on both the client and the contractor side.

It seems most service providers are geared toward large projects that come and go. I believe the future will be more about long-term relationships to assist in these big programs comprised of many relatively small projects. You have to learn to dance together and that may be more difficult to do in California than other locations.