CINCINNATI GAS & ELECTRIC COMPANY History

Company History:

The Cincinnati Gas & Electric Company (CG&E) and its subsidiaries are primarily engaged in providing electric and gas service to a 3,000-square-mile contiguous area of southwestern Ohio and adjacent areas in Kentucky and Indiana. Non-utility assets include Tri-State Improvement Company, a real estate development company, and YGK Inc., a barge and rail terminal company that services CG&E's Zimmer Generating Station.

CG&E's roots grew from a group of public-minded citizens living in Cincinnati in the mid-1830s, when the Ohio River town of 35,000 was one of the fastest growing cities in the United States. Despite the city's growth, Cincinnati's streets at that time were lit only by a few lackluster lard-oil lamps, and the need for a dependable system of lighting led the local group in 1837 to organize and secure an incorporation charter for the Cincinnati Gas, Light & Coke Company. The new company was underfinanced, however, and several years of limited investorship followed until 1841 when James Conover, a newspaper executive and attorney, purchased the company's initial $100,000 in stock and became its first president and sole director.

After Conover became president, the company secured an exclusive gas franchise from Cincinnati, promising in return to establish a system of city streetlights. Conover then supervised construction of the company's first plant, designed to use distilled coal to manufacture gas for lighting purposes and in the process produce residual coke which could be sold for heating purposes. By 1843 the new plant was finished, and the company's first gas lights were turned on at W. H. Harrison's drugstore on the corner of Fourth and Main in Cincinnati.

In 1845 James H. Caldwell became president, beginning a 12-year period during which either he or his brother William S. Caldwell was at the helm of the company. Under the Caldwells, lighting service was gradually expanded to include commercial and residential customers. By the time the Caldwell brothers turned the presidency over to Henry J. Miller in 1862, the company was serving 8,200 customers.

Under Miller's successor William W. Scarborough, during the mid-1870s, the company began promoting gas for cooking uses and selling appliances. Residential gas service was extended into Cincinnati's suburbs about the same time, while commercial gas sales were also improving as increasing numbers of local businesses began using gas as a source of both heat and industrial generating power.

In 1877 Civil War general Andrew Hickenlooper was named president, a post he would hold for 26 years while guiding the company through Cincinnati's 'Light War' and the resulting consolidation of the company's gas and electric service. Electrical service was introduced in Cincinnati in the early 1880s shortly after Thomas Edison perfected the first commercially viable light bulb, and by 1883 small electric generating companies were sprouting up throughout the city and coaxing Hickenlooper, an initial skeptic of electricity, to consider business diversification.

After five decades of concentrating its activities in the production and distribution of manufactured gas, in 1887 Cincinnati Gas, Light & Coke entered the electrical service business and began acquiring the stock of the Cincinnati Electric Company, one of dozens of electric companies then serving the local area. Additional purchases of local electric plants followed, and in 1889 Cincinnati Gas, Light & Coke began construction of its own electric generating station adjacent to the company's initial West End Gas Works station.

During the 1880s the company also expanded its capacity to provide gas service, constructing the East Gas Works on the Ohio River. Hickenlooper also imported a new, low-cost European system of coal carbonization which helped reduce gas-manufacturing costs, and introduced the new Welsbach burner, an efficient gas lamp that was as bright as electric models but only half as expensive to use.

By 1890 the company had purchased a half dozen local electric companies, becoming the dominate source of Cincinnati's electrical power. But the 1892 debut of Cincinnati Edison Electric Company gave Cincinnati Gas, Light & Coke renewed competition, leaving the city's electric business divided between the two companies for the remainder of the century.

In 1901 a truce was called in Cincinnati's Light War when the city's two major electricity providers agreed to consolidate their operations, merge Cincinnati Edison into Cincinnati Gas, Light & Coke, and rename the corporation the Cincinnati Gas & Electric Company. All of the consolidated company's electric production was transferred to what had been Edison's Plum Street Station, built just two years before.

