BROOKLYN UNION GAS
Address:
195 Montague St.
Brooklyn, New York 11201-3631
U.S.A.
Telephone: (718) 403-2000
Fax: (718) 852-8221
Statistics:
Public Company
Incorporated: 1895
Employees: 3,651
Sales: $990 million
Stock Exchanges: New York Midwest Philadelphia
Company History:
Brooklyn Union Gas supplies natural gas to the New York City boroughs of Brooklyn and Staten Island and to a portion of the borough of Queens. Through its subsidiaries, the company also sells gas appliances and energy-related equipment, explores for and develops natural gas reserves, recovers methane from landfill sites, and distributes liquefied petroleum gas.
Incorporated in 1895 as the successor to a group of competing gas lighting companies, the utility traces its roots to 1824 when enterprising Brooklynites launched the idea of lighting their village's streets with methane. In 1825 these entrepreneurs sought and gained approval from the New York State legislature for the establishment of the Brooklyn Gas Light Company. The fledgling company soon formed a board of directors and sold stock. Unfortunately for investors, the young village felt it was not ready for street lighting and would not sign a contract. With no business, the company bought back its stock and folded.
Not long for the mothballs, Brooklyn Gas Light was revived in the mid-1840s and in 1847 signed a contract to light the streets of Brooklyn. Since natural gas from underground deposits was not then available, the company built a gas manufacturing plant on the East River by the Brooklyn Navy Yard. In that plant, it heated coal until it became coke and captured the methane that was released in the process. This was known as the coke-oven-gas method. By 1849 methane was coursing through six-and-a-half miles of mains and lighting the village's most prosperous areas.
In 1850 a similar operation was launched in the neighboring town of Williamsburg, and by the 1890s there were at least 15 gas lighting companies operating in Brooklyn and Queens. Brooklyn Gas Light's first major head-to-head competitor, Citizen Gas Light, began serving the Brooklyn public in 1858. Other utilities followed and Brooklyn soon became the scene of intense and sometimes violent competition. Most often a new company would buy an unserved territory from an older competitor. Then, once established, the new company would begin battling with the older company for customers in the more prosperous areas--often laying parallel gas lines and competing on a door-to-door basis. In a speech before the Newcomen Society, former chairman Elwin S. Larson described the late 1800s as an 'age of territory claiming and customer seizing carried out by street crews who introduced the term 'gas-house gang' to our American lexicon. [It] was a little like ... the wild West of the same period.'
In 1879 the Fulton Municipal Gas Company entered the Brooklyn gas lighting market. Unlike the small companies that had preceded it, Fulton did not buy a small territory for itself before competing with the more established companies. Instead, it brashly began by laying long mains in the most prosperous, most populated areas of the borough. In Brooklyn Gas Light's territory alone, it laid 34 miles of mains. Fulton's strategy was to put the heat on smaller companies and then offer to sell them gas wholesale. According to Larson, 'Quite legally, if not quite congenially, Fulton had most of Brooklyn at its mercy.' Pressed like the others, Brooklyn Gas Light fought back and by the mid-1880s the two companies were engaged in a debilitating price war.
In the face of low profits because of price wars and stiff competition from electric light, Brooklyn, Fulton, and five other gas companies combined to form the Brooklyn Union Gas Company. Incorporated in 1895, the new company, which served 106,650 customers in Brooklyn and 1,400 in Queens, also included Citizens Gas Light Co., Metropolitan Gas Light Co., Nassau Gas Light Co., Peoples Gas Light Co., and Williamsburg Gas Light Co.
