July 2009 Vol. 236 No. 7


In The Gas Pipeline Business, It All Comes Down To Communications

Jeff Share, Editor

So, in a highly competitive business, what is the one factor that customers, or in this case, shippers, require from their service provider, the natural gas transmission pipelines?

In a word, communication.

That’s what MASTIO learned in the 2009 industry-wide Natural Gas Pipeline Customer Value/Loyalty Benchmarking Study.

The first-place winners were Northern Natural Gas Co., in the mega pipeline category (at least 3,500 miles of transportation and delivers of at least 1 Tcf); Southern Star Central, in the major pipeline category (at least 3,500 miles of transportation pipe and serving at least three states); Kern River Gas Transmission Co., in the regional pipeline category (less than 3,500 miles of transportation pipe and serving less than three states); and MidAmerican Energy Pipeline Group in the major pipeline group category, which includes the pipelines that the parent company owns and operates.

In winning the overall major pipeline group category, MidAmerican Energy Pipeline Group edged Boardwalk Pipeline Group; CenterPoint Energy Groupo; El Paso Energy Group; TransCanada Group and Williams Group.

Northern Natural was once the prize jewel of Enron’s profitable pipeline network, later sold to Dynegy and finally to MidAmerican Energy Holdings Company; Kern River, originally owned and operated by Williams, is also owned by MidAmerican. Is it just a coincidence that both pipeline companies bested their competition in the MASTIO study?

Perhaps not, says MASTIO study director Kevin Huntsman. While Kern River has enjoyed high marks in the study for the past decade, this marked the first time they were accorded top honors. For Northern Natural, the award was the culmination of a lengthy and determined effort.

“Over the past few years, Northern Natural Gas has been on a very straight trajectory to the top,” said Huntsman. “It’s a huge issue with MidAmerican Energy that Northern Natural and Kern River take care of the customers and they have really migrated toward the top.”

Added another industry observer about Northern Natural’s progress: “They took the bull by the horns and made a concerted effort to change the mindset in the performance of that company when it comes to customer service.”

Even Warren Buffett, chairman of Berkshire Hathaway Corp., which owns 87.4% of MidAmerican Energy Holdings Company, couldn’t resist boasting about the utilities’ progression. He noted that when they were purchased in 2002, Kern River ranked 9th and Northern Natural 39th out of 44 pipelines that were rated. “There was work to do,” Buffett wrote in a recent financial report, adding, “I couldn’t be more proud of this performance.”

But then, maybe their customers know best:

“They are very reliable with our gas delivery.”
‘They are very proactive with customer service, especially the sales representative and the field man.”
“They are very reliable with my firm transportation.”
“They work with us on short term flow flexibility.”
“They have great people who are willing to help in all areas.”
“Their storage expansion project was very positive.”
“Our continued relationship with the company and sales representative is very good. Expansion opportunities are exciting.”
“Their communication level has improved. Now they have a better rapport.”
“They have assisted with service to our facilities without it being a big moneymaker for them.”
“We have the best account representative. He is very proactive, trustworthy and communicates with our needs in mind.”

The MASTIO study is based on interviews with industrials, local distribution companies, independent power producers, gas producers, and marketers. They rate pipelines on 30 attributes such as: representatives who listen well, effective after-hours support, firm gas transportation is highly reliable, timely resolution of problems plus overall company performance.

The Price Factor

While price seems to always emerge as a basic concern, the shippers are asked what factors are most important to them in selecting one pipeline over another. Because they usually employ more than one pipeline, they are also asked to identify the biggest disappointment they have experienced with each of their pipelines during the past year.

The top three customer priorities rarely change:

  1. Firm gas transportation is highly reliable.
  2. Scheduled gas volumes are accurate.
  3. Accuracy of gas metering systems.

You can probably throw a blanket over the pipelines that exceed or at least meet the industry standards. If they can’t provide reliable transportation, how can they remain in business, unless faced with circumstances beyond their control. That’s why it boils down to the so-called “soft issues” like communications in determining what pipeline companies really stand out among their peers.

“They want representatives who listen well, understand them, resolve their problems, initiate communications and communicate knowledge in a forthright manner,” Huntsman said. “Those are the real differentiators and the pipes that do well find that those that the things they really do well on.”

In Omaha, NB-based Northern Natural’s case, its toughest competition came from ANR Pipeline Co.; Dominion Transmission, Inc.; Natural Gas Pipeline of America; Southern Natural Gas Co.; Texas Gas Transmission; TransCanada Pipeline Mainline System; Williams Gas Pipeline Northwest and Williams Gas Pipeline Transco, all of which were rated as having exceeded the industry benchmark.

Kern River Pipeline

John Dushinske, Kern River’s vice president of marketing and regulatory affairs, credits several factors for Kern River’s success, all built around establishing and maintaining relationships through useful communication.

“I would first point to our personnel. We have experienced and knowledgeable representatives who deal day to day with our shippers. They strive to understand and build relationships with their counterparties. They care an awful lot about how they (shippers) are dealt with and they follow through,” he said.

Shippers value other factors highly. “Flexibility, the effectiveness of the scheduling system, knowledgeable reps who can answer questions quickly, contract and negotiation processes, are also important to Kern River’s customers,” Dushinske said.

Kern River’s stiffest competition came from CenterPoint Energy-MRT; Great Lakes Gas Transmission, Inc.; Iroquis Gas Transmission System L.P.; Northern Border Pipeline Co. and Williston Basin Interstate Pipeline Co.