In 1903 Norman G. Kenan was named president, and three years later the company began selling electrical appliances and fixtures in its office 'lobby shops.' The company's business was more profoundly affected in 1907, when the first supply of natural gas was introduced in Cincinnati. Initially limited in supply, natural gas was quickly received with favor, offering a cleaner and safer fuel than manufactured gas with the ability to heat twice as fast at half the price.

In 1909 CG&E's natural gas supplier, Columbia Gas & Electric Company, completed a pipeline running from its gas source in West Virginia to Cincinnati, guaranteeing the community enough natural gas to meet demand at the time. Soon afterward CG&E stopped manufacturing artificial gas, began using the advertising slogan 'Heat with gas; light with electricity,' and added gas burners and gas furnaces to the appliances it marketed.

In order to ensure a continuous supply of natural gas, in 1911 CG&E agreed to become a subsidiary of Columbia Gas & Electric. In 1914 Phillip G. Gossler was named CG&E's first chairman of the board, and that same year W. Winans Freeman became president. During the remainder of the decade and well into the 1920s Freeman oversaw a rapid expansion of the company's business, initiating expansion of the company's electrical generating stations and construction of gas storage facilities.

By 1917 CG&E was providing natural gas heating service to 20,000 residential customers, up from just 500 customers eight years earlier. Following an exceptionally cold winter in 1917 which taxed gas supplies, the company constructed stand-by gas storage caverns to provide reserve capacity for future weather-related demand increases.

During the same period demand for electricity was also rising, and by the time the United States entered World War I, CG&E had responded by expanding its Plum Street Station to produce 34,800 kilowatts of power, better than eight times more than its original generating capacity. In order to keep up with power needs during the war years and beyond, in 1918 CG&E constructed the 50,000-kilowatt West End Station.

Postwar growth during the early 1920s led CG&E to double the West End Station's generating capacity and construct the 45,000-kilowatt Miami Fort Station. Additional accommodations for growth in its gas business were made during the mid-1920s when CG&E completed facilities to resume production of manufactured gas and began distributing mixed manufactured and natural gas through a major portion of its service area. By the late-1920s the company's growth had brought a need for additional office space, and in 1928 CG&E began construction of a 20-story corporate office building. Despite the Great Depression which struck the nation in 1929, the corporate headquarters were completed in 1930, giving new electrical light to the corner of Fourth and Main in Cincinnati where in 1843 the W. H. Harrison's drugstore had become the company's first commercial gaslight customer.

During the company's 100th anniversary in 1937, CG&E's operations were challenged by Cincinnati's worst disaster in history when the Ohio River topped its banks and forced the closing of most local businesses. CG&E's Miami Fort Station was not spared from flood waters but continued operating, although employees worked from small row boats to maintain gas service throughout CG&E's service area. Recognizing the potential for future disasters, shortly after waters receded CG&E initiated a flood-proofing program for its power plants.

During the 1940s the company was faced with new challenges, including operational restrictions resulting from World War II. With the sale of new appliances forbidden by the government, in 1942 the company closed its lobby shops and stopped selling appliances. In 1944 the company received new freedom and new service territory after the Securities and Exchange Commission ordered Columbia Gas & Electric to divest some of its subsidiaries, including CG&E. As a result, CG&E extended its service area into Indiana and Kentucky through the purchase of former Columbia Gas & Electric subsidiaries that included Miami Power Corporation, an energy transmission firm operating in portions of Indiana and Kentucky; West Harrison Electric & Water Company, serving a three-square-mile area in southeastern Indiana (later renamed West Harrison Gas & Electric Company); and Union Light, Heat & Power Company, serving six counties in northern Kentucky.

