Pipeline &
Gas Journal
December issue 1999:
Hot Property
Growth For Southwest
Gas Shows No Signs Of Slowing
by Jeff Share/Editor, Pipeline & Gas Journal
Southwest Gas Corporation opened for business some 60 years ago as a propane company, serving the high desert of California. Las Vegas was barely a blip on the map. Who would have thought that by the turn of the century, not only would Southwest Gas be the nation’s fastest growing natural gas distribution company, but would also be the target of one of the most hotly contested takeover efforts in years, between Tulsa, OK-based ONEOK and Austin, TX-based Southern Union?
Headquartered in Las Vegas, Southwest Gas has customers in Nevada, Arizona and parts of northeastern and southeastern California. In 1998, it added 58,000 customers, bringing its total to 1,209,000. In early November, the company counted 1,250,000 homes and businesses. One-third of those customers have signed up over the past decade, keeping pace with that region’s phenomenal growth.
Southwest Gas has maintained a growth rate of 5 percent annually for the last half-dozen years and executives see no end in sight. Consider that the industry growth rate is approximately 1.5 percent. In the booming Las Vegas market, some growth spurts in the past few years have actually climbed into the double digits.
The company is split into five operating divisions that cover 34,000 square miles of service territory from the Idaho-Nevada border to Mexico and operates 20,000 miles of mains. Southwest also owns the 550-mile Paiute Pipeline Company, a transmission pipeline that ties into Northwest Pipeline at the Idaho border and includes a 1 Bcf/d LNG plant in Lovelock, NV.
The company began in 1936 as an air propane company located in the California desert. A new pipeline to the West Coast in the early 1950s convinced Southwest’s founder, H.G. Laub, to bring natural gas into the Las Vegas area, where he promptly moved the company headquarters. From that point on, the company began to grow, mostly from acquisitions. Southwest Gas became a public company in January 1956 and by the end of the decade had 31,000 customers.
Tucson Gas & Electric’s gas properties were bought in 1979 and doubled the size of the company. In 1984, the purchase of Arizona Public Service Company’s gas properties again doubled its size. By the early 1990s, the growth in the Clark County area surrounding Las Vegas began to resemble the fast pace toward which the city was also moving.
Meanwhile, it was difficult building the gas business in the Phoenix area where natural gas had been downplayed for years by the local utility, Arizona Public Service. Southwest Gas now has about 90 percent of the new construction market.
Today, Southwest supplies gas to most of Nevada except for Reno where it provides transport service to Sierra Pacific Resources through its company subsidiary, Paiute Pipeline. In California, Southwest has customers in Barstow, Victorville, Big Bear, part of Lake Tahoe and Truckee. During the winter, it’s possible for the company to deal with the nation’s lowest temperatures in the mountains of Lake Tahoe to its highest in the Sonoran Desert near Yuma, AZ on the same day.
Can’t Beat Location
James Kane, senior vice president of Operations for Southwest Gas, sums up the company’s development rather succinctly: “Location, location, location. We’re in the right part of the world where people are moving, and we’ve been fortunate enough to acquire some companies that added to our strength.”
Las Vegas, Phoenix and Tucson, in that order are leading Southwest’s growth. Las Vegas is still king of the hill, but Phoenix is rapidly closing in, and in the long run, will probably be the company leader in adding customers, simply because of its size. In 1998, Southwest added 25,000 customers in and around Las Vegas, 20,000 in Phoenix and 9,000 in Tucsonž and by April 1999, they added another 25,000 customers.
“The economists have forecast a slowing in our growth. If it is, we aren’t seeing it. In fact, it’s going in the opposite direction,” said Kane, a native of Scranton, PA who moved to Arizona in 1965 and worked at Arizona Public Service before moving to Southwest Gas in 1984.
Kane acknowledged that the 2,500 employees, many of them bilingual, face a constant challenge as they try to keep up with the boom. Southwest Gas still maintains a ratio of one employee per 500 customers, which ranks among the top five industry-wide.
