Southern Union Company

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Southern Union Company

504 Lavaca Street, Suite 800
Austin, Texas 78701
U.S.A.
(512) 477-5852
Fax: (512) 477-3879
Web site: http://www.southernunionco.com

Public Company
Incorporated: 1932 as Southern Union Utilities Company
Employees: 1,595
Sales: $669.3 million (1998)
Stock Exchanges: New York
Ticker Symbol: SUG
SICs: 4924 Natural Gas Distribution; 6552 Subdividers and Developers Not Elsewhere Classified

Southern Union Company is a publicly owned international holding company for public utilities and other energy-related businesses; the company’s principal line of business is the distribution of natural gas. As the 16th largest natural gas distributor in the United States, the company serves over one million customers through its three divisions: Southern Union Gas in Texas, Missouri Gas Energy, and Atlantic Utilities in Florida. The Southern Union Gas division distributes natural gas to approximately 511,000 agricultural, commercial, industrial, and residential customers in Texas, including the cities of Austin, Brownsville, El Paso, Galveston, and Port Arthur. The Missouri Gas Energy division distributes natural gas to approximately 482,000 customers in western Missouri, including the cities of Kansas City and St. Joseph. Atlantic Utilities in Florida is a natural gas and propane distribution firm that serves several communities in Florida. Southern Union’s focus is to provide safe, reliable, and low-cost energy. The company believes that the diversity of its geographic operations reduce weather-related risk and risk affiliated with local economic conditions, and it strives for selected growth, mainly in the natural gas industry, while providing various customers “one-stop shopping” for their energy needs.

Early 20th Century Origins and Growth

The company reportedly traces its origins to the 1929 founding of Wink Gas Co. in the West Texas town of Wink. Despite the onset of the Great Depression, Texas was at that time experiencing a boom in the oil business, and the company’s business was steady. By 1932, the company had reorganized as a holding company, known as Southern Union Utilities Co. and overseeing the operations of subsidiaries Southern Union Gas Co., New Mexico Gas Co., New Mexico Eastern Gas Co., and Texas Southwestern Gas Co. To better reflect its focus on gas over utilities in general, the company merged all of its assets into the Southern Union Gas Co. in 1942.

The period that followed was characterized by expansion through acquisition. For instance, on January 26, 1944, the company purchased for $2.7 million from Lone Star Gas Company a gas distribution system serving approximately 17,000 customers in the El Paso vicinity. During this time, the company also purchased leases for lands in Louisiana, and by 1949 had acquired for $350,000 the gas facilities of Durango Natural Gas Company in Durango, Colorado. Southern Union cemented its presence in Austin, Texas, when it merged with the Texas Public Service Company in 1949. The company also acquired a gas distribution system with 24,000 customers in Albuquerque, New Mexico.

Throughout the 1950s and 1960s, Southern Union formed wholly owned subsidiaries to oversee the operations of its increasingly far-reaching holdings. The Southern Union Gathering Company was formed to assume operation of the company’s gas gathering pipeline system across 50,000 acres of Blanco gas field in San Juan Basin. In 1967, Southern Union Realty Company was formed as a wholly owned subsidiary.

The energy crisis effected by the OPEC oil embargo in the 1970s prompted the company to search further afield for natural resources, and the Southern Union Exploration Co. was formed as a subsidiary in 1974. Also that year, another wholly owned subsidiary, Southern Union Oil Products Company, was formed primarily to sell and distribute refined oil products it had purchased from a refinery owned by Famariss Oil and Refining Company, itself a subsidiary of Famariss Oil Corporation. Southern Union Oil Products Co. acquired Famariss Oil Corp. in September 1975. Company development over the next 15 years included efforts to consolidate Southern Union’s wide array of interests, which by that time included the Southern Union Financial Corporation, Southern Union Processing Co., Southern Union Refining Co., and others.

New Leadership in the 1990s

Perhaps because of its series of acquisitions and mergers in the 1970s and 1980s, many of which had proved unprofitable, Southern Union began the next decade nearly bankrupt. On February 6, 1990, Metro Mobile CTS, a company specializing in cellular telephone licenses, acquired Southern Union for $175 million. The cash transaction was structured in such a way that Southern Union survived the merger as an independent corporate entity with a new group of shareholders (Metro Mobile’s), a new board of directors, and three new senior officers, including the new CEO, chairman, and controlling shareholder, George L. Lindemann.

Lindemann was an entrepreneur from New York who had graduated from Wharton and gone on to make millions establishing highly successful businesses whose focuses ranged from contact lenses to cable companies to cellular telephone licenses. When his Metro Mobile CTS company acquired Southern Union, Lindemann admitted knowing nothing about the natural gas business. However, in a 1993 article in Forbes, he maintained that contact lenses, cable television, and cellular phones, and, even natural gas distribution “look a lot more different than they are. They’re all service oriented; they’re all very similar as far as the back office is concerned.”

