View from the top

Rick Roldan couldn’t possibly have foreseen all that awaited him when he took the reins as president and CEO of the National Propane Gas Association in December 2002. Five years after the association’s retooling and move to Washington, D.C., the man responsible for managing the transition and guiding the organization’s new mission and strategic plan is facing bold new challenges on all fronts: a new national energy policy, a dramatic power swing in Congress, unprecedented industry consolidation and a radically changing global energy market. For the propane industry, it is arguably a checkpoint with more challenges than at any time in our 75-year history. Roldan recently discussed those issues with LP Gas Editor Pat Hyland. Here are excerpts from that interview.

LP Gas: What do you consider NPGA’s most significant successes in the last two or three years?

ROLDAN: Market-driven advocacy, for me, is where it all is. It is the concept that says we can sell more gallons by changing codes, standards, laws and regulations. The application of 50-cent per gallon tax credit through the use of propane as a forklift fuel? The economics there are just staggering. That’s why I would have to say the financial benefit to our industry from the tax credits that were passed as part of the transportation bill and the energy bill, which will be in excess of a billion dollars to our industry.

Rick Roldan

• The last standing bill on chemical security in the last Congress that had bipartisan agreement. They couldn’t agree on certain things unrelated to us, but that last legislation that was getting ready to pass the House and the Senate had us out of it. To me that was a huge thing.
• The decision on the 5 percent cargo-tank rule. I go across the country and I try to talk about global issues and I try to talk about national issues. But when you talk to a guy who sells a million gallons, or you go to a state like Texas or Ohio or Illinois you find people who received a $7,500 fine for a first instance. Any time you are able to persuade the government on that 5 percent rule – or anything else – that you have a method of operating that is safer than what they require but that also reduces operating costs, that is a downright victory. Those are big deals.
• I also think one of the great things we did was to add more firepower in terms of bodies by adding Denise (Beach) on the codes and standards side, since there are so many darn committees out there that can affect your life. If we didn’t have Denise, I am not sure we would have been able to make the progress on the cabinet heater issue that we did, because we have one person who has just been dogging a 500-million-gallon market.
• Any time you can get the government to rectify what is a crazy policy, those are sweet victories. The idea that a federal agency – FEMA – would put in place a procurement standard for emergency housing in areas of the country which are uniquely without electricity. That one scored so many points on the “nutso” meter that when you fix it, its really kind of a sweet victory. We laugh about it, but it’s serious business. Manufactured housing is a big market for us. Do you know how many FEMA-owned or purchased emergency housing units are occupied today? 123,000; that is a big market. Those are the sweetest victories when you can tie a policy victory to a new market or a new market opportunity.

LP Gas: What are the top priorities for NPGA in 2007?

ROLDAN: Everybody’s costs are going up. We have to be concerned about how much it costs to get the product that we sell from where it is produced and stored to where it is ultimately used.

In the MAPCO rate case that we are involved in now, we are committing essentially $1 million to do something that we have never done before, which is to not sit on the sidelines and say, OK, I guess we’ll take it. We will commit the resources so that if they want to increase shipping rates on a regulated pipeline anywhere from 1 cent a gallon to 4 cents a gallon we at least will know how they calculated that.

We are developing an internal expertise on regulated pipelines and what the government allows and requires. It’s an expertise that is going to serve us well in the future. But I think once that case is settled, what we are going to do is be able to represent to our customers and the people who ultimately buy from the shippers on that line that the rates that are charged for transportation of our fuel are indeed just and reasonable.

We see a trend in the industry toward more and more pipeline consolidation, more and more pipelines filing for rate increases. It isn’t an adversarial thing, per se. But the way the government process works, if nobody raises their hand it just goes through. We think we owe it to our customers and our members to be a little more aggressive here. It’s a big thing; it’s costing us a lot of money. I think the average marketer and our customers are going to benefit, and the association will have a new expertise that we never excelled at.

