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Semco Energy head says company will invest in Alaska system William Johnson tells Alaska Support Industry Alliance company will focus on gas distribution business, safety, customer service; grow Enstar, market aggressively Kristen Nelson PNA News Editor
The head of Michigan-based Semco Energy, which bought Enstar Natural Gas from Ocean Energy last year, was in Anchorage in late March talking about the company’s plans for the Southcentral Alaska natural gas distribution utility.
William Johnson has taken over other gas utilities and he had war stories to share with the Alaska Support Industry Alliance — stories about safety and customer service and knowing what it is that the company does.
In the gas distribution business We are in the gas distribution business, Johnson told the Alliance.
Many utilities, he said, have tried to diversify. “And for most financial analysts and investors, utility diversification has the same meaning as tornado warning.”
Knowing the business you’re in, Johnson said, helps you decide what you do and what you do not do.
At Semco, he said, “we’re in the gas distribution business. That’s what we do. That’s what we know about. We’re real good at it. And we understand it. I think we run the best gas distribution company in America, with the fewest people, with the best quality of customer service by any standard you want to use.
“Check us out,” he suggested.
When he came to Semco, he related, 50 percent of customers hung up before they got through to a centralized phone center. Now, with fewer people, the center’s abandoned call rate is 5 percent. “Really a matter of management, paying attention to how you’re doing the work and making sure that you’re paying attention to what needs to be done at what times of the day, what days of the week and having the resources available to get the job done,” Johnson said.
Safety comes first “We’re here to run gas distribution properly, number one,” Johnson said.
“Our perspective on that is first and foremost pay attention to safety. Natural gas is different than other utility properties and when bad things happen with natural gas, customers usually suffer.”
Leaks happen in gas lines, and Johnson said there are three categories of leaks — those you fix right away, those you schedule for a fix and those you just keep track of.
Leak response time is being monitored at Enstar and the time it takes Enstar to show up to fix a leak has already been cut in half since the monitoring started “and we’ll pay further attention to it and cut it some more until we get it where we think it needs to be.
“The industry average is about 30 minutes. We’ll be well under that. We’ll be closer to 20 in the next couple of months and get this where it needs to be.”
After safety comes customer service. “For example, it seems to be that we ought to be able to read the meters,” Johnson said. “When we bought the company, meters were read every other month and alternate months they were estimated.
“I don’t like estimated bills,” he said. So the company has started installing encoder receiver transmitters on gas meters, something Semco has already done in Michigan.
“And so this little device can be awakened by a service man that drives down the street, transmits a signal and reads your meter from a quarter mile away. We can read all the meters in Anchorage in a day. And we don’t need any meter readers.”
Employee development emphasis Semco is also going to pay a lot of attention to employees and employee development. In fact, Johnson said, I sent “my best person in the organization in terms of leadership development” — Barrett Hatches — to head up Enstar.
Enstar, like Semco when Johnson joined that company a few years back, is “an old military style hierarchical organization where orders come from the top down, people are told what to do and they just do what they’re told.
“And I don’t want that kind of operation,” Johnson said.
“I want people to think and to act and to do. Without having to be told from on top what needs to be done. I don’t know enough to do that. And I’m not smart enough to tell everybody what to do and have it turn our right. I need people who are leadership oriented.”
Another thing that distinguishes Semco is that it’s very marketing oriented, Johnson said, and it will be “addressing the marketing of natural gas in a variety of different ways to increase our sales in residential, commercial, large industrial, co-generation projects, expanding the system wherever we can in and around Anchorage to put gas in, in places where it makes economic sense to do that.”
Ocean Energy, he said, used Enstar as a cash cow to fund exploration and production operations. “Nothing wrong with what they did, by the way, that’s what they should have done and I’m a fan of Ocean Energy,” Johnson said. “It’s just their perspective is different than ours.”
No fights with regulators Johnson said Semco will pay a lot of attention to rates — “we’ve already lowered the cost of gas since we got here by 4.7 percent for residential customers.” And, he said, the company will pay further attention to the regulatory process.
“I don’t fight with regulators,” he said. “There’s nothing in that for me.”
Johnson attributed the company’s attitude of cooperating and working with regulators as the reason it got its change of control approval in 90 days. That’s unheard of in the business he said. And it’s because the company is easy to work with.
Johnson said that his approach is to be up front with regulators, not to have any hidden agendas and to “recognize that it’s not their job to make me financially healthy.”