Kern River’s gas transportation staff, which numbers about 20, is trained to gain as much information as they can from their shippers regarding their needs and their concerns, Dushinske added. They use a number of venues, including the MASTIO study. While it’s fine to rank first statistically, he said the study’s real value is conveyed through the information Kern River learns from its detailed questions.

Kern River then hires a different independent survey of its shippers which it combines with personal interviews with customers to provide a clear look at the effectiveness of their business operation. Based on that feedback, Kern River builds its strategy to improve its service, Dushinske explained.

Kern River was built in 1991 and began operations in 1992. With headquarters in Salt Lake City, UT, the pipeline is a major conduit of natural gas from southwestern Wyoming into Utah, Arizona, Nevada and California, terminating in the Bakersfield, CA area. The 1.7 MMcf/d capacity system serves a broadly diversified range of shippers, including considerable end-user volume, particularly electric power generators.

Here are some of the comments shippers made about Kern River:

“In general, they are very proactive in any request, and have good customer service.”
“It is worth noting that the people at the desk level made us a priority until we had resolutions to our problems and issues.”
“They have a willingness to work with us on a person-to-person basis.”
“Their proactive method of operating the pipeline and allowing flexibility when needed. It makes winters around here easier to deal with. They are very customer friendly and will work with us when others would penalize us.”
“They were very professional in regulatory approval with the negotiation we had went through. There was a fair outcome.”
“They all have some representative that will do anything they can to help us.’
“They are creative and give us great service. They have a willingness to work with us.”

Information On Changes

Shippers eagerly pursue any information on imminent changes that could affect them from both operational and regulatory perspectives so they can plan accordingly. “They really like to understand what we see coming down the road and how we’re going to manage those issues with them,” Dushinske said.

Feedback indicates to Dushinske and his staff that what the customers really want is “a high quality of service for the price they’re paying and (someone) looking out for their interests. Trying to be considerate of what their needs are so that they’re in the best possible position to utilize our system to the greatest benefit as a shipper.”

In his nearly 30 years in the business, Dushinske has been a witness to the evolution of the gas marketing business.

“What makes it more challenging today is the fact that shippers are very effective at extracting maximum value from their capacity, so the challenge has been to stay attuned to what their needs are and trying to provide information on a timely basis so they can take advantage of their opportunities,” he said.

One way that Kern River responds is through an effective support system to handle more difficult questions in timely manner. The transportation service representatives are constantly trained in their customer service group. Much of that training is driven by the group itself when they find a need to focus and work on specific issues collectively, Dushinske said.

Where would he like to see some improvement over the next year? Even better communications at every level.

“Communicating changes that are, or could potentially occur, particularly regulatory changes. If we have tariff changes, for instance, we want to try to communicate with our shippers to share the status of the regulatory action. We strive to get ahead of those issues that could require additional work or additional interest on their behalf.

“Improving our communications is probably the most important thing we can do to continue to get better at this stage. That goes for all levels – communications not only between our customer representatives but also at the senior levels of the company. We’re trying to put emphasize on improving the level of relationship between executives in our group and with our customers,” he said.

Kern River plans to boost capacity by 145,000 Dth/d by November 2010 and by another 266,000 Dth/d by November 2011. The combination will boost system capacity by 24%.

“We are well-positioned to expand our system to meet the growth of our markets and production out of the Rockies,” Dushinske said.

Nothing Taken For Granted

In discussing overall study results Huntsman said companies can no longer take it for granted that their customers are happy with their service just because their system is fully subscribed. In an era when companies use purchase managers to buy energy as well as all of their other commodities, collaborative relationships with skilled transportation managers has become even more critical. In fact, this has led to an uptick in the use of gas consultants on the marketers’ side, Huntsman said.

“A trickle-down relationship ensues from the top, whether there is a good relationship or a bad relationship, so providing quality customer service has to be ingrained throughout the company’s entire culture,” he said. Once you get to the top, the battle is still never over.

“It’s harder to maintain your performance than it is to get there because of the expectations that you’ve set. Not only do your shippers expect you to continue doing well, but they expect you to keep getting better,” he said.

“It’s personal service. You like dealing with someone who is easy to do business with, that listens to you and responds to your problems. Executives realize that if it was all about price, they could merely sell their space on the Internet.

“Typically you don’t find a lot of variation in price between the different pipes. That doesn’t mean you can ignore the price issue because these buyers are under pressure from their bosses to get the best price they can, but at the end of the day transportation of gas is a commodity business,” Huntsman said.

Headquartered in Owensboro, KY, Southern Star Central is owned by Loew’s Corporation and is another pipeline that emphasizes the personal touch, Huntsman said. Its top competitors were ANR Pipeline; CenterPoint Energy Gas Transmission Co.; Dominion Transmission; Natural Gas Pipeline Co. of America; Northern Natural Gas Co.; Southern Natural Gas Co.; Texas Gas Transmission; TransCanada Pipeline Alberta and Mainline systems; Williams Gas Pipeline Northwest and Transco.

Southern Star Central, which also was once owned by Williams, held an open season this spring to solicit binding bids for new firm storage service. In a newly modified plan, Southern Star is considering expanding its existing storage capacity by a minimum of 4,000,000 million Dth, with an increase in deliverability of a minimum of 40,000 Dth/d. It services customers in the Midwest and Mid-continent regions of the United States.

“Additional Firm Storage Service will reduce natural gas price volatility for Southern Star’s existing and future customers, and enhance gas supply management, flexibility and liquidity for shippers. The Mid-continent region has exhibited a growing appetite for new storage, and we believe this expansion is a great first step toward satisfying that appetite,” said Jerry Morris, President/CEO for Southern Star.

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