KENTUCKY UTILITIES COMPANY History

Address:

One Quality Street
Lexington, Kentucky 40507
U.S.A.

Telephone: (606) 255-2100
Fax: (606) 288-1125

Wholly Owned Subsidiary of KU Energy Corporation
Incorporated: 1912
Employees: 2,264
Sales: $587.66 million
Stock Exchanges: New York Pacific

Company History:

Kentucky Utilities' origins date back to 1905, when a New Yorker named Harry Reid came to Versailles, Kentucky, with plans to build an electric company. He bought an old power plant in the town and struggled to make a go of the business for five years. After a series of setbacks, which included illness, loss of financing, and disagreements with the local government, Reid finally sold the plant in 1912 and moved to Lexington. There he opened a new firm, the Kentucky Utilities Company.

The company expanded at a rapid pace. In the early years, KU bought properties in Versailles, Lawrenceburg, Somerset, Elizabethtown, Shelbyville, Winchester, and Mt. Sterling. By 1913, nearly 4,300 customers were receiving KU electrical services. KU actively encouraged sometimes skeptical people to use electricity by demonstrating new appliances and rewiring residences to replace gas and oil lamps with electric lights. Within five years, 51 communities were being served by KU. In 1917, KU transferred its base of operations to Louisville and purchased the Kentucky Light and Power Company. That same year, five coal mines were connected to the KU system. In 1918, 17 more mines followed. By 1919, the energy used in these coal mines accounted for almost two-thirds of KU's business. The additional revenue helped finance expansion of the system southward and eastward. Soon lines were extended to neighboring Virginia. In 1926, KU was able to acquire the state's Old Dominion Power Company.

KU continued to purchase more and more smaller plants during the 1920s. But company managers soon realized that a new, centralized generating unit was going to have to be built to replace small, isolated plants that were difficult to maintain. This would make the company more efficient and less susceptible to breakdowns. Prior to this time, employees at the early power plants often resorted to drastic measures to keep the electricity flowing. For example, when a chimney at the Richmond plant bent in half, shutting off the draft needed to keep boilers operating, the plant manager blasted the chimney's base with his shotgun until enough air was allowed in. KU's new efforts were directed at connecting such small stations to improve reliability and service.

In 1924, KU built its first coal-fired, steam-generating plant north of Pineville, Kentucky, with an output of 30,000 kilowatts. This plant is still in operation. Between 1920 and 1924, KU's system load doubled. Towns were being added to the network at the rate of one per month. During this time, KU arranged a double circuit tie with Louisville Gas and Electric. The company also continued to consolidate isolated properties and rebuild distribution systems.

The most significant project of the company's early years was the construction of the Dix Dam, which became the state's first major hydroelectric dam and, at that time, the largest rock-filled dam in the world. It was considered a major engineering achievement in its time. Begun in 1923, the project cost more than $7 million and created 35-mile-long Lake Herrington. The hydro plant at the base of the dam was capable of generating up to 30,000 kilowatts.

In 1925, property was purchased in Paducah, the biggest city to be added to the system. It was during this time that Harry Reid, the company's founder, stepped aside. His successor was L. B. Herrington, for whom the lake had been named. In 1934, Robert M. Watt, KU's longest-serving president, was appointed. Watt was president of the company for twenty-three years. Expansion continued under the new leadership, and 253 communities were receiving KU service by 1930. KU property value totaled $47 million, compared to the company's initial assets of $2.7 million. Three years later the company moved its headquarters back to Lexington.

Electrifying Kentucky's remote farms was a slow and costly process. Since rural areas were not densely populated, utilities had to wire great distances to serve just a few customers. In addition, many farmers were reluctant to buy into the new technology until they were convinced it would increase farm profits, rather than just provide luxuries. KU hired its first farm agent in 1927 to speed the effort. The Depression of the 1930s forced KU to nearly end expansion. In the first half of the decade, only seventeen towns were added to the system. In the mid-1930s, electric sales increased. The federal government's Rural Electrification Administration (REA) allowed the formation of cooperatives, which brought electricity to many scattered farms. KU also demonstrated and sold home appliances to boost the use of electricity. The company ceased selling appliances in 1943.

For KU, times of acquisition and consolidation continued in the late 1930s. Lexington Utilities Company's common stock was purchased in 1935 for $350,000; by 1940, KU acquired direct ownership of the entire company. In doing so, KU also acquired the Lexington Ice Company property, a subsidiary of Lexington Utilities. In 1939, KU received nearly $1.5 million in the liquidation of its collateral trust notes and investment in the Kentucky Securities Company. In 1941, KU consolidated with a northeastern Kentucky utility, Kentucky Power & Light. Two years later, KU purchased the properties of Tri-City Utilities Company. In addition to the ice company, KU was involved with other nonelectrical businesses, including trolleys, water works, gas utilities, and even the Southeastern Greyhound bus system.

Rationing and supply shortages brought on by World War II temporarily restricted expansion. But as the war wound down there was a growing demand for electrical service, and KU officials began planning for more power stations. To generate capital and concentrate on the electric business, they decided to sell several of the nonelectrical assets. In 1944, KU's Paducah bus properties were sold, and in 1947, KU sold most of its water properties. That same year the company also sold its ice companies and related properties. Finally, natural gas properties were sold in Danville, Lexington, Maysville, and Paris in 1948.