“It’s hard to explain to people what growth at this rate does to an organization,” he said. “We’ve maintained our level of service without adding a lot of employees because we’ve used technology to increase our productivity. We use contractors and information technology (IT) to fill in the gap and eliminate paperwork.
“We have no problem with letting go of old habits or ways of doing things that no longer apply. By being able to do that, we’ve added well over 150,000 customers in the past three years, and maybe we’ve added 10 people in our operations group. When we need information delivered to the person talking to the customer, we make it available so the employees don’t have to leave their seats.”
Kane said Southwest Gas goes out of its way to appreciate long-time employees. “We reward them for their work; we pay them well and we’ve got good benefits. We let them know that if they come to work for us, do a good job and take care of our customers, they’ve got a job for a long time.”
Contract Work
When you add 60,000 homes and businesses a year, meter reading is obviously a growth area that you need to excel in. Hiring temporary meter readers helps Southwest fill its manpower need quickly and also provides a tool in which they can assess performance before hiring new personnel. Southwest also does more contracting work in construction and customer service. In 1998, Southwest added 2,500 miles of pipe to its system, all of which needs to be leak surveyed, and they contract that work out where it’s done at a cheaper rate, Kane said.
“We’re going to contract some more of our normal O&M work because we can do that at a lower rate. This allows our employees to do the more difficult aspects of an emergency response—taking care of our customers,” Kane said. “We’ve looked at those things that contribute to productivity and controlling costs, yet, our goal is to focus on the customer. That focus starts right at the top of the organization.”
Residential and small commercial customers comprise nearly all of Southwest’s customers and bring in 84 percent of its operating margin. Homebuilders are committed to using natural gas in Southwest’s service territory, and the company has a market share of 95 percent of new homes that are eligible to receive gas. The American Gas Association reports that the national average of market penetration is 69 percent.
There is research under way to use natural gas for residential air conditioning purposes, but Kane acknowledges that in a desert climate, most AC units struggle when temperatures hit 110 degrees. Instead, many of Southwest’s customers buy their gas for amenities, in addition to water heating, heating and cooking. A huge market, especially in Las Vegas, has developed for gaslights. In the Phoenix area, where wood-burning fireplaces are banned because of environmental issues, gas-fired fireplaces and outdoor barbecues have become popular.
Because of relatively low usage in the desert environments, the average residential bill is about $25-30 a month. On the other hand, the last five casinos that were built in Las Vegas in the past 24 months used the equivalent amount of gas of 180,000 residential customers, mainly for hot water use. The Mirage even has a volcano which is natural gas-fueled.
One way Southwest Gas manages to keep customer satisfaction high is that it refuses to rely on voice response units.
“You get more than a voice when you call us,” Kane explained, “you get a live person. We’ve found from surveys that our customer satisfaction ranges around 95 percent and that our customers appreciate the fact that they can actually talk to a real person. Even if the customer representative can’t personally answer the question, they’ve talked to someone who will get the answer for them.
“We learned customers want the ability to make appointments, so IT, along with our technology development partner Utility Partners Inc. (UPI), implemented an appointment scheduling system developed by UPI that’s also helped our customer satisfaction. They used to wait all day but now we give them two-hour appointment windows which works quite well. We’re very aware that we have to concentrate on our customers because we know they don’t need us like they need the electric company,” Kane said.
New Technology
Other than in snow-bound areas of Lake Tahoe, construction proceeds year-round with Southwest Gas still preferring open trench methods to trenchless and directional boring.
“Trenchless technologies are becoming more important, particularly in high congestion areas and spots where paving may be new, and municipalities don’t want their streets torn up. But trenchless is not without its downside and has a way to go, especially with respect to depth. We’ve had a number of line breaks where the auger will go through a plastic line. Line location is an art, not a science, and it’s hard to tell with directional boring and trenchless technology sometimes where the head is. We need pipe-locating equipment that gives you a better read on depth as opposed to just location.”
