Piedmont Natural Gas Company, Inc. History

Company History:

Since its formation in 1950, Piedmont Natural Gas Company, Inc., has provided natural gas and propane to customers first in the Piedmont region of the Carolinas and, later, to those in Tennessee. In 1996, its service area encompassed a large portion of western North and South Carolina along Interstate 85 and the area in and around metropolitan Nashville, Tennessee. As is typical for utilities in the southern United States, many of its customers have been in the industrial sector, though it has served larger numbers of residential and commercial customers as well. Piedmont has also engaged in non-utility endeavors, such as the selling of propane. By the late 1990s, Piedmont had grown to become the second largest gas utility in the southeastern United States.

A Difficult Beginning

The years after World War II witnessed a natural gas pipeline "boom" in the United States, and in 1950, Henry Blackford, Sr., Priestly Conyers, Jr., and Donald S. Russell, Sr., sought to construct a pipeline from Texas to the as-yet unserved Piedmont region of the Carolinas. When the Federal Power Commission instead granted Transcontinental Pipeline Company (Transco) permission to construct a pipeline to the area, rather than giving up on the gas business entirely, the three South Carolinians purchased from Duke Power Company the right to distribute manufactured gas to a number of North Carolina cities. The sale was finalized on May 1, 1951.

Piedmont's first year was a difficult one. The company inherited 34,000 customers and 300 former Duke employees, but reportedly had no offices, minimal and aging cast iron pipe, and a collection of rusty automobiles. Eventually, an old Studebaker dealership was pressed into service as Piedmont's first corporate office, but the conditions inside were far from comfortable. Crates served as chairs and desks, the roof leaked--sometimes flooding the office--and employees labored without benefit of air-conditioning. Moreover, plans to convert the business to natural gas by tapping into Transco's pipeline were impeded by the lack of steel pipe, a shortage caused by the Korean War. Losses during the first year totaled $1 million.

A Series of Firsts

The end of 1952 brought with it good fortune to the company in the form of two events: steel pipe became available from Great Britain, and Buell Duncan was hired as president. Duncan came to Piedmont with experience in the gas business, having served as director of Florida's Southern Atlantic Gas Company. He also possessed a background as a civic leader and the desire to increase the company's community exposure. His efforts helped initiate what John Maxheim, a later Piedmont executive, would call the company's corporate culture.

In subsequent years, Piedmont experienced significant growth and an important sequence of firsts. The company made its first profit of $373,000 in 1953, more than doubling this figure the next year by earning $760,000. A dividend--the first--of 20 cents per share was issued in 1956, and the first annual report to stockholders appeared in 1957. In the same year, revenue surpassed $10 million and net income soared to $1 million. The first shareholders' meeting took place in Charlotte, North Carolina, in 1958.

Throughout the 1950s and 1960s, Piedmont continued to expand its customer base and develop its internal resources. Between 1951 and 1957, 16,000 new customers signed on with the company, bringing the total number served to 50,000. By 1960, that number was 75,000, and in 1964, the company reached the 100,000 mark. An engineering staff was organized in 1953, and the company moved into new headquarters, complete with a gas-powered clock, in 1962. Piedmont acquired Carolina Natural Gas Company in 1968, thereby gaining 9,000 new natural gas customers and 1,000 new propane customers in Hickory and the surrounding areas.

The Gas Crisis

However, beginning with the 1970s, increasingly severe gas shortages gripped the United States, and Piedmont's period of untroubled growth was stalled. Gas suppliers nationwide, but predominantly in Texas, curtailed deliveries when regulation of the wellhead price of natural gas by the Federal Power Commission set prices at levels which did not enable them to make a profit for some wells. In response, regulatory agencies like the Federal Power Commission (FPC), the North Carolina Utilities Commission (NCUC) and the South Carolina Public Services Commission (SCPSC) set in place gas rationing plans in 1971.

Since industrial customers received lower rationing priority than residential and small commercial customers, curtailments had a noticeable impact on Piedmont's earnings. Piedmont faced gas volume curtailments of 4.3 percent in 1971, 11 percent in 1972, and 24 percent in 1973. By 1974, Piedmont's curtailments had reached 40 percent, and then edged up to 56 percent the next year. In 1974, the state regulatory commission in both Carolinas ordered Piedmont to refrain from adding customers until the shortage had abated. A mild winter in 1975 helped avert a gas crisis in North Carolina, but 1976 ushered in bitterly cold weather during which interstate pipelines could fulfill only a quarter of demand.

