Information about Gas Profitability®

Objectives

• Understand the financial basis of success in the gas distribution business
• Understand how accounts are used to measure success
• Know what has and has not been important under regulation
• Know what will drive success in the future
• See how they personally contribute to that success

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Course Outline

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How Does It Work?

Gas Profitability® is an intensive 2-day program. Group sizes can range from 12 to 24 participants, preferably from the same business unit, but often of mixed level and job type.

To picture what experiencing the simulation is like, imagine yourself in a room with 12 to 24 other participants. You are seated with 2-4 team mates at a table with a game board representing the gas distribution business that you and your team members are going to run. There are 5 other teams in the same room each seated in front of their own game board. Initially, your company's gas distribution business is fully regulated.

Deregulation is introduced gradually. As deregulation starts, few of your customers are free to choose their suppliers. The selling prices of gas remains regulated, but gas purchases are made through competitive purchasing, and your companies profit is no longer limited or assured though cost-plus pricing. During this phase, you learn to make decisions about cost reduction, marketing, customer retention, and purchasing gas in a competitive supply market. Revenues from gas commodity sales are now separated from distribution revenues and from supply services.

At this stage in deregulation, you also have the opportunity to start and run unregulated businesses (such as appliance repairs or security services) alongside your core business of supplying gas.

Finally, the industry becomes fully deregulated. All customers are free to choose their suppliers and large amounts of customer migration can occur. Each of your competitors strives to retain the loyalty of existing customers and attract new ones through managing selling prices, customer services and marketing activity.

You still collect distribution revenue from the customers located physically in your distribution area. You also have the opportunity to implement cost reduction programs. The effects of cost reduction programs can make a significant impact on profit margins.

Another factor that you and your competitors have to contend with is the weather! Demand for gas fluctuates with the seasons.

For each simulation round the participants fill out an Income Statement and Balance Sheet for the business, reinforcing their understanding of the basic financial concepts, and seeing how profit, leverage and shareholder's equity are affected by the performance of the business.

There are are short lectures and discussions about the challenges of deregulation, so that the events in the simulation can be related to the participants' own work. Participants calculate several financial ratios, and see how these change with the ups and downs of business. They also run a stock market on the industry, valuing each other's shares. This enables them to link their decisions, the financial results, and the stock prices.

Finally, a series of exercises and discussions helps each participant see how they contribute to the financial success of their real company, and how they can help it succeed in the future. A local manager presents the figures for their own operating units, in the roughly the same simple format used throughout the simulation, and leads to a discussion of their role in meeting the present challenges.

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Typical Participant Comments

In response to the question: What did you find most useful in the training?

• The information I learned during the simulation is very useful in understanding and accepting change
• Understanding the risks in deregulation
• Understanding the changes our company is going though
• Seeing how corporate strategy ties into day-to-day operations
• Learned how gas deregulation and gas prices can affect the companies earnings - I learned the most by running simulated company
• Gave me a better picture of gas operations and how it relates to day-to-day activities
• An appreciation of the upper management's view of how the business works
• Importance of a good work plan
• Running a business in a changing world is not easy and taking risks can benefit us in the long run
• How important each part of the business is and the need for change
• Buying and selling the gas to make a profit
• Learning that customer service is a must
• Learning how different decisions change the financial statements and what to do about it
• How planning and balance sheets are used in the daily business and how other uncontrollabes affect our business
• What effect customer count, price and service has on total revenue
• The effect of expenses on the bottom line
• Understanding of how deregulation will affect the future
• The highly visual game board and the process of changing the market (deregulation, marketing, value added services)
• Hands-on ownership of company
• Seeing how the gas buyers work
• Understanding the P&L and Balance Sheet
• Hands on simulation, team participation in decision making
• A better understanding of the budget
• The understanding gained through the bidding for gas supplies in the simulation
• The chance to have hands-on training which helped give me more insight into how we manage
• The work sheets and the working though the income statement and balance sheet every simulation round really drove home the learning

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