April 2012, Vol. 239 No. 4

Features

AGA Chairman Cites Safety As Overriding Priority

When you look at the staggering prospects for natural gas as perhaps the essential fuel of the 21st century, can you imagine a more exciting time to be key player in this vital industry, charged with pushing forward the agenda of those energy companies that are on the front-line of providing that precious resource?

Larry Borgard certainly can’t. Borgard is president and COO – Utilities of Integrys Energy Group, Inc., and serves as CEO of each of Integrys’ six electric and natural gas utilities. He is responsible for the day-to-day operations of the natural gas and electric subsidiaries of the Integrys Energy Group, Inc., which operates over Four Midwest states and serves 1.6 million natural gas customers and 500,000 electric customers.

This year, he has one addition al assignment: reigning as chairman of the American Gas Association which represents the interests of more than 200 local gas distribution companies in Washington, DC.

Borgard has spent 26 years in the energy industry, beginning at Wisconsin Public Service in 1984 as an associate engineer. He subsequently held positions in, and managed areas including field operations, regulatory compliance, transmission, and planning. More recently he has also held several executive level positions within multiple subsidiaries.

Borgard holds a BS degree in Electrical Engineering from Michigan State University and a master’s degree in Business Administration from the University of Wisconsin – Oshkosh. He is a graduate of the Harvard Business School’s Advanced Management Program.

In this interview with P&GJ, he talks about the opportunities and challenges in store for the natural gas industry and his expectations. While he is excited about the prospects for natural gas, he tempers that enthusiasm with the knowledge that it must be delivered safely and reliably. It is an issue that gnaws at the conscience of everyone in the gas utility business after the deadly Allentown, PA explosion last year.

P&GJ: How did you decide on a career in the energy industry and what was the career path that has brought you to your current position with Integrys?
Borgard: I was fortunate to have a number of opportunities following my undergraduate studies at Michigan State. Back then both the energy industry and the defense industry were hiring new engineers. The energy industry seemed a bit more secure to me than the defense industry that seemed to live from one government contract to the next.

P&GJ: In your discussions with natural gas utility officials, what do
they say are their biggest concerns and challenges today?
Borgard: I believe to a person, the first priority for all of us is safety – of our systems, our employees and the public. Natural gas is America’s foundation fuel and we must ensure that all stakeholders continue to trust that we can deliver that fuel safely, responsibly and economically.

P&GJ: Are utilities also adding jobs, and if so, in what fields?
Borgard: Utilities, like other industries, are facing aging employee demographics, so we are adding jobs. Many of us are accelerating the replacement of our infrastructure that requires additional employees. And the low and stable price of natural gas has allowed us to expand our businesses through more direct use of our product, system expansions and natural gas fueled vehicle infrastructure.

P&GJ: What are your priorities as chairman of AGA this year?
Borgard: My top priority as AGA Chairman is ensuring that our customers, regulators and elected officials are confident in our ability to safely deliver our product. AGA members provide service to 70 million residential, commercial and industrial customers and operate more than 2 million miles of distribution pipelines. It is our job to keep them safe and I take that job very seriously.

Our natural gas supply outlook is the most positive it has been in decades. We are poised for robust growth ahead. I am excited to help continue to bring the benefits of abundant natural gas supply to customers and shareholders.

Finally, we must stay diligent on local and national issues that affect our industry. There are exciting opportunities that will help our country and consumers realize the many benefits of natural gas. Things like greater direct use of natural gas in homes and businesses, electricity generation and natural gas vehicles will help reach our national goals of improving our environment and increasing our energy security.

There are a variety of rules and regulations that come into play regarding these issues, and it’s critical we work with regulators, policy makers and legislators to help ensure we are part of the process from start to finish.

P&GJ: How will you determine at the end of the year whether you were successful?
Borgard: In my first month as chairman, the president of the United States mentioned natural gas in several speeches including the State of the Union, which was watched by approximately 38 million Americans. The price of natural gas is at around $2.50 per MMbtu, making it affordable for consumers at a time when not much else is. And a bipartisan pipeline safety bill was signed into law. Maybe I should ask AGA if I can step down now and call my term a success.

But seriously, I take a larger view of this industry and I think the chairs that have come before me have as well. We have a lot of exciting projects in the works, multi-year efforts. I am going to work to make sure all of them move forward this year and I know the next chairman will do the same.