The first president of Brooklyn Union Gas, Brooklyn Gas Light veteran George W. Young, began with $30 million in capital, eight gas manufacturing plants, and a capacity of 26 million cubic feet per day. But Young served just one year before the board of directors--which included William Rockefeller of Standard Oil--replaced him with former Civil War general and former Fulton president James Jourdan, who consolidated Brooklyn Union Gas's various predecessor companies and moved the company's focus from light to heat. Before retiring in 1910 he tripled manufacturing capacity and quadrupled storage. Customer accounts, which had been 108,000 in 1896, grew to 387,000 in his final year. Between 1895 and 1897 General Jourdan led the company through the purchase of six small gas lighting companies, four of which were in Queens. Operated as subsidiaries, the Flatbush Gas Co., the Newtown Gas Co., the Jamaica Gas Light Co., the Woodhaven Gas Light Co., and the Richmon Hill & Queens County Gas Light Companies were finally integrated into Brooklyn Union Gas in 1927.
In the early 1900s the New York State legislature created the New York Public Service Commission, which began regulating rates. In 1906 the Public Service Commission established the '80-Cent Gas Law' which reduced the price of gas by 20 percent. Brooklyn Union Gas fought the law all the way to the Supreme Court but lost--regulation was there to stay. The 80-Cent Gas Law was followed by the Dollar Gas Law in 1923 and by other regulated rates in subsequent years.
Upon General Jourdan's retirement in 1910, his son James H. Jourdan was elected president and presided over an era when the old lighting business was hastily disappearing and the company was advancing in new markets of water heating and industrial processes.
During the teens and twenties the use of methane for heating and cooking grew rapidly in Brooklyn. Once perceived as a luxury, gas stoves were becoming a necessity to many. In 1914 the company built and moved into new corporate headquarters on Remsen Street in downtown Brooklyn. In 1925 it sold the electric distribution system and electric franchises of the Flatbush Gas Co. to Brooklyn Edison. And in 1926 a new Public Service Commission ruling set the price of methane at $1.15 per 100,000 cubic feet but allowed price adjustments for volume users, which enabled the company to pursue large accounts who had previously found gas uneconomical.
Between 1910 and 1926 business virtually doubled. To meet the demand, Brooklyn Union Gas constructed a vast new coal-gasification plant at Greenpoint. Opened in 1928, the new Greenpoint Works replaced five older plants at 60 percent of the cost. Built on 115 acres of land on Newtown Creek, the Greenpoint Works used both the coke-oven method and the water-gas method to produce new supplies.
Although the future looked rosy, the Depression affected Brooklyn Union Gas deeply. Customers who months previously saw gas stoves as a necessity now saw them once again as a luxury. Revenues--which had climbed steadily, reaching an all-time high of $25 million in 1929--fell to $19 million in 1935, James H. Jourdan's last year as president. In 1935 the board of directors named a new president, Clifford Paige, who wooed customers back to gas by offering promotional rates to industrial users and giving deals to customers who used gas for water heating. Under Paige, Brooklyn Union Gas also developed and promoted new industrial uses for its product and sold refrigerators and other gas appliances. The company also made inroads in the home heating market, moving from 726 gas-heated homes in 1935 to more than 20,000 by the end of World War II.
Paige's efforts were largely successful. By 1941, the company had more than regained the sales it had lost during the first half of the Depression. It had come back from the brink, seasoned by the crisis. In his Newcomen speech Larson said, 'It was during this period from 1935 to 1941 that Brooklyn Union matured as a company and solidified its standing as a creative and aggressive marketing operation.'
In the inflationary era of the late 1940s the company sought and received three significant rate increases in two years. But while rate increases kept Brooklyn Union Gas profitable, the company's main problem was supply. Brooklyn was going through a period of expansion, and the company did not have enough gas to satisfy what it foresaw as upcoming demand. To supplement what it could manufacture at Greenpoint and other plants, Brooklyn Union and other area utilities helped finance the Transcontinental Pipeline, which began in Texas in 1948 and ended 1,840 miles and two years later in Brooklyn. Brooklyn Union Gas, with Consolidated Edison and the Long Island Lighting Company, also established the New York Facilities system, a common high-pressure gas-transportation system that receives pipeline gas and delivers it across various waterways in the area.
