Northern States Power Company History

Address:

414 Nicollet Mall
Minneapolis, Minnesota 55401
U.S.A.

Telephone: (612) 330-5500
Fax: (612) 330-6297

Public Company
Incorporated: 1909 as Washington County Light & Power Company
Employees: 6,470
Sales: $2.65 billion (1996)
Stock Exchanges: New York Chicago Pacific
SICs: 4931 Electric And Other Services Combined

Company Perspectives:

Our investors know us for our financial strength and customers know us for low-cost, reliable service. That is our goal--satisfied investors and satisfied customers.

Company History:

Northern States Power Company (NSP) provides electricity and gas to customers in Minnesota, Wisconsin, North Dakota, South Dakota, and the upper peninsula of Michigan. In 1996 it had 1.4 million electricity customers and 400,000 natural gas customers. The bulk of its sales is direct to consumers, but it provides a small amount of energy for resale by other utilities.

Early Development of Electric Utilities

NSP's roots go back to 1881 when Henry Marison Byllesby, NSP's founder--then a 22-year-old dropout from engineering school--joined Thomas Edison as a draftsman to build a power plant in New York City. Byllesby went on to design plants for Edison in Chile and Montreal. In 1885 Edison's rival George Westinghouse offered Byllesby $10,000 a year to become vice president and general manager of Westinghouse Electric, and Byllesby accepted.

In his four years with Westinghouse, Byllesby invented and designed more than 40 electric lighting devices. In 1891 he received a job offer from another competitor, Charles A. Coffin, president of Thomson-Houston Electric Company. Coffin sent Byllesby to St. Paul, Minnesota, to run a subsidiary there. In St. Paul, Byllesby noted that most Midwestern electric companies had inadequate finances and other resources to meet customer demand. The weakest companies quickly went bankrupt or were swallowed by their competitors. Byllesby spent four years in St. Paul, until Thomson-Houston merged with Edison's General Electric Company. Unwilling to work for Edison again, Byllesby went to Oregon and became vice president of the Portland General Electric Company, where he designed, financed, and built four hydroelectric developments in four years.

In 1902 he put his years in St. Paul to use and organized his own engineering and operating firm in Chicago, with Samuel Insull and other backers, to buy and upgrade struggling midwestern utilities. Insull was a leading financier and acquirer of utilities. Financially troubled electric companies would approach Insull, and Insull would bail them out in exchange for stock in the company and an executive position. Byllesby bought companies in Illinois, Ohio, and Oklahoma, then in 1909 returned to Minnesota, where he organized the Washington County Light & Power Company in June 1909. In December 1909, the company's name was changed to Consumers Power Company. Byllesby and Insull also organized two utility holding companies: Northern States Power Company of Delaware in 1909 and Standard Gas and Electric in 1910.

Byllesby, like Insull, ended up acquiring many of the companies he helped. The companies for which Byllesby built steam and hydroelectric plants became insolvent. Byllesby's company would take over these troubled companies and provide engineering, management, and financial assistance. In 1912 Byllesby made his most important acquisition when he bought Minneapolis General Electric of Minnesota. That company was destined to become NSP's flagship company. Also in 1912 Byllesby and Insull parted ways.

World War I to the Depression: Expansion and Interconnection

On February 5, 1916, Byllesby changed his company's name to Northern States Power Company. The United States' entry into World War I in 1917 put a great strain on NSP's generating capabilities as wartime production and industrial customers' demands grew. After the war, the country experienced a brief depression followed by a business boom that saw increased demand for electricity and encouragement of merger activity.