Significant expansion of KU's service area resumed in 1946, when construction began on the Tyrone Plant, located on the Kentucky River in Woodford County. Ground was broken for another plant on the Green River near Central City, and the Pineville plant's capacity was doubled. In 1949, KU added 140 miles of line between Dix and the Green River plant. With integrated KU lines now running between Virginia and the Mississippi River, the company considered itself a statewide utility.

KU became involved in a state development program in 1948 to promote community and industrial interests. Over 200 new industries entered the service area in the 1950s, and almost 400 more entered in the 1960s. As the state prospered, KU had to keep pace through expansion. In 1950 KU purchased the assets of Kentucky Electric Power Company, including a generating unit near Nortonville, Kentucky. That same year KU consolidated with Community Public Service Company. In late 1951, KU sold gas properties in Paducah and Shelbyville. A third generating unit was built at the Tyrone site in 1953. In 1954, a third unit was added at Green River. In 1957, the E. W. Brown generating station opened near the Dix Dam. Properties acquired in the mid-1950s included Dixie Power & Light Company and South Fulton Light & Power Company. In 1956 the electric distribution system of Stearns Coal & Lumber of McCreary County, Kentucky, was purchased. In 1963, KU bought the U.S. Steel Corporation's electric system located in Lynch, Kentucky, for $110,000. During the 1960s, studies showed that KU customers were doubling their power usage every ten to twelve years.

Since the 1920s, KU's systems control center had been located inside the Dix Dam plant. In 1954, a new control center was constructed overlooking the dam. In 1964, a new all-digital computer was installed at the control center, the first in the electric power industry. Compared to the rapid growth of earlier years, the period between 1965 and 1970 was nearly static. The only expansion activity KU undertook was the construction start of a third unit at the Brown plant, considered the first 'giant' of the company's generators.

When new industry flourished in the state in the 1970s, KU began building to meet the demands. KU installed a 51,000 kilowatt peaking unit at Lexington in 1970. The first Ghent generating unit, constructed on the Ohio River in Carroll County, became operational in 1974. It was KU's largest generating unit, capable of producing 510,000 kilowatts. A natural disaster affected KU's operations in 1974, when multiple tornadoes cut KU lines at 32 places. Damage was estimated at $1.3 million. Between 1977 and 1978, KU weathered a coal strike and an unseasonably cold winter. The company found it necessary to purchase power from other utilities, seek coal supplies from the spot market, and encourage energy conservation among its customers for the first time. A second unit at Ghent went on line in April of 1977, bringing KU's total capacity to 2,100,000 kilowatts. Construction on the third and fourth units began in late 1977. In 1979, KU moved its corporate headquarters to its present location at One Quality Street in Lexington.

Forecasts of decreased usage coupled with the severe economic times in the early 1980s forced KU to cancel plans for two 650-megawatt units in Hancock County in 1986. KU cooperated with state and local governments in their attempts to spur economic development in the region in the mid-1980s. This effort was rewarded when the Toyota Motor Corporation decided to build a plant fifteen miles north of Lexington. That plant became KU's second-largest customer.

In 1983, KU improved the efficiency of its generating units by installing a state-of-the-art computer in a $6.6 million addition to the system control center at the Dix Dam. The new equipment continually computed the cost of the electricity coming from each unit and then varied the output levels to maximize economy of operations. The company also computerized several other functions in the late 1980s, including plant maintenance, customer records, and meter reading.

In recent years KU has been involved in litigation over several disputes with its suppliers and government regulatory agencies. In 1981, the U.S. Department of Justice filed suit against KU, charging that the company had acted in violation of antitrust laws in attempting to monopolize trade to wholesale customers. In 1986, the U.S. District Court of the Eastern District of Kentucky dismissed the action. Later that year, KU was charged with making imprudent decisions in several coal purchase contracts during the 1970s and then overcharging customers by over $81 million in the 1980s to compensate. However, the Kentucky Public Service Commission ruled that KU's decisions were in fact prudent. KU was also involved in two lawsuits with coal suppliers in 1984 and 1989 concerning changes in market price during long-term contracts. In 1990, the Environmental Protection Agency began investigating KU's liability in hazardous substances found at a disposal site the company used. KU management insisted that the company used the site properly.

Despite these situations, KU continued programs to assist the community and the environment in the 1990s. The company conducted customer usage and satisfaction surveys in 1991, and provided training for its customer service employees. KU also continued its Wise Choice home program, which promotes energy-efficient electric homes. Also in 1991, the company constructed a fish ladder in the Dix River near the Dix Dam as part of the Aquatic Habitat Enhancement Project. This effort was intended to protect and increase the trout population in the Dix River.

The company began a reorganization in 1988, with plans completed in late 1991. Through a share-for-share stock trade, KU Energy Corporation was created as a holding company for Kentucky Utilities. Also at this time, Old Dominion Power Company, formerly a wholly owned subsidiary of Kentucky Utilities, was merged into Kentucky Utilities. Kentucky Utilities is now the principal subsidiary of KU Energy. As company president John T. Newton explained in the company's 1991 annual report, 'The holding company structure increases our flexibility to take advantage of opportunities in our changing industry. As competition and deregulation continue to challenge the utility industry, we now have the ability to pursue other opportunities that have the potential to enhance value for our shareholders.'

KENTUCKY UTILITIES COMPANY History

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