The original plan was to mix the so called 'natural' gas with what Brooklyn Union Gas was making in its plants. But natural gas was so cheap that by 1952 the company ended manufacturing and switched over to natural gas completely. By 1952, ten percent rate reductions were already in effect. Cheap and readily available, the low price of natural gas allowed the utility to reduce rates 27 times between 1952 and 1969.
In 1953, John Heyke succeeded Clifford Paige as chief executive officer. Heyke expanded the company in two ways. First, he dove headlong into the home-heating market--doubling Brooklyn Union Gas's share to more than 34 percent of all houses by the early 1960s. Second, he made a series of acquisitions that added 260,000 customers to the more than 800,000 already on the company rolls. In 1957, Heyke made two acquisitions: the New York and Richmond Gas Company, which covered the entire Borough of Staten Island, and the Kings County Lighting Company, which served the Bay Ridge section of Brooklyn. In 1959, Heyke acquired the Coney Island-based Brooklyn Borough Gas Company. With this last acquisition, the company reached its present service area of 187 square miles, including the entire borough of Brooklyn, all of Staten Island, and about two-thirds of Queens.
But while Brooklyn Union Gas expanded geographically, Brooklyn fell into economic decline. The shipyards closed and manufacturing weakened. Some residents sank into poverty. In the 1960s, the company responded to Brooklyn's economic crisis with a series of economic development programs. Through the Cinderella Program it renovated old buildings and showcased the possibilities of Brooklyn life. At the same time it ran an ongoing business development program that helped businesses find locations, arranged financing, and cut red tape. Finally, soon after crossing the $100 million mark in revenues in 1961, the company built a new headquarters on Montague Street.
In the late 1960s, Gordon Griswald, who had become president in May of 1968, saw that the post-war period of abundant natural gas was ending. With this in view, he and chief executive officer John Heyke took steps to insure an uninterrupted supply for Brooklyn Union Gas's customers. The company built two liquefied-natural-gas (LNG) storage tanks at the site of the old Greenpoint works and in 1971 began construction of a synthetic-natural-gas (SNG) plant on the same turf. The LNG tanks would hold Algerian natural gas to be used during peak winter demand while the SNG plant would convert naptha into gas for regular use.
Griswald was right about supply problems. In 1970, the Transcontinental Pipeline Company (Transco) began curtailing deliveries. In response, the Public Service Commission restricted new sales to all but residential customers and prohibited utilities from promoting or advertising natural gas. Despite this, Brooklyn Union Gas's share of the home heating market grew past 50 percent by the time longtime executive John Heyke died in October of 1974.
Supply problems eased by the mid-1970s. Despite some obstacles, Algerian liquefied natural gas was being delivered and in November of 1974 the company completed its synthetic natural gas plant. Within its first two years, the Greenpoint plant was producing 50 million to 60 million cubic feet of gas daily--approximately 10 to 15 percent of total demand.
In 1975 Gene Luntey became chief executive officer. Luntey saw methane as a vast and renewable resource whose supply had been depressed by federal price controls. Luntey's view was borne out in the 1980s when the effects of the Natural Gas Policy Act of 1978 began to be felt. But it was Brooklyn Union Gas's own ingenuity that had eased the supply situation in the mid-1970s; and in 1976 the Public Service Commission restored Brooklyn Union Gas's selling rights in all markets.
In the late 1970s Luntey began diversifying. He created Fuel Resources Inc., an exploration company that invested in gas and oil fields throughout the United States. Fuel Resources was followed in 1981 by the Methane Development Corporation, a joint venture with Getty Synthetic Fuels which gathers methane from a garbage landfill at Fresh Kills on Staten Island. The same year, the company acquired Gas Energy Inc., which markets gas-related equipment, and Star Enterprises, Inc., which distributes liquefied petroleum gas and propane.
By 1983, deregulation was effecting the supply of gas. Higher wellhead prices had led to increased drilling, which in turn had led to a glut and low prices. Despite this glut executives felt Brooklyn Union Gas was overly dependent on gas from the South. To remedy the situation, the company joined--as the largest shareholder--a consortium called Boundary Gas, which began to import gas from Canada in 1984. The supply situation freed up further in 1985 when the Federal Energy Regulatory Commission began allowing distribution companies like Brooklyn Union Gas to negotiate directly with producers rather than mandating that they buy from pipeline companies like Transco.