In the company's first 20 years, NSP bought 25 more Upper Midwest utility companies. It acquired the Northwest Light & Power Company in 1917 and the Brainerd Gas & Electric Company, St. Cloud Water Power Company, Hutchinson Light & Manufacturing Company, and Ottumwa Railway & Light Company in 1920. Ottumwa's electric and steam-heating business was reorganized in 1923 as the Northern States Power Company (New Jersey), while its railway business became the Ottumwa Traction Company. All of the old Ottumwa properties were sold in 1925, except transmission lines in northern Iowa. NSP acquired the Wisconsin-Minnesota Light and Power Company in 1923; the Minnesota Valley Electric Company, Renville County Electric Company, and St. Cloud Public Service Company in 1924; Glenwood Electric Light, Heat & Power Company, Farmers Light & Power Company, and the St. Cloud Electric Power Company in 1926; and the St. Paul Gas Light Company, Sauk Rapids Water Power Company, South St. Paul Gas & Electric Company, St. Croix Power Company, and the Minnesota Power Company in 1927.

As NSP expanded its network of operating companies, it interconnected them. Interconnection allowed massive power production and brought customers lower rates and more reliable service. NSP also replaced old plants with newer, more efficient ones, constructing major hydroelectric units at Rapidan, Cannon Falls, and Coon Rapids, Minnesota, in addition to many smaller installations all over the Midwest. The company put a great deal of effort into improving its steam-generating plants, focusing attention on the Riverside plant in Minneapolis. Riverside was huge by standards of the day, and its expansion illustrated Byllesby's belief that it was less expensive to generate power at a favorable site and transmit it than to generate power at the site where it is used. Byllesby died in 1924, but numerous associates carried on his work, especially Robert F. Pack, general manager and later president of NSP.

1930s: Federal Action Brings Changes

Between 1921 and 1929, 3,744 U.S. public utility companies were absorbed in mergers and acquisitions. This meant that 84 percent of all U.S. utility assets were in the hands of slightly more than 1 percent of all utility corporations. During the Great Depression, large holding companies such as NSP became the subjects of much scrutiny.

The scrutiny resulted in the Public Utility Holding Company Act of 1935, under which utilities had to simplify their structures. As a result of this law, NSP had to dissolve Standard Gas and Electric, and NSP's Chicago-based financial backers had to sell their stock back to the company.

During this period, NSP experienced major financial problems. The Securities and Exchange Commission (SEC) forced the company to reevaluate assets it had overvalued for stock issuing purposes in 1924, and NSP lost $75 million through this readjustment. The SEC also ordered NSP to eliminate its Class B voting stock, which had been created by Byllesby to guarantee him control of NSP, since the company could no longer pay dividends.

Another part of U.S. President Franklin D. Roosevelt's New Deal that affected NSP was the agency he developed to help finance electrical lines for impoverished farmers, the Rural Electrification Administration (REA). The REA encouraged farmers to form electric cooperatives in order to borrow federal funds for line extensions. These cooperatives competed directly with private utilities.

The third blow the New Deal dealt power companies was government sponsorship of municipal power company ownership. The government agreed to pay 45 percent of the cost for any community willing to build, generate, and distribute its own power. After an extensive battle and many town hall debates, most communities ended up choosing NSP's service anyway, for NSP had made voluntary rate reductions consistently since it started operating.

Roosevelt's final implementation that affected NSP was his National Recovery Act, which guaranteed employees the right to organize, bargain collectively, and strike. This act, and the safer working conditions encouraged by a union, was welcomed by NSP linemen, who had lost nearly half their workers to electrical accidents. On February 23, 1937, NSP suffered its first labor strike. By the eighth day of the strike, Robert Pack decided to cut his losses and agreed to recognize the workers' union International Brotherhood of Electrical Workers. NSP was one of the first utility companies in the United States to become unionized.

1940s: War Years and Postwar Demand

In 1939 the company continued to expand in Wisconsin. On August 29, 1941, NSP merged the wholly owned subsidiaries Minneapolis General Electric Company, St. Croix Falls Minnesota Improvement Company, and Minnesota Brush Electric Company into NSP. On December 27 NSP dissolved Northern States Power Company (New Jersey) after selling certain assets to South Dakota Public Service Company and transferring the remainder to itself.