We also believe there is no justification for an interval for the five-year bobtail requalification. That’s arbitrary. We think you can be as safe if that interval is extended to 10 years. We’ve done the first step of the science, and now we are doing some research on hyper-static testing, and we believe we will be able to amass a body of credible science that we can take to the Department of Transportation and get them to agree with us. Then we can tell a typical marketer that his budget to requalify bobtails has been cut in half. That saves real money and keeps us competitive. I am particularly proud of that deal.

I know when the Congress shifts, the buzz word around town is bipartisanship. That’s a good buzz word and we believe in that too. But in my world the operative word is adaptability – your ability to change strategies, to change tactics, to change messages and to change priorities is going to define your success.

National Propane Gas Association President Rick Roldan addresses propane industry members attending last year’s Propane Days in the Rayburn House Office Building in Washington, D.C.

LP Gas: You mentioned the cabinet heater issue. Is that likely to pass in 2007?

ROLDAN: Yes, although I don’t want to handicap it because I don’t want to have egg on my face. I can tell you our technical people have lined this up as much as you can. The vote at NFPA is June 6. There are a lot of members of NPGA who are also voting members of NFPA, and we are encouraging every one of them to pack a bag.

What we do is try to put in place policies that are enacted on the basis of logic and fact and science. You can never separate the emotion from the facts, because you can’t separate the psychology from the science. If you look at the facts, if you look at the science that has been developed, if you look at the consumer need, if you look at all the things that would say should we actually be able to sell this product, I believe strongly that it is there.

There is a psychological barrier – and psychology can be a powerful thing – with some people whose history and culture and psychology says you don’t bring this product in a container package into the house. And I am not going to sit here and try to tell you that that is not a speed bump. At this point in the process, that speed bump is really with the fire service officials. They have that idea, that barrier so ingrained in their brain for so long that it is going to be a hard psychology to overcome.

We teamed up with PERC and put some resources there and told them we will accept the judgment, but their contribution is going to be that they have to listen to the facts. Listen to the presentation, suspend whatever bias you may have, and then at the end of the day we will take whatever verdict comes. And I think we will be content with that.

LP Gas: One of the goals in your Strategic Plan is an industry accreditation program. Where are we at with that?

ROLDAN: We are not going to push forward in 2007. Industry accreditation has been kicked around for years. We talk about it, we form a task force and then it falls. In several years we talk about it again, we form a task force, they come up with recommendations and it goes down in flames.

This year we took a different approach, and I think the board was very wise in doing this. We took a put-your-money-where-your-mouth-is approach. Since this is a unique subset of the industry, we didn’t know if it was best to handle as an association item or as a business council. Anytime you have a group of people coming together to do something they really want to push, you create a business council, which is always self-funded. We took the group concepts, we studied it and we thought there would be enough interest. But to make that commitment we really needed a feasibility study to say this is what the program would look like. Here are the criteria, here is how you get your program accredited, here is what it is going to cost you, here is what your insurance is. We really needed some meat on that skeleton. We estimated it would take about $50,000 to contract out that job.

Applying the self-funding policy on business councils, we sent out a solicitation to every marketer member saying here is the concept. If you want to get in on the ground floor, make a contribution. We raised half of what we estimated we would need.

I still think it’s an idea that has merit. But the majority of marketers in this industry, when we put it to the test, decided that we probably should focus on other areas.

LP Gas: What about the CETP elearning and certification program?

ROLDAN: We came to the conclusion that the development of content would go with PERC because that’s where the resources were. Keep in mind, it’s not just an educational program. It’s a certification program, and that’s the big thing. Certification is the only piece of the puzzle that guarantees somebody has some proficiency. Education simply means you are exposed to the material; the pulse-taking comes on the certification side.

A truthful self-analysis says we always have tended to focus on the educational side of the content, and less so on the certification part of it. Consequently, there is a substantial gap in the number of people who received the test and those who complete the certification process. I think we can make the industry safer if we close that gap. That delineation of responsibilities with PERC gives us an opportunity to focus on achieving the safety goal in our strategic plan by closing the gap. I would like to see that trend go in the opposite direction. That would be a really powerful story to tell.

National Propane Gas Association Membership 1995-2006

LP Gas: Is fugitive emissions an industry-wide issue on the 2007 agenda?

