NEW YORK STATE ELECTRIC AND GAS CORPORATION History

Company History:

New York State Electric and Gas Corporation (NYSEG) serves central, eastern, and western New York State, an area which, though mostly rural, includes the cities of Binghamton, Elmira, Corning, and Ithaca. Its territory includes one-third of the state's land area and a tenth of its population. With more than 775,000 electric customers and almost 220,000 gas customers, NYSEG serves a diversified population of industry, agriculture, recreational facilities, and colleges and universities.

NYSEG traces its history back to October 28, 1852, when six Ithaca businessmen pledged a total of $75,000 and incorporated as the Ithaca Gas Light Company. The fledgling company soon laid mains and built a coal gas plant. In 1853 Ithaca's streets saw their first lamps.

In the thirty years following the founding of Ithaca Gas Light, the use of methane gas grew steadily. Street lighting was extended beyond affluent business districts, while homeowners and businesses obtained lights for evening hours.

However, beginning in the late 1870s and early 1880s, entrepreneurs began promoting the recently invented electric arc light as a superior and brighter street lighting system. In conjunction with the Brush-Electric Company and the Thomson-Houston Company, local businessmen financed arc lighting ventures in Geneva, Elmira, Binghamton, Ithaca, Auburn, and a variety of smaller New York State communities.

By the 1890s, the invention of the incandescent bulb, the central generating station, and alternating current spelled the eventual doom for the gas lighting business. Ithaca Gas Light officials saw what was happening and, showing a foresight uncommon among gas-lighting companies, began buying local electric companies.

In 1910 Ithaca Gas Light itself was acquired by Associated Gas & Electric, a utility holding company that had already consolidated several area utilities including the rival Ithaca Electric Light and Power Company. According to the official NYSEG History, during the first quarter of this century, more than 240 local companies or interests were absorbed, either directly by Ithaca Gas Light or by other utility companies that later combined to form the present company. Among the most prominent of these were Eastern New York Electric & Gas Corporation; New York Central Electric Corporation; Elmira Water, Light & Railroad Company; Binghamton Light, Heat & Power Company; Western New York Gas & Electric Corporation; and Empire Gas & Electric Company.

The company's growth was reflected in repeated name changes. In 1916 it became Ithaca Gas & Electric, in 1918 New York State Gas and Electric, in 1928 New York Electric Corporation, and in 1929, it was dubbed New York State Electric & Gas Corporation. By 1937 the company had reached its present service area size of about 35 percent of the state.

As a growing firm, the company needed new sources of power and better billing methods. Initially, electricity was generated by relatively small coal-fired turbines, and customers were billed a flat rate for each bulb no matter how much electricity they used. As demand grew, especially because of the growth of electric trolleys, the company built or acquired progressively larger steam generating plants. Likewise with increasing financial sophistication, a system of use-based metering was installed.

The trolley era soon passed in the United States. But despite the disappearance of one of its biggest customers, NYSEG continued to experience growth in demand. Service, which initially had been limited to evening hours, was expanded to twenty-four hours a day. Electric appliances became popular. Farmers used electricity to shorten egg-laying cycles, and both industry and business eventually found electrical service indispensable.

In response to increasing demand, the company built a series of large diesel and coal-fired generators. In 1917 it completed Goudey Station in Binghamton. The first unit of its 163,000 kilowatt Greenidge plant followed in 1938, the first unit of its 73,000 kilowatt Jennison Station was brought on line in 1945, and the first unit of its 87,000 kilowatt Hickling Station was completed in 1948.

While NYSEG executives dealt with the everyday activities of the electric company, ultimate control was maintained by the holding company, General Public Utilities Corporation. In 1935, Congress passed the Public Utilities Holding Company Act, which limited holding companies to one integrated utility system and in general led holding companies to divest the utilities they controlled. In NYSEG's case, divestment was delayed by World War II. Finally, in 1949, General Public Utilities Corporation sold all 880,000 shares of company stock to the public, making NYSEG an independent, investor-owned utility.

To run the company, the newly independent board of directors recruited Joseph M. Bell, Jr., who had previously been in the corporate financing, utility engineering, and consulting businesses in New York City. Bell came to power amidst the postwar economic expansion, which for electric utilities translated into increased demand. In 1951 he built an addition to the Hickling plant. Then, in 1955 and 1958, he completed the two units of the 318,000 kilowatt Milliken plant on Cayuga Lake. By the end of the decade, revenues exceeded $100 million and earnings surpassed $5.7 million.

Bell's ambitious construction program satisfied demand for the remainder of the decade and through much of the 1960s. In fact it was not until 1965--when NYSEG and the Pennsylvania Electric Company began construction of a 1,910,000 kilowatt, three-unit plant at the mouth of a coal mine in Homer City, Pennsylvania, with two units to come on line in 1969 and the third in 1977--that the company again began building.