After the United States entered World War II in 1941, demand for electricity rose rapidly, as industry contributed to the war effort. NSP responded by adding a 50,000-kilowatt steam turbine to its St. Paul High Bridge plant. NSP employees were fingerprinted, as a precaution against sabotage and theft. Most of NSP's advertising during the war focused on conservation and salvage programs. The electric-utility industry's cartoon-character spokesperson, Reddy Kilowatt, regularly promoted victory gardens. More than 600 NSP employees served in the war. In 1942 NSP's president, Robert Pack, retired, turning over his office to his assistant, Ted Crocker.

While many utility companies saw demand slow after the war, NSP reported a record load on December 17, 1945, almost 10 percent higher than in 1944. Sales for 1945 were a record $53 million. NSP became heavily involved in a postwar planning program that helped businesses expand and convert their wartime production to peacetime needs. While NSP helped these businesses, the businesses' growth often helped NSP enlarge its customer base.

NSP's customer base grew so rapidly that when president Ted Crocker died unexpectedly on June 29, 1947, and B. F. Braheney took over, he was faced with a power shortage. Braheney quickly developed a demand-control system and called on customers to conserve. NSP also built new plants, many of them diesel-powered. During the 1950s the company launched its largest-ever construction program, investing nearly $400 million. After 1947 NSP's daily kilowatt-hour output surpassed that of the entire year 1916. Operating revenues doubled from 1941 to 1951.

1950s: Consolidation and Entry into the Nuclear Age

In 1950 NSP sold the utility properties of its Illinois-based subsidiary, Interstate Light & Power Company, and dissolved it. In 1955 NSP ranked among the top 10 utilities in the United States. In 1956 NSP consolidated three of its subsidiaries--St. Croix Falls Wisconsin Improvement Company, St. Croix Power Company, and Interstate Light & Power Company--into its already existing principal subsidiary, Northern States Power Company (Wisconsin) (NSP-Wisconsin). In October 1956 NSP sold its gas property in Brainerd, Minnesota, to Minnesota Valley Natural Gas Company and bought electrical distribution properties that served 13 Minnesota communities and surrounding rural areas, from Interstate Power Company.

In March 1957 NSP continued to consolidate, acquiring hydroelectric developments at St. Anthony Falls on the Mississippi River in Minneapolis from its wholly owned subsidiaries, St. Anthony Falls Water Power Company and the Minneapolis Mill Company. In August of that year NSP acquired an electrical distribution system in Farmington, Minnesota, from Central Electric & Gas Company. The following month NSP added more electrical distribution facilities in Delhi and North Redwood, Minnesota, from the city of Redwood Falls. In October 1957, NSP-Wisconsin acquired properties from Wisconsin Hydro Electric Company.

NSP had been interested in nuclear energy since 1945, and in the early 1950s it became one of the first utilities to receive access to information from the Atomic Energy Commission. In 1957 the company announced plans for its first full-scale atomic power plant, the Pathfinder, and chose a site on the Big Sioux River. Pathfinder began operating in 1964, but operating and safety costs were so high that in 1967 NSP substituted a gas-fired steam boiler for the nuclear reactor.

1960s: Environmental Concerns

In January 1960 NSP acquired NSP-Wisconsin's Minnesota properties, as well as the Wisconsin properties of Mississippi Valley Public Service Company. Later that year, NSP acquired NSP-Wisconsin's Minnesota gas properties, which were in the Winona and Red Wing areas. In May 1961 NSP acquired Western Power and Gas Company's eastern business, which served the southeastern portion of South Dakota. In 1962 NSP sold its Tracy, Minnesota, water utility to the city of Tracy.