P&GJ: What was your reaction to President Obama’s comments on natural gas in his State of the Union?
Borgard: We were glad to see the president acknowledge the many benefits that natural gas provides for our energy future, not just in the State of the Union but also in his jobs report around the same time. His remarks highlighted the fact that his administration understands the many benefits natural gas has for our nation – certainly encouraging.

We hope that he will follow these positive remarks with action, putting in place policies that expand the use of natural gas, so that every American and our nation as a whole can benefit from this clean, abundant, domestic resource.

P&GJ: What will it take to enable natural gas to reach its full potential?
Borgard: I think we need to pursue applications to match our abundant natural gas supply. The United States is the largest producer of natural gas in the world. Since 2007, U.S. natural gas production has grown by 22%. This is an extraordinary change in less than five years.

This abundant supply has resulted in relatively low and stable prices for consumers, and through greater use in transportation and electricity generation we will begin to see greater environmental benefits and increased energy security, which will help begin to reach the full potential of natural gas.

P&GJ: How concerned are you and AGA by today’s exceptionally low prices for natural gas? Do you see anyway to offset this?
Borgard: The abundant supply of natural gas in our country has translated into relatively low and stable prices for consumers, and since AGA represents natural gas utilities that deliver directly to the customers, this is something we are pleased to see. While prices aren’t likely to stay under $3 per MMbtu forever, a stable price level, what many analysts say is in the $4 to $6 range could benefit all stakeholders.

P&GJ: How is AGA’s role changing since the so-called shale revolution began? And how do you see AGA positioned in the next five years?
Borgard: The shale revolution and the increased supply of natural gas provides opportunities to use natural gas in new avenues to meet our national goals. AGA’s role has grown to support our members who are looking to capitalize on those opportunities, whether it’s new markets like power generation and natural gas vehicles or in innovative energy efficiency programs. Natural gas is the right fuel at the right time, we are looking to make the most of this time.

To continue to take advantage of this abundance we must develop this resource responsibly. AGA and our member companies firmly believe that our domestic natural gas resource base can be developed responsibly, thereby providing America with an abundant supply of domestic natural gas and remaining good stewards of our environment.

If we develop this resource in a responsible manner, we have an opportunity to transform the energy industry. AGA continues to be an outspoken supporter of sustainable and responsible development. We have released “Turning Principles into Action,” a report on natural gas resource development that points to responsible and sustainable practices in action. These are practices that natural gas producers are developing and implementing on a continual basis.

P&GJ: In your view, what is AGA’s major job – tracking legislation in support of its members on Capitol Hill or advancing new technologies and best practices?
Borgard: AGA’s main focus is to serve our members, which includes advocating on their behalf, tracking legislation, advancing new technologies and best practices and more. Safety is and always has been the top priority for AGA members. We hold safety summits that are widely attended and allow an exchange between members regarding best practices in the area of safety. AGA is the host of LNG 17 – the 17th International Conference and Exhibition on Liquefied Natural Gas which will take place in Houston in April 2013 and will be the largest global natural gas event held in the United States in 24 years.

Through the Drive Natural Gas Initiative we are supporting groundbreaking innovation in the field of natural gas vehicles. That’s just naming a few of the efforts under way at AGA.

P&GJ: Do you see AGA adding new services as the industry grows?
Borgard: AGA’s main goal is advocacy on behalf of natural gas utilities. This is our focus and will remain so even as the industry grows. We are consistently working with our members to evaluate their needs and while we may adjust our various programs based on their needs, our core functionalities remain steady.

P&GJ: Are utilities having difficulties implementing integrity management mandates?
Borgard: It wouldn’t be accurate to say utilities are having “difficulties” in implementing integrity management; however, there have been a few challenges on the transmission side, as was expected when the rule was promulgated back in December 2003. Transmission integrity was a landmark regulation requiring LDCs to perform integrity inspections on pipelines that are very often embedded within a distribution network. These pipelines are often unpiggable and not easily taken out of service without interrupting service to customers. The industry has worked diligently to overcome these challenges and will complete baseline assessments by December.

Distribution Integrity Management (DIMP) was designed to be consistent within the existing regulatory framework, so in many respects companies are implementing practices they have used in the past, but now under the platform of a formal, risk-based DIMP plan.