Kane has other thoughts about what he would like to see developed for the industry. He envisions, for instance, a mobile work force that would rely more heavily on special technologies to speed work requests. Southwest now uses a mobile computing radio system developed by Southwest and UPI to send orders via digital radio to customer service employees charged with doing turn-ons and turn-offs and responding to emergencies.
“We helped develop software allowing field technicians, after finishing a job, to press a code on a laptop sending that information back to the mainframe, thus completing the job so that a customer representative can learn instantly the status of an order. The company is now developing a similar system for construction, Kane said.
Southwest and UPI are also building an electronic work management system that computerizes information which has had to either be redrawn in the mapping system or transcribed and filed as paperwork. Southwest already has a totally computerized mapping system (Geographic Information System, GIS) of its vast territory and has hosted a Best Practices seminar for the A.G.A. on the subject.
In Phoenix, Southwest has successfully tested positioning software so that when crews realize they don’t have the necessary maps, they can tell the computer how far on either side of the point they want to line locate. A message is sent to the mapping system, which promptly responds with the latest information. Kane said.
Southwest Gas has a planned replacement program intended to reduce the stress on equipment inventory, repairs, maintenance and installation scheduling. They call it “just-in-time replacement.”
“For instance, we know how long pickup trucks will last so we budget to replace them on an on-going basis. We’ve also installed a fleet management system which tracks the O&M expense on each vehicle as they age,” Kane said. Since they’re using more contractors for construction and meter reading, the utility doesn’t need that many new vehicles, he added.
Gas-Only
Being a gas-only distribution company offers a special advantage for Southwest Gas, Kane said.
“Our focus is not blurred. I worked for a combination gas and electric in which gas was a stepchild to the electric business. At Southwest Gas, there is absolutely no doubt when we come to work in the morning what our role in the world is. We’re here to take care of our customers and to sell as much gas as we can. One of the problems combination companies have is how can you be in serious competition with yourself?”
Regarding new construction projects, Southwest Gas recently began serving the new El Dorado Energy power plant, a 480-mw natural gas-fired facility. The plant was built by Reliant Energy and Sempra Energy, near Boulder City, NV, south of Las Vegas. Reliant is building a sister plant near Casa Grande, AZ. At least 10 power plant projects totaling nearly 10,000 megawatts are being proposed in or near Southwest’s Arizona service territory. A power plant has been proposed for the high desert area of Victorville, CA. If approved, Southwest Gas could serve that plant too, the first power plant built in that state in 20 years.
“Most of the coming work that we see of significance is really more subdivisions and shopping centers. We put in 2,500 miles of pipe last year; we’ll probably do that again this year,” Kane said.
In its metro areas, Southwest uses some 500 vehicles powered by compressed natural gas (CNG) and the track record has been good over the past 20 years, Kane said. The trick is to use newer vehicles with factory-installed systems because they tend to operate better than those with conversion kits, he said. Southwest also benefits from credits issued by the Environmental Protection Agency.
“The problem is that the initial cost is still fairly high,” Kane said, describing why the NGV market has been slow to catch on in the U.S. “In other countries they’ve had strong governmental initiatives. In general we haven’t had that.”
Next 5 Years
If Southwest Gas is to reach the next level of productivity, the key will be mobile computing technology, especially in the three metropolitan areas.
“I want to see us move forward with technology that keeps people in designated areas so their driving is at a minimum. Not only does it give us a better response time to customers, but it saves on miles, on the driver and on pollution.”
“Mobile computing technology is the key to future productivity and that’s what we need to work on: getting orders and work to the field over the radio and then retrieving them that way so people can literally start working from home. In today’s world, with Internet technology, people are going to expect instant information, and we need to be able to provide it to them,” he said.
With his own company up for grabs, Kane foresees no slowdown as the gas industry continues to consolidate and/or converge with electric companies. Although Southwest Gas continues to move full speed ahead, its business future has left a fair amount of apprehension among employees.
“Intellectually, our employees realize that we live in a world where this seems to be happening, but it’s always a surprise when it happens to us. Probably in our hearts we’d wish that it didn’t happen, but that’s the world in which we live,” Kane said. P&GJ