ROLDAN: Let me say declaratively that I believe fugitive emissions is an issue that is going to evolve in importance as more and more regulators focus on it. States that have the most aggressive regulators are aware of that issue. We are not only on the radar screen, we are in their cross-hairs. And because of the national implications, I think we are going to have to increase education on the issue within our own industry.

It’s fair for the guy in Mississippi to hope that our industry in California doesn’t agree to something that he’s is going to later have to do because they set the precedent. But at the same time, the guy in Mississippi needs to understand the intense pressure that is being brought to bear on the people who live in the states with aggressive regulators who already have done the science on this and are looking for solutions. That’s as plain as I can say it. It is going to be as emerging an issue as it is a controversial one.

LP Gas: Do you see the issue going beyond education within our industry in 2007?

ROLDAN: I don’t. I think really what it is going to come down to is CARB. Let’s just call a spade a spade. CARB is the biggest, most assertive state regulatory clean-air authority of any of them. I hate to say it, but historically as CARB goes, so goes the nation. I haven’t checked in enough on the issue in the last 60 days to find out what CARB’s plan is.

The good news is through the forklift emissions issue we managed to build some relationships there, and I think they have a better understanding of our industry. We have crossed the mutual respect threshold, so I think we are well positioned. But I still think it’s going to be extraordinarily controversial within our industry.

Look at OPDs; it’s the same thing. Didn’t that judgment come from California? The average marketer sitting across the country doesn’t care that an appellate court in California requires this. He is just sitting there saying, “You are requiring me to put on this $1.63 device?”

Charlie Revere [former NPGA president] had the best quotation ever. He said “My 401K is buried in people’s backyards.” A lot of marketers see steel as an asset, and any time you tell somebody they have to do something with that steel, it is very controversial. I do not see an easy way around the controversy. I know the regulators are going to be aggressive and it will increase over the years. And I know the cost will continue to go up.

What I fear the most is the slippery slope syndrome. We can easily talk about bulk storage. It’s a very slippery slope from remediation technology that applies to bulk storage, then pretty soon you start getting to commercial tanks, then you get to residential tanks, and before you know it, we are down to a 20-pound cylinder. That is a lot of retrofitting.

LP Gas: But if you know you are in the cross-hairs, are we going to wait for them to come down with the guillotine or get out ahead and show we can address this collectively as an industry?

ROLDAN: There are two schools of thought. If you are dealing with an agency that respects private consensus standards – I would say DOT is one of those agencies – you can go to them and say, this is what we are doing voluntarily through our standard-setting process to address your concern. Agencies like DOT say as long as we have a sense that you understand what we are trying to accomplish and you are trying to deal with it, we are going to at least respect what you are doing. They give you the benefit of the doubt.

There are other agencies – and I put EPA in this category – when you go to them and offer to do A, B and C they say thank you very much because we also want you to do D through L. What is the better strategy?

I will be honest with you. I got burned years ago on the DOT cargo tank remote shutoff. The first public hearing that was held on that issue, I went to DOT and basically said here is the fix: on the unobstructed view just change the ‘and’ to an ‘or’ and we will live with it. If you talk about technology like a remote shutoff for $50, we will live with it. Oh my God, you would have thought that I just went and lit a hornet’s nest on fire. Our members just went berserk; our major marketers. Well, a year and a half and about $1 million later, guess where we ended up?

Knowledge is knowing that fire burns; wisdom is remembering the blister. (Fugitive emissions) is an issue I might just be a little too wise on.

LP Gas: How will the November elections impact our industry overall?

ROLDAN: It takes an entire category of issues – security – and it brings it back to the forefront in a way that we are going to have to be very skillful that we are not captured when they cast this wide net into an onerous set of requirements that make us less competitive than other alternative fuels.

We have been dealing with these security issues for six years now, and we have been winning. In the Republican Congress we have been keeping out of those things. Now what we are saying is these things are starting to roll again. There is a new sheriff in town. We may have to come back to you with some unique plans, and we may need to go out to the industry and say, “Thank you for the confidence, but everybody needs to start paying attention again because this could be big.”