P&GJ: Are more companies upgrading their replacement programs to replace aging pipe? What is your own company doing in this way?
Borgard: LDCs are exploring ways to expedite replacement programs for pipelines that need attention. But utilities need help from other industry stakeholders to enhance their replacement efforts. For example, the U.S. Department of Transportation has stepped in and supported industry efforts by encouraging states to provide favorable rate recovery mechanisms.

Another example of an area where assistance would improve the process is the permitting process. Companies must frequently obtain permits from federal and state agencies before starting a replacement project. These permits can take several months or even more than a year to receive, and an improved and faster process would help in expediting needed replacements.

What the public also needs to understand is that just because a pipe is considered “old,” it does not automatically represent a high safety risk. Age is just one of several factors for operators to consider in assuring a particular pipe’s integrity — other factors that must be taken into account include a pipe’s operating history, its exposure to past excavation activity, and even the soil in which it is buried.

My company has embarked on an accelerated replacement of our system in Chicago. We expect to replace all of our existing cast iron main in less than 20 years. In 2011 alone we replaced more than 150 miles.

P&GJ: Do you think the natural gas industry is falling behind in developing new technologies?
Borgard: No, not at all. I do think the industry as a whole needs to take a hard look at the model we use to fund R&D efforts and determine if we are actually getting the biggest “bang for our buck.” We also need to work with pipeline operators and the U.S. Department of Transportation to help ensure the industry’s research organizations are focused on our industry’s top priorities and those issues that will truly help improve safe and efficient delivery of natural gas to consumers.

Most importantly, we need to make sure that once it is understood how a new technology can be applied in complying with a particular regulation, new technologies are recognized appropriately within the regulatory framework

P&GJ: What types of pipeline technologies would you like to see developed?
Borgard: Additional inspection technologies for both distribution and transmission pipelines to help give improved understanding of the condition of pipe. Since 2000, I think we have made some positive advances with tethered pigs, robotics, guided wave ultrasonics and enhancements in the capabilities of traditional pigging tools.

However, many of these tools are limited to a certain pipe diameter or a particular distance for which data can be retrieved. We need to improve upon these limitations. Also, I would hope for new plastic material applications which will improve our ability to transport natural gas to serve our ever-expanding customer base.

P&GJ: How successful has the gas industry been in trying appeal equally to both political parties?
Borgard: Natural gas is a bipartisan fuel. There is now natural gas production in 32 states and the industry supports the employment of nearly 3 million Americans in all 50 states. We work on a lot of different issues that receive bipartisan support – the Low Income Heating Assistance Program (LIHEAP) energy efficiency, reducing our dependence on foreign energy.

Our number one legislative priority for 2011, the “Pipeline Safety, Regulatory Certainty, and Job Creation Act,” which became law at the beginning of this year, passed the House and Senate with unanimous bipartisan support. You do not see that often these days – even naming a post office gets some nay votes. We see support from both sides of the aisle equally.

P&GJ: What particular legislation on Capitol Hill is AGA watching closely these days?
Borgard: We are consistently advocating for funding of LIHEAP – a critical block grant program that helps provide energy assistance to low- and fixed-income individuals. AGA’s members are also concerned about our nation’s fiscal crisis and how our debt and deficit affects the ability for their business to grow and succeed. So we are watching to see if any steps will be taken to address our nation’s debt and deficit which may affect our members if it includes tax reform or changes to energy subsidies.

Transportation is an important focus for our industry, and we’ve been working to make sure any legislation promoting alternative fuel vehicles takes into account the benefits of natural gas vehicles.

P&GJ: How big a problem is it if LIHEAP is not increased beyond the president’s recommendation?
Borgard: The LIHEAP program helps customers who struggle with home energy bills during times of extreme weather. U.S. military veterans make up 20% of LIHEAP households, and 40% are senior citizens. In 2010, LIHEAP was funded at a level of $5.1 billion and assisted approximately 23 million people with their energy bills. But this is just half the number of Americans living in poverty today — even increased levels of funding still leave millions unassisted. At $3 billion, states will have to spread the payment thinner and there will be approximately 1 million fewer households nationwide who will receive support. We don’t ever want to see anyone have to choose between paying their energy bills and other necessities like food and medicine, so this is an important program on which we’ll continue our advocacy efforts.