The United Illuminating Company History

Address:

157 Church Street
P.O. Box 1564
New Haven, Connecticut 06506-0901
U.S.A.

Telephone: (203) 499-2000
Fax: (203) 499-3664

Public Company
Incorporated: 1899
Employees: 1,287
Total Assets: $726 million (1996)
Stock Exchanges: New York
SICs: 4911 Electric Services

Company History:

The United Illuminating Company (UI) is an operating electric public utility company and is engaged in the production, purchase, transmission, distribution, and sale of electricity for residential, commercial, and industrial purposes in a service area of about 335 square miles in the southwestern part of the state of Connecticut. The population of this area is approximately 704,000, or 21 percent of the population of the state. The service area, largely urban and suburban in character, includes the principal cities of Bridgeport (population 137,000) and New Haven (population 124,000) and their surrounding areas; the company's single largest client is Yale University, located in New Haven. The service area includes retail trade and service centers and a variety of industries, including firms producing helicopters and other transportation equipment, electrical equipment, chemicals, and pharmaceuticals. Of the company's 1996 retail electric revenues, approximately 41 percent was derived from residential sales, 40 percent from commercial sales, 17 percent from industrial sales, and two percent from other sales.

Origins

United Illuminating traces its beginnings to the very dawn of the electric age in America, from a company founded in 1881 to provide electric lighting to the town of New Haven, Connecticut. The New Haven Electric Lighting Co. soon floundered, however, and was reorganized as the New Haven Electric Co. in 1883. From a small firm offering yearly contracts for the use of individual lights, the company soon grew to offer service to larger businesses, including Yale College. By the 1890s the company was eager to move its distribution beyond the borders of the town and it sought a reorganization of its charter. That reorganization was achieved in December of 1899 when New Haven Electric Co. executive James English presided over the creation of The United Illuminating Company, which very quickly expanded its reach by purchasing the Bridgeport Electric Light Company. Thus at the dawn of the 20th century a modern regional utility was born.

UI soon proved the wisdom of such consolidation as it branched out to offer electric service to a growing number of communities in the southwestern part of Connecticut. The company recorded revenues of $428,539.10 for its first year of operations, with profits of $36,515.44, according to John D. Fassett's exhaustive history of the company, UI: History of an Electric Company. By 1919 revenues had increased to more than $3 million and profits had risen to $140,000; by 1930 those numbers stood at $8 million and $541,000, respectively. In the latter year, UI reached 116,000 customers. During the early part of this period of dynamic growth, the company produced power from its original plants in New Haven and Bridgeport, but the 1920s saw major additions in power generating capacity, namely, the Steel Point power station in Bridgeport and the English Station in New Haven, and in distribution lines.

Isolationism: 1930--50s

The first 40 years of UI's existence had been characterized by continuous growth in capacity, customers, and profits. But the entrepreneurial spirit that had motivated the company's founding had declined, writes Fassett, and several issues troubled the company in the 1930s. Most systemic was the company's resistance to joining with other electric companies to pool distribution lines and power production capacity. Led by James English, the company remained independent when many other companies joined in cooperative agreements, or pools. This isolationist stance eventually would prove troubling for the company. Of more immediate concern, however, were a huge hurricane that devastated the area in 1938, costing the company hundreds of thousands of dollars in repair costs, and the embezzling of more than $200,000 by English's successor as UI president, Albert W. Kraft. Kraft's crime, and his eventual prosecution and sentencing, served as a wake-up call to the company, which soon appointed an outsider, James W. Hook, as president. Hook brought a new era of modern corporate management to the company, according to Fassett.

At the dawn of this new era, in 1940, UI delivered 423 million kilowatt hours of electricity to 135,652 customers. Under the leadership of new president William C. Bell, UI continued to post gains in production capability throughout World War II and it emerged from wartime constraints selling more power to more customers than ever before. The decade following the war would see continued growth in all aspects of the company, led by increasing demand for power from residential households. This increased demand led to the construction of new power generating facilities at Bridgeport Harbor and additional capacity at the English Station in the mid-1950s. Moreover, increasing demand and the slowness of new construction pushed UI into co-operating agreements with other local power companies to guarantee their power supply. The isolationist days were clearly over.