I do think chemical security is probably the biggest thing that we will deal with. I think that there is a better than 50 percent chance that you will see a wholesale rewrite of 911-driven legislation. One of the big issues that helped bring the Democrats to power was when they ran around the country for 90 days and said if they were elected they would stop the foot dragging and adopt the 911 Commission Report – a sensitive subject across the country. They ran around the country saying Republicans had five years and we still don’t have a port security plan.

We always look at the Senate as a circuit breaker because you need 60 men to actually do something to get something through the Senate. Let’s say they pass a port security bill. That Senate bill goes to the Senate floor and they’ve got enough votes to have cloture. It’s a germane amendment to have a Senator stand up and move that the Department of Homeland Security include propane in this other security thing. So somebody has just done a bypass on the circuit breaker, and now we are live in a fight.

I don’t want to come off sounding like I am against security procedures and regulations. We only want something that is sensible; that recognizes that there are differing risks; that recognizes that you are not going to achieve much of anything if you try the one-size-fits-all cookie-cutter approach. We do better in this country if we applied our assets to the most intense risks, and propane is not one of them.

LP Gas: Some members complain that finances are driving most NPGA decisions, such as the dues rate hikes, new member service programs that add revenue, elimination of Pinnacle to cut expenses, and a new contract with PERC that will realize more money. They also note that NPGA might start a self-insurance program that would add revenue. How do you respond?

ROLDAN: Perhaps you run the risk of somebody wondering if there is a problem with the financial liability of the organization because it focuses on so many things related to that. But it’s about time we run like a business.

If the Supreme Court comes out tomorrow and says PERC is illegal, I’d need money to either appeal that or run to Congress and get it overturned. Unexpected things come up. I think the reason we moved to Washington is that our leaders said we are good at fixing things. But why do we wait for it to happen before we go and fix it? The walls fall in, you get RMP down on your head, and all of a sudden we are dipping into your reserves and you are playing this reactive game. It’s sure hard to be proactive when you are operating at a loss.

I will say this as definitely as I possibly can: The association is in better financial shape today than I believe it has ever been, certainly in the 12 years that I have been here. We were an association that had $1.3 million in reserves in 1995 when I came on board. When we moved, we had $1.3 million. Having a $2 million reserve right now, having six months operating revenue in the bank – that’s pretty solid.

We shot ourselves in the foot a couple years ago when we passed PERC. We cut dues 10 percent; there goes $250,000. Then we create a tiered structure for multi-state marketers so that the first plant costs more than the 500th plant. There goes $300,000 out the door. Then we sell CETP for $1.6 million; but that’s $240,000 in annual net revenue coming in the door. We just sliced off that revenue stream. We should have done it; it was the right mission thing to do. But all of a sudden you’ve put a tourniquet on a revenue stream.

I am proud of the fact that the percentage of our total budget that is derived from marketer dues is 29 percent. You have to do a pretty darn good management job to do that. Obviously I am biased, but I believe that our value proposition is multiples of the $350,000 that we deliver.

Good association management requires you to be ever-vigilant to do things that relieve pressure on the dues process. Because costs go up, you are always looking for things to take that dues pressure off. That’s good association management. If you look at the relationship between total member dues and our budget, its probably 42 or 43 percent – very similar to what the statistical average is for associations overall. I am proud of that because we have matched them in that ratio, even though we have cut off avenues for revenue that they have. That’s pretty impressive.

I accept the criticism that we have done a couple things close together with financial ramifications. But if I were to share with you the goals and objectives of my performance plan from our Personnel Compensation Committee, this year it basically says I am going to get this organization on the kind of sound financial footing that takes us to the next century. So I am actually proud of it, though some people may criticize it.

On the insurance item that you mentioned, I am not totally sold on this so I don’t want to offer any comment that implies that I am in favor of whatever is being studied now. I don’t know enough about it. I am going to go to the Member Services Committee meeting (Feb. 12) to talk to them because we are trying to get this whole thing back in regular order. I think it has kind of gotten a life of its own.