In March 1964 NSP acquired the properties and assets of Deichen Power, Inc. that had supplied southern Minnesota. In 1964 NSP began construction of the Allen S. King steam electric plant in Wisconsin on the St. Croix River and stirred up an environmental confrontation. The public outcry raised by the construction of this plant, which was perceived as a threat to the area's wildlife, was NSP's next real experience with public opposition and foreshadowed the controversy NSP's nuclear plant would raise. Despite an injunction--later lifted--brought by the Wisconsin attorney general, the company went ahead with the plant, which began production in 1968.

Around that time Allen King, NSP president until 1965, and his successor, Earl Ewald, created Mid-Continent Area Power Planners (MAPP), which brought 22 Upper Midwest power suppliers together to coordinate the planning, construction, and operation of new electrical plants throughout the region, in hopes of maximizing efficiency and minimizing duplication and waste. Through interconnection and coordination these companies were able to help each other supply the area.

All went smoothly for NSP through 1965. In June 1965 NSP acquired distribution facilities in Grand Forks, North Dakota, from the Nodak Rural Electric Cooperative. The tide turned in 1966, however, when NSP announced its plans for the Monticello nuclear plant. Demonstrators rose up in opposition. Although ground for the plant was broken in 1966, it took five years and $20 million in losses before the plant became operational. The controversy led NSP to create an environmental affairs department in 1969.

NSP continued expanding; in 1967 it acquired distribution facilities from Wright-Hennepin Cooperative Electric Association, as well as the electric distribution facilities of the village of Bayport, Minnesota. In 1968 NSP acquired the electric generating, transmission, and distribution facilities of the village of Mazeppa, Minnesota, and sold the electric distribution system of the village of Fischer, Minnesota, to the Otter Tail Power Company. In December 1969 NSP acquired several electric distribution facilities from Interstate Power Company.

1970s and 1980s: Rates and Resources

In 1971 NSP donated land skirting the Upper St. Croix River to the states of Minnesota and Wisconsin and to the National Park Service to be managed cooperatively. In 1973 as the OPEC oil embargo drove home the importance of conservation, NSP began researching solar energy, wind power, burning garbage as fuel, and even enormous underwater sea turbines. However, 94 percent of NSP's power still came from nuclear and coal-fired plants in 1978. It had added a second nuclear plant, Prairie Island, in 1973.

The 1970s were tough for NSP; as taxes and interest rates went up, NSP's earnings dropped, although revenues reached record highs. NSP, which had cut rates in earlier years, sought rate increases, but not all were approved by regulators. Near the end of the 1970s, NSP began to explore the possibilities of another nuclear power plant to produce low-cost energy. The company planned to participate in a plant called Tyrone, located in western Wisconsin. In early 1979, however, in the middle of NSP's battle with the Wisconsin Public Service Commission, came the nuclear accident at Three Mile Island, Pennsylvania. Soon after, NSP and other Tyrone owners voted to cancel the project.

NSP spent nearly $1 billion on pollution control from 1977 to 1987. The company also continued consolidating its principal subsidiaries. In 1987 NSP merged its subsidiary, Lake Superior District Power Company, into NSP-Wisconsin.

From 1980 to 1990, both NSP's sales and profits nearly doubled. It increased dividends for the 16th consecutive year in 1990. The company, however, contended that many of its costs, such as property taxes, were beyond its control and in 1989 had sought a $120 million electric rate increase from the Minnesota Public Utilities Commission. The commission rejected the request in 1990, and the Minnesota Court of Appeals upheld the commission's decision. In December 1991 the commission granted a smaller increase, $53.5 million. Also in 1991, NSP won rate increases in South Dakota and Wisconsin, although these, too, were smaller than initially requested. In North Dakota, a court case over a rate increase was pending. NSP also reported that its pollution control efforts of the 1970s and 1980s meant the company would not face great setbacks as a result of the restrictions of the Clean Air Act amendments passed in 1990.

