The Business Economist at Work: Washington Gas

By Smith, J. Edward | Business Economics, July 1996 | Go to article overview

The Business Economist at Work: Washington Gas


Smith, J. Edward, Business Economics


Coldpack is a mixture of tar and gravel used for temporary repairs to street excavations. It is important to "short chain" the truck when unloading it. Otherwise, there will be too much coldpack dumped on the street, and there is only one way to get the extra back in the truck - a shovelfull at a time. As Director of Market Planning and Analysis, I learned this lesson during the summer of 1995 when I worked briefly in the field on one of Washington Gas's pipe maintenance trucks. Other people in the Market Planning and Analysis organization in similar field assignments delivered forty foot pipe sections, worked as appliance service helpers, construction helpers, and machinists.

This is not an article about how Ph.D.'s, M.B.A.'s, and other professionals have turned to digging ditches and shoveling coldpack in order to make a living. However, these examples of field experience do have relevance to the role of economics, both at Washington Gas and throughout American business. The work produced by our department can provide an example of how economics - an overhead function - can have a major profit impact in an old line industry.

THE WASHINGTON GAS ECONOMICS CAPABILITY

Washington Gas is a local natural gas distribution utility serving the Washington metropolitan area, with approximately 750,000 customers in the District of Columbia, Maryland, Virginia, and West Virginia. A significant economics capability is located in our Market Planning and Analysis department. During the past eight years, MPA has grown from a staff of four to a staff of approximately thirty-four full-time equivalent people, including economists, M.B.A.'s, analysts, consultants and support personnel.

Even though we have been located in the company's Marketing Department, we are applied economists, generally addressing macroeconomic problems formulated around the two key macroeconomic variables: price and quantity. We work on a wide variety of assignments:

1. Market Planning: estimating the size and type of expenditures for the construction and investment budget; analysis of factors driving investment costs, desired product mix, profitability of business, programs to make the business more profitable;

2. Pricing/Rate Analysis: design of pricing approaches in rate structures for gas service that is based on marginal and average cost analysis, usage patterns, market potential, required investments;

3. Regulatory Analysis and Representation: providing expert witnesses and studies on a variety of issues, e.g., electric and gas utility rates, costs, and marketing efforts;

4. Market Research: analysis of factors tending to make customers favor or choose gas; extensive statistical sampling and analysis; questionnaires; attempting to determine how customer perceptions of the company could be improved;

5. Marketing Program Development and Implementation: design of programs to foster conservation - enhancing value to the customer; design of programs to add more appliances in customer homes and businesses; design of programs to add more customers; implementation of the programs, including operation of a small sales force to effectuate program delivery;

6. Economic Analysis: including marginal costs analysis, econometric studies of demand, gas supply models, optimization models for conservation investments, statistical analyses, computer modeling;

7. Competitive Intelligence: analysis of factors driving electric utility costs and rate structures for impact on the demand for natural gas;

8. Geographic Information Mapping: customer analysis in terms of demographics, psychographics, location; computerized matching of mapping of mains and services coupled to customer location, lifestyle, economic decision making;

9. Area Development Analysis: relating zoning, land use planning to geographic information systems; extensive computer mapping coupled with ongoing market intelligence as a key input to the timely and efficient development of the gas transmission system;

10. …

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