The Statistical Activities of the Gas IndustryAuthor(s): Paul RyanSource: Journal of the American Statistical Association, Vol. 24, No. 165, Supplement:Proceedings of the American Statistical Association (Mar., 1929), pp. 130-134Published by: American Statistical AssociationStable URL: http://www.jstor.org/stable/2277022 .

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130 American Statistical Association

THE STATISTICAL ACTIVITIES OF THE GAS INDUSTRY

By PAUL RYAx

The American Gas Association is essentially the trade association of the gas industry. As stated in its constitution, one of its major objectives is to advance to the highest efficiency the methods of manu- facture, distribution, utilization, sales, and accounting employed in the gas industry, and to collect, co6rdinate, and disseminate ideas and information for the purpose. Its membership includes about 650 gas utility corporations and 5,000 individuals. The member companies of the Association represent about 90 per cent of the manufactured gas business of the country and a somewhat smaller proportion of the natural gas business.

The statistical activities of the Association may be considered under two general phases. There is first the gathering and collection an- nually of the general statistics on the industry, such as plant capacity and data on production, sales, customers, and by-products, together with a detailed income statement and balance sheet. The collection of financial statistics for the industry is facilitated greatly by the fact that most gas companies follow a uniform system of accounting. This uniform accounting system in practically its present form has been in effect since 1920. It was prepared jointly by the American Gas Asso- ciation and the National Association of Railway and Utility Commis- sions. While in general the set-up of this system is such as to permit direct comparison of the financial operations of gas companies through- out the country, there are one or two items where it permits of varia- tions which are somewhat troublesome from a statistical standpoint, the most important being the method of handling depreciation. Most of the data outlined above are published in bulletins issued from time to time by the Association. In addition there is published each year a pamphlet which shows the gas rate or rates for practically every community in the country that is served with gas.

In addition to such annual data, we have been collecting since last January monthly data on production, sales, and revenues from com- panies representing about 80 per cent of the manufactured gas sold. It is expected that such monthly data will be published as soon as suf- ficient time has elapsed to make possible comparisons with previous periods.

It should perhaps be explained at this point that while the Gas Asso- ciation's membership of 650 companies represents the overwhelming

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Proceedings 131

bulk of the industry, the statistical activities of the Association are not confined to member companies but attempt to cover every gas com- pany in the country, including municipally owned plants. Since there are approximately 970 manufactured gas companies, about 550 natural gas companies, and nearly 150 holding companies, it will be seen that we should be getting reports from nearly 1,700 companies.

In attempting to educate backward members of our industry, the question usually arises as to the value of trade association statistics. In attempting to answer the question, we undertook an analysis of the hundreds of inquiries received yearly at our headquarters in New York for information on the gas industry. About 40 per cent of these in- quiries were from general and miscellaneous sources, such as advertising agencies, chambers of commerce, trade associations, and governmental bureaus, requesting general information on the industry. About 20 per cent were from financial houses which were interested in the securi- ties of the gas industry. The remaining 40 per cent were from gas com- panies themselves, which usually wished information of a sort that would enable them to compare their own operations with the results achieved by the industry as a whole. Needless to state, this last group required no explanation as to the value of statistics on their own industry, and it is the same group of the larger and more progressive companies that has been most instrumental in bringing to the smaller and less progressive concerns a realization of the value and necessity of statistics in their own enterprise.

This leads naturally to a consideration of the second major phase of the Association's statistical work, which might be grouped under the general head of special studies, most of which have as their objective a comparison of some phases of the operations of the individual com- panies with the performance of the industry as a whole. Some indica- tion of the diversity and range of these studies is afforded by some of the statistical publications issued during the past year. One of these was a bulletin dealing with the economic aspects of the coke situation dur- ing the year. As most of you perhaps know, in the manufacture of approximately each 15,000 cubic feet of coal gas, there is also produced about one ton of coke. While some gas companies consume this coke themselves in the further production of gas, within recent years there has been a marked tendency for gas companies to sell increasing quantities of this coke in the local fuel markets, where the coke brings a higher return and lowers correspondingly the cost of the gas produced.

It has long been recognized that public utilities as a group have an exceptionally slow turnover of the capital invested in the enterprise.

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132 American Statistical Association

The average gas or electric company commonly has four or five dollars invested in plant for each one dollar in annual revenue. It is therefore of the utmost importance that plants be utilized to the fullest possible extent. For this reason, among its special statistical studies the Asso- ciation undertook a study of the extent to which companies were utiliz- ing their plant capacity, using a carefully selected sample of about 150 concerns. This necessarily embraced a correlative study of the effects of various types of business on the utilization of plant capacity. For example, a company that was selling large quantities of gas for domestic house heating would be under the necessity of installing sufficient plants to meet the severest winter demands, and unless it were active in secur- ing business such as some industrial applications of gas where the great- est demand occurs during other than the winter months, the company would find itself with a large amount of expensive plant which was used for relatively few days a year.

