Member System Profiles: Lancaster Municipal Gas

About thirty miles southeast of Columbus, Ohio, one drives along on US Route 33 to the county seat of Fairfield County, Lancaster, Ohio. Since 1888, Lancaster Municipal Gas, a city owned utility, has been serving natural gas to the local population. The gas operation currently has 25 employees to deliver gas to about 14,500 customers in the city and 1,000 customers outside the city limits.

The gas system has been tied to the city’s fortunes for well over 100 years. Local gas production started in the late 1800s, and three private gas companies formed at that time to provide service to customers. The city decided that having three companies vying for expansion would be counter-productive for the residents, so the city bought them all in 1888 and combined them into the present system. After gas was discovered in 1889, the Fairfield County Fair became famous for “Racing by Gas Light”, and the “Lake of Fire.” Lancaster Municipal Gas had a production arm into the mid-1970s, when it sold it to Columbia Gas Transmission when Ohio started declining as a producer.

Lancaster Municipal Gas was then used to pull industry to city, especially the glass industry. Since the 1980s, most of that industry has either moved away, closed, or connected directly to gas transmission lines.

The utility physically gets its gas from Columbia Gas transmission via four connections.
To increase its gas supply choices, Lancaster is currently laying high pressure pipe to have an interconnect with Texas Eastern pipeline by 2008, and Rocky Express pipeline by 2009.

Mike Pettit, a gas system veteran with over twenty-five years of experience, joined the system in December of 2000 in the middle of a financial crisis. Lancaster had only filled up their winter capacity to sixty percent, and by December 18, the system was already drawn down to one-third storage. They were higher priced in those first two months than other area companies. According to Pettit, “The previous management was somewhat inept. They had started building a new building with no plan whatsoever how to pay for it. The system was 2.6 million dollars in debt, with no idea how to get out.” In addition, they had been offering fixed-price contracts to industrial customers, with no hedges, so there was no leeway in prices possible.

When Pettit came onboard, he froze everything. He started cutting costs every way possible, such as reducing the workforce by twenty percent and suspending trade association memberships (including APGA).

“Today” Pettit says, “we have zero debt and have seven plus million dollars in the bank. It just took good business sense and common sense.” Not only are they financially healthy, the system has been able to improve its physical plant, including switching out almost 100% of their old equipment.

Lancaster Municipal Gas started converting their mapping system to a GIS-based system before the first quarter of 2007, which has rendered the utility almost paperless. All drawings are scanned in, and they are in the process of installing lap tops in all crew trucks. “When it’s all done,” Pettit says, “it will be very state of the art.”

Even better, they have made all these improvements while staying under their neighboring gas system’s prices. Since 2000, there has only been one month when their price has been higher than the neighboring (but not competing) investor-owned utility Columbia Gas of Ohio, which Lancaster uses as a benchmark.

Lancaster Municipal Gas prides itself on being very responsive and taking good care of their constituents. “If something needs to be done, we will do it there.”

Their rates are set by home rule, so they do not need to go through the PUC to change them. Lancaster Municipal Gas is able to adjust pricing monthly, and also hedge to deal with price volatility. According to Pettit, “It’s the right thing to do. Hedging strategy works well over time.” In addition, they have 1.1 BCF of storage, which acts as a natural hedge for winter. “However” Pettit continues,” we will hedge before injecting at times, if it makes sense – for example, as it was in January this year.”

Lancaster rejoined APGA as soon as they became financially stable. Pettit is on the Board of the Ohio Gas Association to follow state issues. “But in the big picture, we need to have lobbying on the national level to open up new areas to production in a responsible way, which Lancaster can’t do on its own, but APGA can.”

Pettit has attended several APGA gas supply conferences, including the recent one held in Phoenix, AZ. As they move forward with hedging, he feels it is good to see a national outlook and what is happening.

Pettit is concerned about the industry over the long run. “I am very concerned about over-regulation of our industry on a national level. FERC is taking OQ too far for all companies. Trying to comply gets a little onerous. When we are trying to offer our product as a good value, it is hard to keep up.”

Pettit originally came to town to run the gas company. After the success with turning around that utility, he has also been named the Economic Development Director for the City, and Director of the newly created Lancaster Port Authority.

Mike Pettit can be reached at rmpettit@ci.lancaster.oh.us or 740-687-6670 extension 10.

Originally in April 30, 2007 Public Gas News