OKLAHOMA GAS AND ELECTRIC COMPANY History

Address:

101 North Robinson
P.O. Box 321
Oklahoma City, Oklahoma 73101-0321
U.S.A.

Telephone: (405) 272-3000
Fax: (405) 272-3290

Public Company
Incorporated: 1902
Employees: 3,784
Sales: $1.31 billion
Stock Exchanges: New York Pacific

Company History:

Oklahoma Gas and Electric Company (OG&E), a 90-year-old public utility that is the largest in its home state, serves approximately 645,000 customers in Oklahoma and western Arkansas. With Oklahoma City as its headquarters, the OG&E production and distribution system consists of eight active generating stations: two coal-fired, five gas-fired, and one cogeneration facility, which was completed in 1991 and produces 40 percent of its energy in the form of steam for one of its largest customers, Conoco. The company also owns an inactive plant in south central Oklahoma; a natural gas pipeline subsidiary, Enogex, Inc.; and a joint transmission-line venture, Arklahoma Corp., shared with Arkansas Power & Light Co. and Southwestern Electric Power Co. OG&E has enjoyed a profitable and illustrious corporate history, but, like other utilities across the nation, it has faced increasing challenges, including the changing needs of its customers, new regulatory requirements, rising expenses, growing competition, and fluctuations in the availability of fuel resources.

OG&E was formed in 1902, five years before Oklahoma was granted statehood, following unsuccessful cooperative enterprises between the Oklahoma Ditch and Water Power Company and Oklahoma City Light and Power to provide first hydroelectricity and then steam-generated electricity to the boomtown of Oklahoma City. OG&E was incorporated when two of the region's pioneering investors, E. H. Cooke and G. E. Wheeler, sold their interests in City Light and Power to F. B. Burbridge and Harry M. Blackmer, who in turn obtained East Coast financing to update existing plant and delivery systems. At that time, the rate per kilowatt hour (kwh) for residences was approximately 20 cents, relatively expensive compared to a contemporary kwh charge of around seven cents. One of the chief reasons for the high initial costs was that the new power source, gas, was being artificially manufactured prior to the first natural gas discovery by OG&E, which occurred in 1904. During this pivotal year, a series of management changes brought about the involvement of Colonel H. M. Byllesby, an acquaintance of Thomas A. Edison and an expert administrator of utility operations. Through Byllesby's leadership, kilowatt capacity, production efficiency, and OG&E's customer base skyrocketed by the end of the decade, and investors began to realize respectable returns for the first time.

Other important managers during these early years were T. K. Jackson, F. H. Tidnam, W. R. Molinard, and J. F. Owens, the last of whom served as chief executive officer from 1924 until 1942. The 1920s in particular were years of enormous growth for OG&E. During this decade, the company acquired twelve other regional utilities, completed construction of two coal-burning plants, greatly expanded its service territory, and tripled its gross revenues from $2.6 million in 1920 to nearly $9 million in 1925; at the close of the decade, generating capacity totaled an impressive 132,500 kilowatts. Although the market crash of 1929 and the ensuing Great Depression contributed to significant drops in sales for a lengthy period, by 1939 OG&E had recovered its momentum to post an annual gross revenue of $13.6 million. Since this time, the company has experienced a generally upward trend in sales.

One of the bleakest moments in OG&E's history occurred in 1947, during the corporate presidency of George Ade Davis, a time when postwar construction and expansion were rising sharply. During the spring of that year, a violent tornado struck the Texas panhandle and proceeded into OG&E's western Oklahoma region, leaving 114 people dead in a path of destruction nearly 172 miles long. The company's Woodward power plant was leveled; nonetheless, electricity was restored to the ravaged area within three days and a strong partnership with the surrounding communities was established. In 1949, the same year in which OG&E became the first utility in the nation to combine gas and steam turbines to produce electricity, Donald S. Kennedy succeeded Davis as company president and chairman of the board. The coming decade saw OG&E cross the threshold from kilowatts to megawatts of capability with its construction of increasingly larger plants to accommodate the burgeoning power demands of the petroleum, aircraft, and agricultural industries, as well as those of numerous households with high-consumption appliances. By 1963, another landmark had been reached with the completion of the world's largest combined-cycle generating unit, a 245,000 kilowatt facility in which exhaust produced from gas turbines is recycled as the combustion air for steam turbines. During this same period, OG&E began to take significant steps to improve its accident prevention record among its work force, which ultimately led to a number of first-place national rankings for lowest number of disabling injuries among facilities of comparable size.