The idea there is simply this: Can we aggregate demand in such a way that the member benefits? Consistently through the 12 years I have been here, the number one thing members tell us is they want us to provide some kind of insurance program. Can we come up with a win/win scenario for members and the association? I think that’s a possibility, but I am not really sold.

But I can tell you we are not out there hunting for it. The driver there is the availability of insurance options. Let’s say that became a viable plan. I am not doing my job – and I do have a fiduciary responsibility – if I don’t try to get some cut for the association. But is the revenue the driver? I can tell you that on the insurance issue the member interest in having additional insurance providers out there and having some type of market power by aggregating that demand is the driver of the whole thing. The potential revenue from that is an add-on. We would be really bad businessmen if we didn’t let it cross our minds. But it’s not being driven by that, I give you my categorical assurance of that.

LP Gas: Are you concerned about the decline in NPGA membership since 1999?

ROLDAN: There are thousands of organizations out there that would kill to have the member retention rate that we have. If you go through any drop member list, you will see that we have very few resignations. Most are out of business or sold.

Look at it this way: we are at 2,934 marketer members. When I came into the industry, it was 3,400. That was before Inergy existed. Inergy now has something like 350 plants – traditional retail locations. How did that new company come in here and actually get that big without acquiring a lot of different companies? If you look at the growth in the locations of the multi-state marketers, very few people get purchased and then decide to stay an NPGA member. So if you just look at sheer numbers, you see where it went. It is consolidation.

LP Gas: Is that consolidation a concern, given its impact on revenue and other things?

ROLDAN: It doesn’t hurt dues revenue because we think we solved that with the new dues structure. We had to do that because it was as much a consolidation issue as it was a business model issue. Some of the independents still have the traditional retail location, but all of the multi-staters were consolidating at that level but retaining storage.

One of our great strengths is our grass roots; it always has been. So you have a bias in favor of large numbers as compared to small. But consolidation is something that happens in every industry. Frankly, I just don’t think it’s the role of the association to try to stand in the way. When markets try to achieve efficiency, consolidation is always part of that process.

LP Gas: With PERC now providing safety, marketing and education support to the industry, are you concerned that independent marketers will leave multi-staters to pay the freight for NPGA’s main function of lobbying?

ROLDAN: Our membership base consists of a lot of small businesses, but they are a lot more sophisticated than the question might imply. Over the course of a year I do a lot of traveling, so my response might be more anecdotal than analytical. But I can tell you that, without exception, every state that I go to there is a connection in the mind of the average marketer between what we do and their ability to conduct business in a competitive fashion. If I didn’t pick that up, I would be concerned.

In any society or organization, you might find people who are willing to ride in the cart while everyone else pulls it. But one of the best things about this industry and one of the reasons I think we will continue to be effective in the future is the willingness of typical marketer, typical NPGA member to understand his or her role in pulling the cart.

LP Gas: Over the last 15 years, consolidation of oil producers and distributors (pipelines) has resulted in fewer, stronger players who are changing the market dynamics beyond simple supply and demand. How concerned should our industry be about these developments?

ROLDAN: Both the consumer and the people that make up our association have a common interest in what is fair and reasonable. The consumer should be confident because you’ll find not many industries with the degree of competition that we have in this industry. You can pick up any telephone book in any rural hamlet in the country and you will find multiple options for propane. That keeps us competitive and the consumer ultimately benefits.

We are concerned about consolidation with regulated entities. The whole MAPL rate case challenge is an outgrowth of our concern about our desire to achieve just and reasonable rates. The government has always been concerned about fairness and fair competition and that type of thing. We have anti-trust laws in this country; we have a body of statutes that deal with competition and ownership and consolidation.

But really the end-game there is achieving where you have limited competition or no competition. The best example in our industry of a situation where there would be very limited competition is the pipeline situation. There are processes in place for us to make sure that what is charged there by that regulated entity is just and fair and reasonable. We haven’t done it in the past, but we will be more aggressive in the future because we owe it not only to our members but our consumers to make sure the rates charged are just and reasonable.

LP Gas: Given that, can NPGA continue to effectively advocate on behalf of all levels of the industry – the producers, distributors, manufacturers, suppliers and marketers – given these adversarial positions that are arising between those segments?

