Natural Gas Pipeline Company (Natural) owns and operates almost 13,000 miles of interstate pipeline. Its natural gas transmission system has two major subsystems, the Amarillo and Gulf Coast Systems, interconnected by the A/G Line. Both systems terminate in the Chicago area. In addition, Natural owns various gas storage fields in Iowa, Illinois, and Texas and leases storage capacity in Oklahoma (see map).
Natural maintains approximately 8 percent of the U.S. natural gas transmission industry market share. Prior to recent changes in regulation, Natural had provided natural gas sales, storage, and transportation services to gas distribution companies as well as to producers, marketers, industrial and commercial end users, power plants, and other pipelines.
Natural's success depends upon its ability to provide efficient and cost-effective services. By adding pipeline to attach to new markets or upgrading facilities to reduce operating costs, the company enhances its competitive position. Since the Engineering function determines what new facilities should be installed to meet customer (internal and external) needs, it plays a major role.
Changes in the natural gas transmission industry have resulted in less regulation and more competition; in response, Natural's Engineering function moved from sequential to simultaneous work flow to address increased competitive pressure.
Regulation and Change. Until 1993 interstate pipeline operations were subject to extensive regulation by the Federal Energy Regulatory Commission (the “FERC”). The FERC regulated, among other things, rates and charges for the resale and transportation of gas in interstate commerce, the construction and operation of interstate pipeline facilities, and the accounts and records of interstate pipelines.
In 1993 the FERC issued Order 636, which mandated a role change for natural gas transmission companies. Their traditional merchant function (buying and reselling natural gas) was changed to one of natural gas transporter. Natural's throughput, sales plus transportation, is approximately 1,550 billion cubic feet per year. Sales dropped from 70 percent of throughput in 1984 to zero in 1994, transportation increased from 30 percent of throughput in 1984 to 100 percent in 1994.
Natural gas procurement has become the responsibility of local utilities and other customers, with pipelines transporting and storing natural gas. While the gas transmission industry has existed for many years (the initial parts of Natural's system were constructed in the 1930s), the introduction of competition with reduced regulation has occurred over the last several years.
The Competition. Natural's transportation competitors consist of interstate pipelines that own facilities in the vicinity of the Chicago metropolitan area. Competition for gas transportation and storage may be provided by one or more other pipelines, depending on how each pipeline markets its services to meet customer needs. For example, Natural has the lowest priced 100-day storage service; 50 versus 60 cents per MMBtu charged by its competitor, American Natural Resources (ANR). However, Natural's average firm transportation rate from the Mid-Continent (MidCon) gas supply region to Chicago is higher; 61 versus 53 cents per MMBtu when compared to ANR.
Transportation rates, adequate pipeline capacity, and the availability of storage services are key factors in determining Natural's ability to compete for particular transportation business. By upgrading pipeline facilities to reduce operating costs and adjusting flow patterns on Natural's system to better utilize spare capacity, Natural enhances its competitive position.
Business Situation. Natural follows traditional business lines with Marketing, Accounting, Transmission, Rates, and Engineering vice-presidential areas. The Transmission area is responsible for operating the interstate natural gas transmission system, with all other areas performing support functions. Engineering plays a major role in deciding how facilities are utilized and determines what new facilities should be installed to meet customer needs.
With changes introduced by the FERC, Natural moved from a monopolistic market with geographic boundaries to one of price-sensitive, competitive services. Therefore, Natural's Engineering area redefined its role in 1993. Prior to 1993, Natural had been more reactive in responding to well-developed, long-term customer needs in a captive market, with a high probability of cost recovery. The new competitive environment requires a more proactive role in recognizing and reducing pipeline system operating inefficiencies (to reduce cost) and developing more individualized customer-based strategies (to make gas transportation and storage services more attractive to the customer).
Figure 1. Functional Organization/Sequential Work Flow
Engineering Responsibilities and Organizational Structure. Natural's Engineering area (approximately 140 staff with an annual $100 million capital expenditure budget) performs three main functions in supporting project activities: design, drafting, and construction administration. These functions had traditionally been accomplished under a functional organization structure. Activities include engineering, specification, procurement and construction of replacement, upgrade or new facilities. Specific projects vary in scope, from designing a gas dehydration tower to developing a major gas storage facility.
Under the original functional organizational structure (Figure 1), four distinct departments had well-defined project responsibility when given a preliminary project definition. As described in the figure, each of these areas performed specific technical and administrative-type tasks in support of project activities. Departments were broken down into tasks, with each group of tasks dependent on completion by the previous group. Projects had a sequential line of development, meaning tasks were handled one at a time, with each one completed before moving on to the next. Groups such as Environmental, Land, Corrosion, Metallurgy, etc., maintained a support role.
Human Resource Background. Engineers in the departments had company experience that could be classified in one of two types: Type 1 engineers, those with pipeline field operating or facility construction experience, were routinely assigned to Construction, while Type 2 engineers, those experienced in engineering equipment design, cost estimating, drafting, and procurement, were assigned to Design. Some engineers in the Engineering area are considered experts based on their years of field experience working on pipeline or station facilities. Other engineers have technical experience in such specialized areas as electric power design, gas processing, structural engineering, controls, and automation programming.