The 1990s and Beyond

In 1992 the Minnesota Public Utilities Commission approved the storage of spent fuel rods in 17 above-ground casks outside the Prairie Island nuclear power plant. The Mdewakanton Sioux Indian tribe, whose reservation was adjacent to the site, and environmentalists were among those protesting the action. NSP said the 1,060 megawatt plant, which produced 20 percent of its total generating capacity, would have to be shut down by 1995 if additional storage space was not created. A planned permanent federal nuclear waste depository had yet to be established. Ruling that the above ground casks amounted to permanent storage, the Court of Appeals sent the issue to the Minnesota state legislature which gave final approval in 1994.

In 1995 NSP and Milwaukee-based Wisconsin Energy Corporation (WEC) announced a $6 billion merger plan which would create a new holding utility company, Primergy Corporation, based in Minneapolis and serving five states. The companies expected $2 billion in savings to come through consolidation over a 10-year period. Although market analysts and stockholders supported the merger, electric coops, industry groups, environmentalists, consumer organizations, and government regulators had reservations.

The merger plan was part of NSP's preparation for a future in which electric utilities would operate in a more competitive marketplace. In 1992, the federal government moved to allow the Federal Energy Regulatory Commission (FERC) to order electric companies to provide transmission service to other utilities and electric wholesalers, an action which supported the concept of increased competition among electric utilities. NSP chairman and CEO James J. Howard, an executive in the telephone industry during deregulation, anticipated a time when the company would have to compete for business and pushed for streamlined operations. The company began to cut its work force, including corporate positions, and revamp inefficient operations.

By late 1996 the NSP-WEC merger was in limbo. Tom Meersman and Susan E. Peterson wrote in a November 19, 1996, Star Tribune article, "Much of the debate in Minnesota as well as in previous hearings in Wisconsin and Washington, D.C., focuses on four issues: rates, control, market domination and the environment." NSP stock, which had risen at the time of the announcement of the merger, fluctuated during the prolonged approval process.

In spite of difficulties related to the merger, NSP stayed on track. NSP Gas added 14,000 customers in 1996: the business was growing at twice the national average. And a new subsidiary, Seren Innovations, Inc., was created to provide services such as energy management, security control, and business information services by way of two-way communication networks.

Other nonregulated NSP subsidiaries included NRG Energy, Inc., the seventh fastest growing independent power producer in the world. The company built, managed, and operated power plants and was involved in projects using everything from coal to landfill gas. NRG Energy was expected to bring in 20 percent of NSP's earnings by the year 2000. Cenerprise, Inc., a gas and electric product and service company, operated nationwide, while Eloigne Company, which invested in affordable housing, operated primarily within NSP's service area.

In April 1997, Viking Gas Transmission Company, acquired by NSP in 1993, announced plans for an 800-mile pipeline to be built with TransCanada PipeLines Limited, one of North America's leading transporters of natural gas. The $1 billion gas transportation line was to begin in Emerson, Manitoba, and extend to Joliet, Illinois. NICOR Inc., a Naperville, Illinois-based holding company, also joined the partnership.

In May, NSP and WEC terminated their merger agreement. Approval had been granted by the state regulatory commissions in Michigan and North Dakota, but not in Minnesota or Wisconsin or by the FERC. Howard said in a press release, "What we encountered were regulatory agencies that were changing their merger policies as they were considering our filing." The two companies determined that changes in federal regulation would significantly reduce the benefits of the proposed merger.

NSP is one of the most efficiently run utilities in the country and provides some of the cheapest energy to its customers. The company's two nuclear plants, in particular, are considered some of the best-run in the nation. But growth in the electric utility industry is slow under the current system of regulation. Expansion of the company's nonregulated businesses, especially NRG Energy, is crucial to future growth. NSP's success in gaining natural gas customers--the gas business is regulated but not divided into designated territories--bodes well for NSP as it heads toward a less regulated future.

Principal Subsidiaries: Northern States Power Company (Wisconsin); NRG Energy, Inc.; Eloigne Company; Viking Gas Transmission Company; Seren Innovations, Inc.; Cenerprise, Inc.

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