ROLDAN: I think the answer is yes, and here is why: If you take the Mid America Pipeline litigation and you take a snapshot of that issue where we are today, that is a valid question. We seem to be at odds with a company that is our member – Enterprise.

But what escapes the borders of the snapshot, are the roughly year and a half of conversations and negotiations and discussions that we had before we made the decision to pull the litigation trigger. Now, one can assume that every issue you immediately jump to litigation. But I would argue that in a vertically integrated organization where we can sit across a table and where we can at least attempt to resolve our differences inside the tent, 90 percent of the time – maybe more – we manage to come to some type of consensus.

But the better example would be of seasonal supply and distribution issues. I have heard in the past that we need to kick out all the producers, kick out all the shippers, that kind of stuff. I can give you a half-dozen examples where we have gotten in the middle of a tight winter – we get a 10-day blast of cold temperature, bad weather. At the same time we are drawing down on our reserves rather quickly and you just need to know what happened.

Let me give you one quick example. What was it two years ago the sponge oil issue on the Dixie Pipeline in the South? What does it mean? Is it adversarial to be able to pick up the phone, call the president of the pipeline and say “You know, can you just tell me what’s going on here?” There was a point at which I had to send a letter, but it’s a hell of a lot more helpful to have as your starting point being able to pick up the phone and say “Why are you doing a plant turnaround now? Do you know what’s going on?”

I remember calling the president of one of the railroads – who was a NPGA member – and said, “Look, you guys really need to understand that we’ve got a problem here; it’s a huge problem.” That same afternoon he sent an advisory to all the rail yards on their system saying “Give priority to the propane shipments.” But people never see that. What happens, I think, is we take the snapshot where things get a little more contentious and we start to question that vertical integration.

Vertical integration also helps you build coalitions. When we are trying to get a big footprint in Washington on an issue and we want API behind us and we want the Association of Oil Pipelines and the Petroleum Refiners Association, it helps to be able to say I have ConocoPhilips as a member too. So it kind of cuts both ways.

LP Gas: But at the same time, doesn’t the association’s vertical structure hamper NPGA’s ability to act quickly and decisively on behalf of marketers at times?

ROLDAN: Somebody would have to cite me an example of where we did not act quickly on anything. I have tried to make it a hallmark of the operation in Washington that we will not be process-bound.

When push comes to shove, we will come down on the side of the marketer. There are a lot of people who we urge to be members of NPGA. There are a lot of companies that we turn cartwheels to try to get them to join NPGA. But I think we are very up front when we say that other segments of our membership have organizations out there that also represent their interests. The producers have organizations that represent that interest; the national association of manufacturers deals with that kind of stuff. There is only one organization in this country at the national level that looks out for the interests of a propane marketer and that is NPGA. We seek commonality of interests, but if there is ever a divergence we will always come down in support of the interests of the marketer. I don’t think that’s mutually exclusive to any other class.

There are two bugaboos in the industry. One is big vs. small. If we got the CEOs of six of the smallest guys and six of the largest guys at the table, I guarantee you they are going to come to a consensus. They are going to leave that room and they are going to say there really isn’t big vs. small.

If you got three manufacturers, three distributors, three marketers and three suppliers at a table and ran through the issues that are in our strategic plan or the issues that NPGA has dealt with in the last five years, every single one of those people would leave that table saying it’s not a them vs. us thing. But there seems to be always that kind of recurring theme.

LP Gas: So you don’t see NPGA ever abandoning that vertical structure?

ROLDAN: What I don’t see is a compelling need to. Remember, we are an advocacy organization operating in an environment where there is strength in numbers. So, absent a compelling reason, why would you want to reduce your numbers?

Now if there were a compelling interest or some compelling argument that said that the interest of the marketer was not being represented because of this, then it would be a different story.

A healthy organization is an organization that is always assessing its environment. Who wants to be a fossil lumbering along? If the world outside of your window is changing faster than inside, you have got trouble. And my job is to make sure that we are changing as fast as the world outside. So, am I leaving a door open based on that? Certainly. I would be crazy not to.