Nevertheless, while the situation was a difficult one for the company, it still managed to turn a profit. In the mid-1970s, the company was able to secure both NCUC and SCPSC approval for a curtailment tracking adjustment (CTA) formula that was intended to stabilize earnings by adjusting customers' rates in response to curtailments. Piedmont also sought rate increases in 1974 and 1977. By 1978, with stock prices plummeting, Piedmont still claimed a net income of $5 million and 185,000 customers.

By the mid-1970s, gas shortages nationwide had become "politically intolerable," according to some, and in 1978, Congress passed the Natural Gas Policy Act (NGPA), which took the first steps toward deregulating the gas industry and created a new agency, the Federal Energy Regulatory Commission, to replace the Federal Power Commission. John Maxheim, head of Piedmont Natural Gas, was critical of portions of the act that he feared would increase gas prices. Signs of deregulation, however, were welcome, and the company routinely began to voice its pro-deregulation stance. Curtailments essentially ended in 1979. In 1982, Piedmont joined with three other utilities to call for a nationwide conference to discuss the challenges emerging in the new marketplace.

A Deregulated Market in the 1980s

Piedmont experienced strong growth during the next several years. In 1979 alone, the company provided fuel to 6,500 new customers, an increase greater than any throughout the previous six years. A total of 9,000 customers joined Piedmont's rolls in 1980. The company recorded $9.3 million in net income during the same year, a 60 percent increase over 1979, and embarked on a $16.3 million program of system expansion. By 1981, when demand for natural gas was at an all-time high, the company gained 11,000 customers and finished a new corporate headquarters building in Charlotte. Although the following recession year witnessed a 16 percent decline in earnings, cold temperatures in 1983 reversed the downward trend as Piedmont benefitted from record-breaking consumption.

Still there were rough times ahead. Inflation was an ongoing problem, and gas prices rose as predicted in the wake of the NGPA, with consumers paying 80 percent more for natural gas in 1983 than in 1978. As a result, much new residential construction had turned to electricity to meet home heating needs during the early 1980s. Piedmont and other gas utilities thus had to build non-revenue producing pipeline through the electrical "doughnuts" these subdivisions had created. The state of the wholesale natural gas market was somewhat unpredictable, and Piedmont had to contend with widely fluctuating gas prices from its suppliers. In 1981 and again in 1982, Piedmont sought rate increases, citing fluctuating oil prices and low consumption of natural gas as damaging to its competitiveness. It dropped its request in 1981, instead offering a decrease, when Transco dropped the wholesale price of natural gas.

To shield itself from this uncertain situation, the company and its subsidiaries moved to diversify. Piedmont had sold propane fuel and marketed natural gas- and propane-powered appliances since the 1950s; in the 1980s, it moved into a number of new areas as well. In 1981, PNG Energy Company purchased Gilley and Tolley Fuel Company and began to operate its coal business under the name of PNG Coal and Oil Company. Also during that year, PNG Communications Company entered the cable television market, and PNG Conservation Company began selling solar water heaters, branching out into electricity-producing solar voltaic cells in 1983. All told, by 1984, non-utility endeavors represented 4.4 percent of business.

Explosive Growth in the Late 1980s

By the late 1980s, the gas market was functioning more predictably, and Piedmont was providing fuel to a total of 300,000 customers, a number which represented a rate of increase that was three times the national average. The company acquired Tennessee Natural Resources, the parent of Nashville Gas Company, which at the time served 61,000 customers, and, between 1986 and 1995, signed on 20,000 new customers each year. In 1984, Piedmont opened a Houston office and formed a joint venture with natural gas marketers in Texas that allowed it to market wholesale gas to other utilities and large-volume customers beyond its three-state area. By 1990, Piedmont was serving 415,000 customers, and its continued success was attracting notice. Duke Power, provider of electrical service in the Piedmont region and longtime Piedmont competitor, began to seek ways to counteract the company's aggressive marketing and growth in the residential and small commercial markets.

Piedmont continued to grow at a remarkable rate throughout the early 1990s. In August 1991 John Birch, an analyst at Equitable Securities in Nashville, Tennessee, called Piedmont "one of the best utility stories in the United States." The company continued to add customers--a record 28,100 customers in 1993--and common stock dividends grew at a rate above the industry average between 1991 and 1996. In 1995, Piedmont recorded a net income of $38 million and was honored by the Newcomen Society of the United States, an organization founded in 1923 to promote and recognize important contributions to free enterprise. John Maxheim was selected by Financial World Magazine as CEO of the year that same year in the gas utility category.