After leading the company through the Great Depression and World War II, in 1945 Hubert C. Blackwell was named chairman, and Walter C. Beckjord succeeded him as president. In 1946 CG&E went public after Columbia Gas & Electric completed its divestiture of CG&E, and stock held by the former parent was sold to CG&E stockholders and new subscribers. Following an order by the Public Utilities Commission of Ohio to restore complete natural gas service, in 1948 CG&E abandoned the mixing of manufactured and natural gas and converted its gas-making equipment at the East Gas Works to produce an oil gas that was interchangeable with natural gas.

During the late-1940s CG&E launched a national advertising campaign designed to court new industry to Cincinnati, and boosted its generating capacity through additions to existing power stations. Construction also began on a new power plant, the Walter C. Beckjord Station, and CG&E's service territory was expanded further with the acquisition of the municipal gas system of Lebanon, Ohio.

Service area expansion continued in the early 1950s, with the acquisition of electric properties operating in the Ohio communities of College Corner, Amelia, and North Bethel. Beckjord was named to the additional post of chairman in 1952 and five years later turned over the presidency to Ernest S. Fields. Under Fields, during the late-1950s, the company acquired the St. Bernard, Ohio, municipal electric system and sold remaining water properties that were acquired in the divestiture of Columbia Gas & Electric.

The company continued to grow in the 1960s under the leadership of Fields and William H. Zimmer, who were named chairman and president respectively in 1962. In 1964 CG&E acquired three Southeastern Indiana companies: Lawrenceburg Gas Company, Lawrenceburg Gas Transmission Corporation, and Eastern Indiana Gas Corporation, with the latter two subsequently merged into Lawrenceburg Gas.

In 1964 CG&E formed the wholly owned subsidiary Tri-State Improvement Company, a real estate development company. About the same time the company began working with local business organizations to promote revitalization of the city's downtown and riverfront areas. In 1964 CG&E also joined with two neighboring utilities, Columbus & Southern Ohio Electric Company and Dayton Power & Light Company, to form a power pool and construct what would become the first of several joint ventures between the utilities, a 400,000-kilowatt generating unit at CG&E's Beckjord Station. In 1969 the same three utilities agreed to jointly construct a nuclear power plant, the William H. Zimmer Station, 28 miles east of Cincinnati near Moscow, Ohio. A 1970 agreement between the three utilities gave CG&E the largest stake in the proposed two 840 megawatt generator plants, and put the company in charge of construction.

Despite the 1972 formation of the subsidiary YGK Inc., a wholly owned barge and rail terminal company organized to service the Zimmer Station, the Zimmer plant did not deliver power by 1975 as originally planned. Instead, it became a two-decade-long source of financial and regulatory woes. In 1975 William H. Dickhoner became president and inherited those woes, while B. John Yeager was named chairman. The company's problems related to constructing a new electrical power plant were compounded by a natural gas shortage in 1977, which forced CG&E to curtail gas usage and require over 400 of its largest customers to scale back their natural gas usage to a bare minimum.

CG&E entered the 1980s facing mounting setbacks in constructing the Zimmer Station, having already abandoned the station's proposed second generating unit because of escalating costs and increased regulations. By 1982 the plant was 97 percent complete, but charges that year of safety breaches and related document falsification at the construction site led the Nuclear Regulatory Commission (NRC) to order construction work stopped. The NRC also requested a company review of the plant site, which later revealed that all welding procedures used in the plant's construction were inadequate. With construction estimates to complete one generating unit at Zimmer having skyrocketed from the original 1969 estimate of $220 million to $3.5 billion, in 1982 a shareholder brought suit against CG&E, charging the company with waste and mismanagement in the plant's construction.

In 1983 CG&E's partners in the Zimmer plant forced CG&E into arbitration hearings, asking for the return of some of the $800 million they had invested in the troubled plant. After plant workers brought additional charges regarding document falsification in late 1983, CG&E and its two partners agreed to abandon plans for a nuclear plant and convert the nearly completed Zimmer Station to a coal-generating facility. With $1.7 billion already spent on the plant, the partners concurred it would cost less to convert the plant than to finish it as a nuclear-powered facility. Under terms of a new agreement between the three utilities, CG&E agreed to increase its share of the project to 46.5 percent, pay an additional $110 million of the costs already incurred by its two partners in construction, and provide Dayton Power & Light with low-cost energy until the plant was completed. In return, the other two utilities agreed to drop arbitration proceedings against CG&E.