On November 9, 1965, a massive power failure hit the Northeast. In its wake, NYSEG and the other major New York State utilities began searching for ways to avoid future blackouts. In July 1966 they formed the New York Power Pool to insure greater reliability and assist members in buying electricity during periods of peak demand. The following year they announced they would build what the Wall Street Journal called 'a single energy control center near Albany to control all their generation and long-distance transmission of electricity.'

This spirit of cooperation remained in the air, and in June 1967 NYSEG executives and executives of Syracuse-based Niagara Mohawk Power Corporation announced they were considering a merger. The two companies initiated studies of the proposal but, with the help of Chicago consulting firm Duff & Phelps, concluded that the high cost of credit and the degree to which NYSEG and Niagara Mohawk were already cooperating made merger both financially unattractive and, from a cost cutting standpoint, unnecessary.

Meanwhile, the far-reaching effects of the blackout had revealed the accuracy of energy requirement projections: the company needed new generating capacity to satisfy future demand. In March 1967 NYSEG president William Lyons announced plans to build a nuclear generating plant. The following May, the company released details of a proposed $135 million 830,000-kilowatt facility. Scheduled to go into operation in May 1973, what became known as Bell Station would be built on Cayuga Lake, 16 miles north of Ithaca, using a General Electric reactor and turbine.

Lyons, who became chief executive officer on July 1, 1968, was a believer in nuclear power. His term was marked by a variety of attempts to build nuclear power plants, most of which were thwarted by environmentalists, regulatory authorities, or rising costs.

In April 1969 a controversy over 'thermal pollution' led him to postpone construction at Bell Station. NYSEG had planned to discharge hot water directly into Cayuga Lake. Environmentalists protested that such a discharge would adversely affect the lake's ecosystem and wanted the utility to build cooling towers instead. In announcing the postponement, Lyons said that the ultimate plan for the plant must 'provide assurance of protection of Cayuga Lake' and also be 'economically practical.'

Because two units of the Homer City coal plant had gone on line in 1969, the supply of electric power was not immediately pressing. The supply of natural gas, however, posed a problem. NYSEG was still distributing natural gas, and in 1970 nationwide shortages of developed natural gas led pipeline operators to limit new sales commitments. NYSEG's first reaction was to announce it might decline to accept new industrial gas customers whose annual needs exceeded 12 million cubic feet. The situation worsened, and on December 30, 1974, New York state officials ordered the company to stop accepting any new gas customers.

The early 1970s was a time of economic difficulty for United States utilities. Between 1969 and 1971 coal prices rose 45 percent. Rising interest rates caused higher capital costs, and down time at Homer City pressured earnings. In view of this combination of events, the company asked for and received rate relief.

In July 1973 Lyons finally abandoned the Bell Station nuclear power plant. Environmental concerns and expected legal and regulatory delays had weighed heavily against pressing forward. 'It is our judgment,' read a company statement, 'that the necessary regulatory approval cannot be obtained in a time frame which would permit the operation of the plant when it will be needed to meet the energy requirements of our service area.' The company claimed it planned to build a conventional, coal-fired generating plant on the same site, but no such plant was ever built.

NYSEG's nuclear woes were not uncommon. New York State's other major utilities also were experiencing complications in getting new generating facilities financed and approved. Hoping for strength in numbers, the seven largest New York State utilities formed Empire State Power Resources, Inc. in April 1974. Never approved by regulators, the proposed company's purpose would have been to build and finance new power plants.

Despite its previous nuclear setback, on June 4, 1975, NYSEG announced it had become an 18 percent partner in Niagara Mohawk Power Corporation's 1.1 million-kilowatt Nine Mile Point No. 2 atomic unit. Projected to cost $1.1 billion and begin operations in 1982, the Nine Mile plant had already been delayed for over a year when NYSEG joined the project.

A month later the company revised previous plans to build a two-unit nuclear power plant at Somerset, New York, and announced it would instead build a coal-fired plant at a nearby site where a geological fault had been found.

The following February, NYSEG and the Long Island Lighting Company signed agreements to buy half interests in nuclear power facilities each planned to build. At the time of the signing, none of these proposed plants had yet received construction clearance. NYSEG never became a participant in any of them.

While Lyons and NYSEG president Wells P. Allen, Jr. worked to build new generating capacity, the natural gas shortage worsened. In January 1977 NYSEG was forced to curtail deliveries to customers in some 30 industries. The company scrambled to find supplementary sources and eventually paid four to five times the wholesale price to obtain supplies of gas from Brooklyn Union Gas and Algonquin Gas Transmission Co., an affiliate of Eastern Gas & Fuel Associates.