New Challenges and Joint Ventures

The gas business continued to change, and Piedmont had to diversify to adapt to new circumstances. As deregulation progressed during the middle and late 1990s, the company formed an increasing number of joint ventures with other utilities and natural gas suppliers. In 1994, Piedmont's subsidiary, Piedmont Energy Company, became a 51 percent partner in Resource Energy Services Company, L.L.C., which focused on providing gas acquisition, transportation, and storage services to industrial and large commercial customers in the Southeast. In 1995, Piedmont Intrastate Pipeline Company, a division of one of the Piedmont subsidiaries, Piedmont Energy, joined with several other utilities to extend the Cardinal Pipeline of North Carolina 65 miles to a point in the vicinity of Raleigh. That same year, Intrastate announced plans with Transco and two other North Carolina utilities to build a liquefied natural gas terminal near Transco's main line in North Carolina under a joint venture called Pine Needle LNG Company.

Among Piedmont's most important joint ventures was the formation of SouthStar Energy Services, LLC, with AGL Resources of Atlanta and Dynergy, Inc. of Houston, the holding company for Atlanta Gaslight, the southeast's largest natural gas distributor. In addition to selling natural gas to industry and large commercial customers in the eight-state southeast region, SouthStar was formed to provide electricity and natural gas to residential and small business customers. In the fall of 1998, when Georgia became the first state in the region to open its utility market to competition, SouthStar, doing business as Georgia Natural Gas Services, began marketing unregulated natural gas services to its customers.

Competition also increased with deregulation. In 1995, the NCUC awarded natural gas service in four North Carolina counties to newcomer Frontier Utilities over Piedmont's competing bid. Two years later, Piedmont protested plans by BASF, a chemical company and manufacturer of plastics, pharmaceuticals, and crop protection products, to buy its natural gas directly from Transco, Piedmont's supplier. In order to meet the challenges of future deregulated competition, Piedmont began a process of cost cutting. In 1994, the company sold properties acquired during the early 1970s on which it had sought natural gas deposits; the production from its finds no longer justified administrative costs. Piedmont also ended its natural gas appliance sales and installation business in 1996 after 45 years of involvement when revenues no longer justified expenses. In 1997, the company eliminated 126 positions from its work force to help ensure that Piedmont would remain competitive.

Throughout the late 1990s, Piedmont continued to prepare to meet the challenges of the increasingly competitive gas market. Natural gas doubled its share of the home heating market between 1992 and 1998, during which time Piedmont expanded both its customer base and earnings. In 1997, the company enjoyed a net income of $54.1 million, an 11.4 percent increase over the previous year. The mild winter of 1997-98 made a dent in sales, but Piedmont continued to add new customers at a much faster rate than most utilities across the nation. In 1998, the NCUC granted Piedmont permission to use $26.2 million from specially designated and regulated expansion funds to expand its service into three more North Carolina counties. Piedmont was providing services to 673,000 customers in that year and had grown into the second largest gas utility in the southeastern United States.

Principal Subsidiaries: Piedmont Energy Company, Inc.; Piedmont Intrastate Pipeline Company, Inc.; Piedmont Interstate Pipeline Company, Inc.; PNG Energy Company; Piedmont Energy Partners, Inc.; Tennessee Gas Company.

Further Reading:

• "Analyst Says Duke Needs 'To Fight' Competitive Threat from Piedmont," Electric Utility Week, December 10, 1990, p. 9.
• "Buyout Could Put Other Gas Companies on the Market," Asheville Citizen Times, November 17, 1998, p. B8.
• "Distributors Seek Nationwide Conference on Issues Confronting FERC as Gas Industry Moves Toward Deregulation," Foster Natural Gas Report, April 15, 1982, p. 12.
• Johnson, Leslie Williams, "Piedmont Natural Gas Enters New Territory as Georgia, Others Deregulate," Charlotte Observer, July 16, 1998, p. B5.
• "N.C. Residential Gas Market Booming, But Consumption Lowest in Region," Gas Utility Report, June 19, 1998, p. 2.
• "Piedmont Joins Two Texas Marketers to Provide Wide Range of Services," Gas Utility Report, January 21, 1994, p. 2.
• "Piedmont, Nonutility Company Battle over Right to Serve Rural N.C. Area," Gas Utility Report, July 21, 1995, p. 1.
• "Utility Players; Speculation Regarding Publicly Owned Stocks," Business North Carolina, August 1991, p. 49.

Source: International Directory of Company Histories, Vol. 27. St. James Press, 1999.

Directory of Sample Business Plans Directory of Company Histories Contact Us Advertise