OG&E's record of corporate responsibility has been equally progressive on the environmental front. Beginning in 1971, this time under the presidency of Wayne A. Parker, the utility became the first in Oklahoma to preserve one of its cooling reservoirs, 1,350-acre Lake Konawa, as a year-round recreational area replete with swimming, boating, picnicking, and fishing facilities. A similar dual-purpose area, the Sooner Reservoir, was also opened in 1979. Since then, the company has continued to support regional projects for the conservation and enjoyment of various natural resources.

The late 1970s and early 1980s were years of rapid modernization for OG&E. Between 1977 and 1980, four new 515,000-kilowatt, coal-fired plants came on line. The new fuel source for these plants was low-sulphur coal, which was shipped by rail from Wyoming. During the mid-1980s, the comparatively high cost of coal led OG&E to displace its large stockpiles with natural gas. However, by 1991 the utility had made a strong reaffirmation of its commitment to Wyoming coal--which accounts for approximately half of the utility's total power production--through an arrangement with Bethlehem Steel to provide 336 aluminum-bodied rail cars to support an ongoing 2,000-mile round trip transportation route from Wyoming to the Sooner and Muskogee plants. The large, light-metal cars, intended to replace a fleet of leased steel rail cars, were expected to lower freight and maintenance costs while boosting delivery capacity.

In many respects, the most pronounced changes for OG&E occurred between 1982 and 1991. Throughout this ten-year period, a heightened emphasis on public energy conservation led the utility to sponsor home energy audits and other educational and cost-saving programs, resulting in a more direct involvement with its customers and a markedly different sales approach. James G. Harlow, Jr., acting president since 1973, chief executive officer since 1976, and chairman of the board since 1982, led the company through these changes. At this time, the annual construction budget was still relatively enormous at nearly $209 million, compared with a much lower $115 million in 1991; by contrast, peak demand, at 4,440,000 kilowatts in 1982, had leveled off to 4,680,000 kilowatts in 1991, a ten-year increase of only five percent. This slow growth rate, coupled with the fiscal demands of rising operating costs and the close regulation of rate increases, hampered the potential of OG&E. Nonetheless, since 1987, when the utility downsized its workforce by approximately 11 percent, net income has remained at a fairly consistent level.

A significant portion of this income has been generated by Enogex, Inc., a pipeline subsidiary that OG&E acquired in 1986. Responsible for the uninterrupted flow of half of OG&E's power, Enogex contributed nearly 11 percent of 1990 net income and more than 13 percent of 1991 income. In addition to relying on Enogex for its continued growth, since 1990 OG&E has promoted an incentive program among its employees to brainstorm and then implement cost-saving measures. The net benefit during the first year of the program was $3.6 million. Perhaps most financially promising, though, was OG&E's efforts to expand its sales to other utilities across the country through a network of nine regional power pools. From 1990 to 1991, kwh sales to other utilities jumped a staggering 130 percent. More importantly, total generating capability at the end of 1991 was 5,655,300 kilowatts, signifying an unused ratio of approximately 15 percent. In conjunction with its off-system sales efforts, OG&E also hoped to broker power contracts for other area utilities. Other possibilities for OG&E included expanding its commercial and industrial customer base--which in 1991 represented more than 40 percent of revenue--within its 30,000 square miles of territory through accelerated emphasis on economic development and incentive plans.

On May 22, 1992, the Wall Street Journal reported that OG&E's 12-month earnings were well below the amount needed to fund the annual dividend rate of $2.66 per share. A principal reason for this was OG&E's provision for an $18 million rate refund, announced by the company earlier that month, in an effort to settle a rate case hearing in 1991 before the Oklahoma Corporation Commission (OCC). Countering the OCC's recommendation that an annual rate reduction of $49.4 million and a $106 million refund be complied with, OG&E argued that the OCC's proposal could jeopardize the financial health of the company.

Barring the immediate concerns surrounding this issue, OG&E's focus for the 1990s, as stated in its 1991 annual report, 'will be on issues of efficiency and energy conservation, our environment, economic development, profitability, and competition.' The utility's primary fuel choices of low-sulfur coal and natural gas, its institution of uniform environmental guidelines in 1991, and its ongoing efforts to minimize solid wastes, are expected to greatly reduce the possibility of any adverse impact in the coming years that might arise from enforcement of the Clean Air Act amendments of 1990 and other related legislation. In addition, OG&E made plans to spend $9 million on emission monitoring equipment for each of its plants by 1995. Whether the utility will be able to maintain for the long term its enviable record for shareholders of 43 dividend increases in the past 45 years will be known only after its potential markets have been fully tapped and a clearer understanding of the future trends in energy consumption and energy-related technologies has been acquired.

Principal Subsidiaries: Arklahoma Corp. (34%); Enogex, Inc.

OKLAHOMA GAS AND ELECTRIC COMPANY History

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