America Gas Association presentation at New York Society of Security Analysts.

NEW YORK--(BUSINESS WIRE)--Jan. 17, 1996--The following is a summary of a presentation Wednesday at the New York Society of Security Analysts by George A. Davidson Jr., Chairman of America Gas Association.

The keys to the future success of the U.S. natural gas industry are new alliances and creative solutions, as gas companies face the restructuring of the electric industry and the continuing evolution of their own industry, said American Gas Association Chairman George A. Davidson Jr. at a presentation today to the New York Society of Security Analysts.

"In terms of electric industry restructuring, our industry needs to concentrate its efforts in the core markets," said Davidson, who also is chairman and CEO of Consolidated Natural Gas Co., Pittsburgh. "The path to success there will be providing the customer with both commodity and energy services at the lowest possible cost. That means providing gas or electricity or both, plus a host of other services such as marketing, conservation, energy management, billing and the like."

For a company to thrive, not just exist, in this new reality, Davidson said, it must be able to offer a wide array of services, individually or in conjunction with others, at competitive prices. "That is why you will see a great many new alliances in the years ahead," he said. "You may well see more mergers among companies in both industries. You certainly will see different players combining their respective strengths to form energy management companies or become energy service providers. And you will see more partnerships among producers, pipelines, marketers, utilities and telecommunications companies, on both the gas and electric sides."

He also noted that another critical factor in the future success of the natural gas industry is its ability to market gas and gas end use products, which means "marketing both the environmental and efficiency advantages of our fuel, as well as the quality and value of our end-use equipment."

Two important issues in the evolution of the gas industry are gas service unbundling at the state level and pipeline capacity turnback by utilities, Davidson said, noting that unbundling provides local distribution companies (LDCs) with one more option for meeting customer needs.

"As long as transportation rates are set properly, the growth of unbundled service allows for both increased throughput for the LDC and increased return for the shareholder," Davidson said. "Remember that the distribution lines remain just as full of gas, whether the gas is owned by an LDC, a marketer or an end-use customer."

The issue of capacity turnback is an inevitable response to a changing marketplace, Davidson said, because of the larger number of choices offered to customers.

"Capacity turnback poses real challenges to both pipelines and LDCs," Davidson said. "At the same time the pipelines worry about revenue loss from turned-back capacity, the LDCs worry that a portion of the unrecovered costs the pipelines face will be allocated back to the LDCs, to be eventually born by their existing customers. In effect then, the LDCs would be paying a higher unit rate, although for less capacity."

Companies are developing innovative ways to deal with these issues, Davidson said, such as new marketing techniques, cost-sharing and risk management tools. "Calvin Coolidge once said that if you see 10 troubles coming, nine of them will be solved before they ever get to you. Well, in the natural gas industry, nine of every 10 troubles can be can be solved by growing demand," Davidson said. "Grow demand for natural gas and you grow demand for capacity, which reduces the problem of capacity turnback."

CONTACT: American Gas Association

Julie Stewart, 703/841-8667