In 1986 Dickhoner was named chairman, filling the position vacated by Yeager, who had retired four years earlier, and Jackson H. Randolph became president and chief executive. That same year CG&E agreed to pay a $14 million settlement to shareholders who had brought suit against the company for mismanagement of Zimmer's construction, although the company denied any wrongdoing. After three years spent attaining necessary permits to convert the Zimmer Station, in 1987 construction resumed at the plant about the same time that the United States Justice Department closed its investigation of the Zimmer Station's construction without finding any criminal violations.

In 1989 CG&E won a settlement with its primary natural gas supplier, Columbia Gas Transmission Corporation, a descendant of CG&E's former parent company. The settlement, worth about $300 million over 15 years, ended more than 20 cases CG&E had brought against its former parent relating to the supplier's gas pricing practices in the 1980s. As a result of the settlement, CG&E (which as late as 1983 received 100 percent of its natural gas from Columbia) was allowed to diversify up to 80 percent of its gas supply away from Columbia. In the settlement, CG&E also received its own underground natural gas storage facilities for the first time, and gained exclusive control of the local pipeline market through a newly won right to buy 32 percent of a feeder pipeline into the Cincinnati market.

CG&E entered the 1990s looking to new sources of electrical power and new suppliers for its natural gas. Twenty-one years after its initial conception, in 1990 the Zimmer Station began operations as the first power plant ever to convert its source of generating power from nuclear fuel to coal. Seeking an additional source of power for peak demand times and to replace some older generating units, in 1990 CG&E began constructing the Woodsdale Generating Station, designed to burn natural gas, propane, or fuel oil.

During the early 1990s CG&E took advantage of its increased access to low-cost natural gas supplies and began diversifying its supply portfolio to include four interstate pipeline companies. New gas supplies were purchased through both long-term and spot market agreements and from both on-shore and off-shore supplies. The company also gained access to a second gas storage facility, which allowed CG&E to purchase gas at favorable prices and store it for future use.

In 1991 CG&E began selling excess power to other utilities outside of its service area and signed long-term contracts for electricity sales with utilities serving the Cleveland and Dayton areas. Despite record operating earnings of over $1.5 billion in 1991, CG&E's net income fell for the second consecutive year as a result of expenses not covered by rates, including costs related to the Zimmer Station. Looking for a return on those costs, in 1991 CG&E filed an application for a $200 million annual increase in electric rates, sparking challenges to the request from a number of local governments. According to its 1991 annual report, CG&E believes its future will be significantly affected by its 'ability to secure adequate and timely rate relief' related to Zimmer Station construction costs.

After putting a decade of costly concerns behind it, CG&E's future looks brighter. The company has continued to diversify its source of gas supplies, leading to a more financially sound gas business. At the same time, CG&E has increased its reserve electrical generating capacity, giving the company opportunities for increased electrical sales both inside and outside of its service area.

Principal Subsidiaries: Union Light, Heat and Power Co. (99.9%); West Harrison Gas & Electric Co.; Miami Power Corporation; Lawrenceburg Gas Co.; Tri-State Improvement Co.; YGK Inc.

Further Reading:

• The Power to Serve: CG&E's Commitment to the Community, Cincinnati Gas & Electric Company, 1987.
• Olson, Thomas, 'Settlement Gives CG&E Million-Dollar Windfall,' Cincinnati Business Courier, November 6, 1989.
• Wasnak, Lynn, 'Plugging Zimmer In,' Ohio Business Journal, December, 1989.

Source: International Directory of Company Histories, Vol. 6. St. James Press, 1992.

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