“They have the specific responsibility to take care of in terms of meeting the public interest. And that’s what they should do. And I only ask that they give me the opportunity to earn a decent return on my investment. And if they do that, then I’ve got to go earn it. And that’s good enough. That’s fair. And so we’ll get along well with the regulators. Nobody’s going to be in anybody’s pocket, we’re not talking about that, we’ll just work together on a reasonable basis.”
Plans for Alaska Johnson said the Semco plan for Alaska is to improve the Enstar operation, improve its capacity to earn and its capacity to sell gas — and to improve its level of service to its customers.
Then the company wants to expand the distribution business in the immediate area both in Anchorage and in Kenai, and “to look for other opportunities to build gas distribution systems wherever that opportunity exists in the state.”
Fairbanks is on the list — subject to finding a gas supply, Johnson said, as are Homer and Seward.
Semco also wants to “expand the viability of our Alaska pipeline asset in the Cook Inlet area” and look at it as a separate business unit, and “see if there aren’t ways with gathering systems and so on that we can expand the viability of that asset…”
Johnson said that Semco operates a lot of gas storage in Michigan would be interested in participating, even as a minority player, in gas storage in Alaska. “There’s enough storage in Michigan,” he said, “to provide natural gas for all the customers in the state for a full winter without buying any gas from anybody.”
Non-utility businesses Semco also owns, separate from its utility businesses, engineering and construction businesses which put pipe in the ground for utilities, about 10 companies in various parts of the country, Johnson said.
“We’re in a variety of places around the country. We’re in about half the states in this business segment. We did this because this is something I presumably know something about. I ran Northern Pipeline. So again, consistent with what I told you earlier, we want to do something we know about so we won’t screw it up.”
In the next five years Semco wants to be the largest natural gas distribution engineering and construction company in the country. “We think that’s doable,” Johnson said. It will be done primarily through acquisitions and some internal growth.
Semco plans to acquire an engineering and construction company in Alaska by this summer “that can help us with our Enstar work and can participate in other activities in the natural gas engineering and construction business.”
This segment of the company’s business is separate from the utilities — it’s not regulated.
Johnson said that Semco buys privately held companies with Semco stock and keeps the people. “If the people who run the company won’t stay, we don’t buy it. We’re not into doing fix-ups. We don’t have time for that. We don’t have the management expertise. We’re too busy for that. We have to buy good companies that have good histories, good reputations, good history and profitability. And I would expect that we’ll be looking for the opportunity to do that here very shortly.”
Community involvement will grow The company’s community involvement will be significant and substantial, Johnson said, in all kinds of activities in the community, revolving around, for example, the United Way.
A utility bills you every month. “And I think it’s important for us to contribute back something in that kind of arrangement and it’s good for our employees to do so. So we’ll be a lot more involved in the Anchorage community to begin with, in the social service area, in the health related items and education, the arts, and in things that impact senior citizens, which are an important part of our customer base. And a group that we need to pay a lot of attention to.”
Cook Inlet reserves Johnson said Semco looked at Cook Inlet natural gas reserves very carefully before it acquired Enstar.
“We believe that we have some significant work to do with the producers on our reserves in the Cook Inlet,” Johnson said. He said the company believes that “more than adequate reserves exist in the Cook Inlet for us for a significant period of time.” But that the company will also be paying attention to the long-term supply issues.
“And we have begun that process … we’ve held rather extensive meetings on a variety of gas supply issues with four companies and are looking to enter into arrangements with those companies that will take care of our long-term gas supply needs. So it was at the top of our list to deal with, because people had lots of questions about gas supply when we acquired the company.”
Large-customer growth prospects Johnson said Semco would “really look at aggressively marketing our fuel to large commercial and large industrial customers, in particular looking at co-generation as an opportunity for them which we think is a good opportunity.” Semco has a lot of expertise and success with co-generation projects at schools, hospitals, shopping centers and universities, he said. “And it greatly reduces energy costs. We’re even up for financing the thing if the customer wants us to do that and we’ll operate it for them if they want us to.”
“And remember,” he said, “this company was operated as a cash cow by an E&P company that wasn’t particularly interested in expanding its business operation. So I’m not critical of that, that’s just the way the operated. That was good for them. Our situation’s different. We got to operate this differently. We have to be very aggressive in trying to grow it. And that’s our nature anyway. So, that’s what we’ll do.”
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