In 1977 Charles F. Kennedy became NYSEG chairman and chief executive officer. A board member since 1955, he first joined the company in March 1974 as executive vice president of administration. As of 1978, revenues exceeded $500 million for the first time. The following year, the company began construction of Somerset Station, its first large new generation facility since the first two units of Homer City were completed in 1969.

At 850,000 kilowatts, the coal-fired Somerset was also the first generating plant into which NYSEG fully figured environmental costs. Expected to cost $980 million (later increased to $1.051 billion), the project included a $300 million wet-limestone scrubber designed to remove sulfur dioxide from exhaust gasses. In the scrubbing process, a limestone slurry (mixture of limestone--chiefly composed of calcium carbonate--in water) is combined with flue gases to produce calcium sulfite, which is then mixed with fly ash and lime and buried in a large on-site solid waste disposal area. The Somerset plans also included a $60 million 16-mile company owned railroad to connect the plant with mainline rail facilities and four 90-car trains to bring coal from mines in southwestern Pennsylvania and West Virginia.

The ambitious building program the company had attempted to pursue was based on projections of rapidly increasing demand. After electric sales fell three percent in 1982, executives began to reassess future needs. They saw that while 1982's decline was in part a function of the recession, future demand would probably not grow at the same rate it had in most of the postwar period.

Late in 1982, the company began to show the kind of enlightened corporate citizenship it came to be known for later in the decade. It joined the American Red Cross in project SHARE which helps needy elderly and disabled customers overcome energy emergencies.

In May 1983 Wells P. Allen, president since 1976, advanced to the posts of chairman and chief executive officer. Allen was the first chief executive since William Lyons to see the completion of new electric generating capacity. In 1983 the company completed the largest of its nine hydroelectric plants, the 16.8 megawatt Upper Mechanicsville Hydro Station on the Hudson River north of Albany.

The following year NYSEG completed Somerset Station (now known as Kintigh Station, having been renamed after the company's later president, Allen E. Kintigh) on Lake Ontario in Niagara County. Despite having some of the nation's most advanced environmental protection equipment, Somerset was completed ten weeks early and $70 million under budget. The same year NYSEG surpassed $1 billion in revenues for the first time.

Allen was not so fortunate with the Nine Mile Point 2 nuclear plant. Delays and costs spiraled out of control. The Public Service Commission looked on suspiciously and let it be known it did not consider all the plant's costs prudent and recoverable. In 1986 the utilities proposed to cap recoverable costs at $4.45 billion in exchange for an agreement for the Public Service Commission to drop a two-year inquiry into alleged mismanagement of the plant's construction. When the commission finally capped costs at $4.16 billion, Standard & Poor's put NYSEG securities on its CreditWatch list.

The commission's decision had a direct effect on NYSEG's bottom line. In 1986 higher electric sales and reduced capital costs had led NYSEG to record earnings of $3.86 per share. After the Public Service Commission capped recoverable costs, NYSEG wrote off $382 million and reduced its quarterly dividend from 66 to 50 cents, marking the company's first ever lowering of dividends. By year's end NYSEG was $191 million in the red. The Nine Mile Point 2 plant was finally put in service in spring 1988, with NYSEG receiving 196,000 kilowatts of the generated power.

In the late 1980s and early 1990s, the company returned to financial health. It found its place in the community and reassessed its potential for growth. In an innovative program, NYSEG customer representatives helped indigent or disabled customers navigate the social welfare system and obtain aid to pay their electric bills.

In 1989 the company examined its potential for growth through a planning program called 'NYSEG 2000: A Vision for the Future.' Executives explored ways the company's potential could be maximized and decided to target the natural gas business. In a 1990 letter to stockholders, chairman and chief executive officer James A. Carrigg and President Kintigh described a natural gas strategy of 'aggressive marketing, emphasis on adding new franchises and various service activities closely related to natural gas distribution, coupled with a continued effort to reduce purchased natural gas costs.'

As a first step in this process, NYSEG acquired Columbia Gas of New York, Inc. in April 1991, from Columbia Gas System, Inc., for $57.5 million. Based in Binghamton like NYSEG, Columbia Gas of New York's 68,000 customers increased NYSEG's natural gas customer count by 40 percent.

Along with improving its natural gas business, NYSEG is searching for ways to comply with the Clean Air Act amendments of 1990, which require it to reduce sulfur dioxide emissions from 138,000 tons in 1989 to 70,000 tons by the year 2000.

Principal Subsidiaries: Somerset Railroad Corp.

Further Reading:

• Wall Street Journal, September 13, 1967.
• NYSEG stockholder reports, 1969-1990.
• Faber, Harold, 'Site for Big Power Plant Sets Off a Debate Upstate,' New York Times, July 25, 1976.
  NYSEG History, New York State Electric & Gas, 1981.
• Ellis, David M., New York State: Gateway to America, Windsor Publications, Inc., 1988.
  Public Utilities Fortnightly, May 24, 1990, October 15, 1991.

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

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