The Challenge of Change
In 1993, as a result of the change in business environment, Natural's Engineering area determined that it must address the issues of:
1. Focal Point of Responsibility and Accountability. The planning and implementation of project activities require a focus point of responsibility. A stronger tie to customers (internal/Transmission area or external/Marketing services) to provide better project definition and continuity.
2. Matching Company Resources to Customer Needs. Projects are evaluated, selected, and planned based on their contribution to meeting company and customer objectives. Establishing project priorities and schedules should be based on matching company resources to customer needs.
The alternatives developed to address these issues by increasing the effectiveness of work flow were:
Alternative 1. Maintain Existing Functional Organization and Categorize Projects. Categorize projects so that tasks are distributed and processed based on established criteria. Field personnel or central office design engineers would be assigned projects based on the categories shown in Table 1. Personnel would receive assignments based on their experience and skills.
Table 1. Categories of Capital Expenditure Activities
Table 2. Alternative Work Flow Plan
The design engineer, for Category II and III projects, would prepare the job scope and required material specifications. Work Order would prepare the necessary cost estimates to support the project approval process. A sequential work flow would continue, as information would next be sent to Drafting and then on to Construction for implementation. In addition, projects would be prioritized within each department.
Alternative 2. Establish a Project Management Concept for All Projects. Establish project teams to plan, organize, monitor, and control all aspects of project activities. Teams would be assigned projects based on the project categories stated in Alternative 1. A project team, headed by a project manager who is assigned to project engineers, would be responsible for all aspects of a project: design, cost estimation, drawings, material procurement, and contract administration. Projects would evolve with parallel lines of development, meaning that several tasks, addressing different functional areas, could be handled simultaneously. Project activities could be accomplished by the engineer and support personnel in the manner shown in Table 2.
Project engineers would be the catalysts in coordinating project tasks. Decisions would be made based on their impact on all facets of the project. Team members would work together in a group to assist each other based on their experience.
Alternative 3. Field Extension, Engineering Services Group and Project Teams. Utilize field personnel to plan and implement Category I projects. Establish an Engineering Services Group (ESG) for Category II projects. Utilize project teams for all Category III projects. Figure 2 illustrates the organizational structure of Alternative 3. The ESG would include specialists with field experience, who could answer questions and address problems on the operation and maintenance of existing facilities. If technical specialists (electrical or gas processing, for example) were required, they would be available from the Functional Support Group.
Figure 2. Project Organization/Simultaneous Work Flow
Selecting an Alternative. Management determined that the best alternative would be a structure in which:
- Engineering can focus on internal customer (pipeline operating) needs by utilizing field personnel and the Engineering Services Group.
- Project teams, addressing external customer needs, would handle activities that require a broader, less-defined role of coordinator over project activities, and thereby act as a focal point.
- Technical specialists directly support project team activities.
Alternative 3, Field Extension, Engineering Services Group and Project Teams, met these criteria and was implemented in Natural's Engineering area. A comparison of the sequential versus simultaneous work flow, as shown in Figure 3, illustrates the broader focus on project activities found under the project organization.
The selection of Alternative 3, Field Extension, Engineering Services Group and Project Teams, impacts the Engineering area's focus of change in two ways:
A Focal Point of Responsibility and Accountability. By placing the experienced experts in the Engineering Services Group, internal customers such as Transmission have direct access to individuals who can most likely satisfy their needs. By forming project teams, engineers can work directly with Marketing to analyze and develop the best project alternative for external customers.
Figure 3. Sequential vs. Simultaneous Work Flow Comparison
By maintaining a Functional Support Group, which reports to project managers, technical experts focus on specific engineering disciplines to address problems. In addition, this group provides consistent responses. Project managers, as leaders of the project teams, have the responsibility and authority to make decisions on project activities. Therefore, they have the primary responsibility to plan, direct, monitor, and control project activities.
Matching Company Resources to Customer Needs. By categorizing projects, Category I activities that maintain pipeline integrity are handled directly by field personnel. Engineering standards are implemented by field personnel. By assigning Category II projects to an experience expert, projects gain an advocate to work with field personnel to assist in development and direct implementation. These maintenance and replacement projects no longer directly compete with the larger-dollar activities. By assigning Category III projects to a team that has technical support, there is a focal point of coordination and resources are matched to needs. Project cost, scheduling, and performance goals are the focus of the team.
Implementation. Placement on a project team or within an Engineering Services or Functional Support Group was made based on an engineer's experience, knowledge, and ability. Some engineers were promoted to the new “project manager” position and sent to leadership training sessions to fine-tune their skills. Project engineers were encouraged to upgrade their skills with technical training courses. Job experience and training have enabled engineers to develop into a valuable resource for the company. Focus groups met every two weeks to address problems with procedures, communications, etc. A continuous review of how the new organization operated revealed an upgrading of services and a better utilization of human resources.
Competitive forces dictated the need for proactive project coordination in meeting the demands of Natural's internal and external customers. Alternative 3, Field Extension, Engineering Services Group, and Project Teams, has provided an organizational design and the proper allocation of human resources necessary to meet Engineering's focus of change. ■
William V. Leban, PMP, is program manager for Keller Graduate School of Management's Master of Project Management Program. He joined Keller after over 20 years with Natural Gas Pipeline. He is also vice-president of programs for the Midwest PMI Chapter.