Lindemann brought in Peter H. Kelley to serve as the company’s president, and together they set about reorganizing and consolidating Southern Union’s customer service operations and bolstering the company’s customer base with the acquisition of several new distribution systems in Texas.

Distinguishing itself as an innovator while at the same time making use of excess natural gas supplies in the off-season, Southern Union became involved in converting cars and trucks to run on natural gas. Although this business segment represented a small percentage of the company’s sales volume, it was regarded as potentially very profitable given stipulations of the Clean Air Act of 1990 that the country’s more polluted urban areas work to reduce pollution by using alternative fuels.

1993 was a year of major acquisitions for the company. In July of that year, Southern Union purchased Eagle Pass Natural Gas Company for $2 million, which added more than 3,800 customers to the company’s central Texas region. Also during this time, plans were announced for the acquisition of certain Missouri natural gas distribution operations of Western Resources, Inc., based in Kansas City, Missouri. In September 1993, Southern Union acquired the Rio Grande Valley Gas Company from Valero Energy Corporation for about $30.5 million. The purchase comprised 1,552 miles of distribution lines serving almost 76,000 customers in south Texas.

Under Lindemann and Kelley, expansion also involved moving further north into states where colder weather could provide more stable annual revenues to offset the cyclical nature of gas distribution. In January 1994, the Western Resources, Inc. $400.3 million acquisition was finalized. The Missouri Acquisition gave Southern Union a Kansas office from which to grow its natural gas vehicle market and added 460,00 customers to its operations, nearly doubling the size of its service base. By having the Missouri Gas Energy (MGE) division under its operating belt, Southern Union became one of the 15 major gas utilities in the United States. The company soon was able to declare a three-for-two stock split, and by year-end 1994, the company’s sales of $374.5 million had almost doubled 1992 sales figures.

The Missouri Acquisition helped establish Southern Union as a sales and market-driven company, with management committed to reaching profitable growth in an increasingly competitive business arena. Management had three strategies for achieving their objectives, including: promoting new sales opportunities and markets for natural gas; improving financial and operating performance; and growing the company through development of existing systems and specific acquisitions of new systems.

1996 was also a year of innovation and new markets for Southern Union. The company created Energy WorX, Inc. as a subsidiary to fill a void in the natural gas training industry. Energy WorX developed computer-based training courses on natural gas industry topics, and saved the company training costs. Southern Union also entered the propane market when subsidiary SUPro acquired propane distribution facilities in El Paso, Texas, which served 1,100 customers. SUPro installed centralized distribution systems in regions that were geographically beyond the natural gas mains and were financially incapable of expanding the gas lines. The long-term goal of the company was to first secure the customers’ loyalty with economical propane distribution. Then, when development permitted the expansion of the natural gas lines, Southern Union would convert these same customers to natural gas consumption.

By year-end 1996, Southern Union had reached $620.4 million in sales and recorded its sixth consecutive year of earnings and revenues growth. A triumph for Southern Union occurred when Fortune magazine named the company among its October 1996 list of America’s 100 fastest-growing companies, the only utility to make the list.

Company Perspectives:

Our mission is to serve customers and the environment with commitment, leadership and innovation.

In 1997, Southern Union implemented an Automated Meter Reading (AMR) system throughout the MGE division’s facilities. This advanced technology cost the company about $28 million; however, the investment provided greater quality customer service and decreased overall operating expenses by allowing the company to collect gas consumption data via a remote computer transmission device, reducing a traditionally labor-intensive process.

Transition to Deregulation and Beyond

In 1998, impending deregulation of the energy industry and the increasingly competitive environment for consumers loomed large for Southern Union. In response, in January of that year Southern Union acquired for $22 million the Atlantic Utilities Corporation in Miami, Florida, a natural gas and propane distribution firm that served several communities in Florida. The Florida market was targeted for nontraditional applications of natural gas for annual use, such as desiccant technology, gas-fired peak shaving equipment, natural gas-powered air conditioning, and natural gas-fired cogeneration.

As it neared the close of the century, Southern Union was providing natural gas services in Florida, Missouri, Texas, and Mexico. Even with pending deregulation of the energy industry, and competition heating up, Southern Union appeared to have the equipment, organization, and personnel in place to guarantee reliable service to consumers well on into the next millennium.

Principal Subsidiaries

Mercado Gas Services Inc.; Energy WorX Inc.; SUPro, Lavaca Realty Company; Southern Transmission Company; Southern Union Energy International Inc. (SUEI); Norteño Pipeline Company; ConTigo Inc.; Southern Union Total Energy Systems, Inc.; Energia Estrella del Sur, S.A. de C.V. (Mexico;42%x).