After this somewhat hurried sketch of the scope and extent of our statistical activities, we might consider the function of statistics in the control of production. In most of the industries with which we are familiar, one might say that a function of industry statistics was to assist in effecting a balance between production and consumption, between supply and demand. We are all familiar with the phenom- enon of overproduction, or as the newer economists might say, under consumption, the supply of goods piling up with disastrous effects on prices. Obviously, in the gas industry the situation is radically different, for it is literally true here that supply and demand are one and the same. While it is true that gas is stored in holders to a certain extent, this represents at most but a few hours' supply, the main func- tion of such holders being to smooth out irregular loads on the pro- ductive apparatus. At any given moment it is the customer's demand which brings forth almost simultaneously a corresponding supply, for it is part of the utility's franchise obligation to meet such demands instantly, up to the very limit of its physical capacity.

While such differences are inherent in the nature of the utility busi- ness, it by no means follows that there is no scope for the statistical control of production. In fact, if the definition of production be made sufficiently broad to cover not only the actual commodity but also the extension of its use among the customers of the gas utility, it will be found that statistical control of this sort is one of the most imperative necessities confronting such utilities today.

The highly integrated and somewhat complicated nature of the service rendered by the gas utility has gradually tended to obscure the fact that such a concern is in reality selling two entirely separate and

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Proceedings 133

distinct things-a commodity and a service; and it is only statistical research of the most thorough kind which has been able to emphasize adequately this fact. To illustrate this with a concrete case, assume that a customer applies to the gas utility for service. On the average, the company will invest from 200 to 300 dollars for each customer. Such a consumer may wish the convenience of gas service and yet actu- ally use very little gas in the course of a year. Obviously, under the old rate system of charging only for gas actually consumed, if there were enough such customers a company might eventually find that half or more of its customers were being carried at a loss, through the un- economic extension of mains and service. In other words, in such cases it is the control over extension of service that is the really important thing rather than control over the production of the commodity itself, since in this latter case, as has been pointed out, the utility has little if any direct control.

Although these problems are individual in nature and must be solved in each instance by the local utility, they have been of the utmost con- cern to and have received most careful study by the National Associa- tion. The result has been that the more progressive gas utilities have introduced such complete systems of statistical analysis and classifica- tion of sales that in companies with as many as 800,000 or 900,000 customers, it is possible to derive each month what amounts to a fre- quency distribution of sales, showing for all of these 900,000 customers just how many fell within specified sales limits and what percentage of the total sales is represented by each of the groups. With such data at hand, a company is in a position to exercise rational and effective con- trol, if not directly over the production of the commodity, at least over the extension or production of the service.

The foregoing may serve to illustrate one of the major objectives of the statistical activities of the National Association, namely, the de- velopment and utilization of statistics and statistical methods by the gas companies themselves. In the furtherance of this aim there was published a bulletin outlining the application to a typical gas utility of some of the more commonly used statistical methods, such as the computation of trends and the considerations governing theprojection of such trends into the future. The bulletin included studies of seasonal variation as well as a comparison of the cyclical fluctuations in this company's sales with the changes in general business conditions in its territory, and an outline of the manner in which statistical normals, formulated by combining the measurements of secular trend and sea- sonal variations, could be used for executive appraisal of current operat- ing performance. It showed, also, how such statistical normals could

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134 American Statistical Association

be projected into the future to afford an accurate check upon the accuracy and reliability of budget estimates.

In concluding, may I state that there is no field that I know of which offers greater opportunities for the application of statistical methods and statistical research than the gas and electric utilities. Almost every major decision of policy, from the construction of a new plant to the formulation of a rate schedule, could be made more effectively and on a sounder basis through the aid of modern statistical method- ology. Consider merely this latter question, the formulation of a new rate schedule. It involves the whole problem of the elasticity of demand for gas and electricity; and to the solution of this complicated problem, upon which depends the continued progress not alone of the utility itself but in many instances of the industries it serves, is seldom brought the powerful and highly perfected methods of modern statis- tical technique, but usually the stumbling and groping rule of thumb of a man immersed in the innumerable details that crowd the day's work.

If statistical science is to fulfil the functions which it alone seems capable of fulfiling, we must somehow or other manage to develop something analogous to statistical engineers, men whose major interest lies not in the formulation or elaboration of statistical theory but rather in the practical application to everyday business problems of the powerful tools now lying quiescent in the domain of statistical theory.

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