With a competitively priced product, Brooklyn Union Gas competed to heat apartment houses and large commercial and industrial buildings. Using a 'temperature controlled rate' the utility pegged the price of gas to the price of the oil most of these customers used. For large commercial customers, the company created an Energy Systems Department to promote cogeneration, an efficient system in which gas produces electricity as well as heat and hot water.
In 1986, Gene Luntey retired and was replaced by Elwin S. Larson. On taking the post, Larson, who called himself a 'realistic optimist,' told the Wall Street Journal that Brooklyn Union Gas 'intended to play a leading role in the development of downtown Brooklyn as a major business location.' Larson negotiated directly with producers and replaced half the high cost gas the company was getting from Transco with market sensitive gas from Enron and Shell, as well as gas from Canada. Further, in 1986, he announced that the company was joining with at least three other northeast distributors to build a $400 million pipeline to bring natural gas from Canada to markets in the Northeast. A Brooklyn Union Gas executive told the Wall Street Journal in 1986 that the new Iroquois pipeline, scheduled to open in 1992, would provide 'a major new incremental supply to meet needs in the future.'
By 1989 it appeared that supply might again become a problem. Gas was becoming extremely popular. Brooklyn Union was supplying 75 percent of one- and two-family residences and 33 percent of apartments. Other gas utilities were making similar gains while electrical utilities were beginning to use gas to generate electricity. It seemed there might not be enough pipeline facilities to supply the Northeast. 'We're right at the edge of deliverability right now,' Edward Sondey, Brooklyn Union's vice president told the Wall Street Journal. 'Iroquois helps us out, but not enough.' To respond to the situation, Brooklyn Union Gas and its regional partners hope to expand existing pipelines to allow an additional 500 million cubic feet of gas a day to reach New York by 1995.
In June of 1991 Robert B. Catell replaced Elwin Larson as chief executive officer. Catell is committed to selling gas for comparatively new uses such as fuel for cars and air conditioners. As part of a demonstration project Brooklyn Union Gas is providing natural gas for 10 UPS delivery vans and 15 Parks Department trucks.
Incorporated in 1895 as the union of seven competing Brooklyn gas lighting companies, Brooklyn Union Gas began by making a series of small acquisitions while recasting itself as a provider of gas for cooking and home heating. It weathered the Depression by promoting new uses for methane, and during the 1950s it participated in a pipeline project that laid the groundwork for two decades of growth. Supply problems in the early 1970s led the company to build large liquefied natural gas storage tanks and a synthetic natural gas plant. Still making inroads in the home-heating and apartment market, Brooklyn Union Gas is pursuing cogeneration ventures and working to promote the manufacture and use of natural gas-powered vehicles.
Principal Subsidiaries: Fuel Resources, Inc.; Fuel Resources Production and Development Co., Inc.; Methane Development Corp. (50%); Brooklyn Union Exploration Co., Inc. (82%); Brooklyn Interstate Natural Gas Corp.; Gas Energy, Inc.; Star Energy, Inc.; Gas Energy Cogeneration, Inc.; North East Transmission Co., Inc.
Further Reading:
'Four U.S. Utilities, Canada Firm in Pact to Build Gas Pipeline,' Wall Street Journal, February 5, 1986.
'Brooklyn Union Gas Names Larson Chief to Succeed Luntey,' Wall Street Journal, May 15, 1986.
Larson, Elwin S., Brooklyn Union Gas: Fueling Growth and Change in New York City, Newcomen Society of the United States, 1987.
'Coastal, Utilities Discuss Expansion of Gas Pipelines,' Wall Street Journal, April 26, 1991.
Source: International Directory of Company Histories, Vol. 6. St. James Press, 1992.