Cooperating in the 1960s

In 1962 UI entered another kind of new era when it agreed to purchase 9.5 percent of the shares of the Connecticut Yankee Atomic Power Company, a new nuclear-powered generation facility to be built on the Connecticut River. The plant was expected to be an important component in the company's future power-generating capacity, and it ended up serving the company for nearly 30 years. And such cooperation with other companies was becoming a trend with UI, which now cooperated frequently with Connecticut Light and Power even while it avoided longer term holding company arrangements. UI continued to thrive throughout the 1960s, despite the Public Utility Commission's attempts to restrain earnings by insisting on rate decreases on several occasions. In 1970, UI reached total revenues of $74.5 million while serving more than 250 thousand customers.

Following the blackout that hit much of New England in the early 1960s, UI finally began to consider seriously the prospects of joining with other companies in a pooling of electric generation and transmission facilities, a group to be called NEPOOL, for New England Power Pool. Negotiations on UI's role in such a group began in 1966, but were not completed until 1971. Finally, after more than 70 years of operating nearly independently, UI would have access in times of need to the capacity produced by its peers.

Although NEPOOL could cushion UI and other participants from shortages due to increased demand, it could do little to help these utilities deal with the drastically rising prices caused by the fuel crisis of the mid-1970s. With 90 percent of the energy used by UI's customers generated by burning imported oil, the skyrocketing fuel prices of 1974 forced the company to raise prices dramatically. These price hikes were exceedingly unpopular and brought widespread public condemnation of the company that had long avoided controversy. Amid the furor, John D. Fassett became president of the company. Fassett was among others who saw in the oil crisis a clear call for developing more nuclear power.

Troubled Entrance into the Nuclear Age in the 1980s

In the late 1970s, UI looked to guarantee future power production capabilities by investing in the Seabrook nuclear power plant in Seabrook, New Hampshire. The investment, made in light of political support for nuclear power generation and marked improvements in the quality of engineering and construction for nuclear facilities, seemed a good bet. But conditions at Seabrook quickly turned sour: construction costs ran far ahead of budget and antinuclear activists targeted the site for intense picketing. In the end, the plant cost $6.5 billion to build and opened four years behind schedule, in 1990. Two of the 11 utility companies investing in Seabrook declared bankruptcy as the result of the debts associated with the project, but UI, with a 17.5 percent share in the project, managed to contain the disaster. UI Chairman George W. Edwards, Jr. negotiated with the Connecticut Department of Public Utility Control to recover $640 million of the company's $1.2 million investment through future rate adjustments, but the company still had to write off $560 million over two years, according to James Cook in Forbes. The result was losses in 1989 of $73 million, or $5.87 per share. But UI quickly rebounded, earning $50 million in 1990 on revenues of $600 million. Edwards told Cook: "We're the comeback kid. I've never seen any company that's gone through what we've gone through and come out the first year making really impressive money again."

In 1990 the Seabrook nuclear power plant came on line, and UI expected the plant would generate $65 million in annual revenues in the coming years. Since 1990, UI has received 203.35 megawatts (Mw) of power from Seabrook Unit 1, representing about 14 percent of its total power generating capacity. UI also had received power from another nuclear facility: the Millstone Unit 3 plant, located in Waterford, Connecticut, supplied UI with 41.26 Mw of power, corresponding to UI's 3.685 percent ownership share in the plant's total power generating capacity. A series of problems associated with the Millstone plant caused the Nuclear Regulatory Commission to order the plant out of service in March of 1996, and UI expected that power from this facility would not be available for the foreseeable future. UI also owned 9.5 percent of the common stock of the Connecticut Yankee Atomic Power Company and was entitled to an equivalent percentage (53.21 Mw) of the generating capability of the Connecticut Yankee Unit prior to its retirement from commercial operation on December 4, 1996. Finally, UI held a 5.45 percent share in the output of the Hydro-Quebec power production facilities located in New England and Quebec, Canada, which became available in 1991.

UI's large investment in nuclear power production helped it solve one of the dilemmas facing the company prior to the 1980s: overdependence on oil. Up until 1984, the company was 92 percent dependent on oil, and fluctuations in oil prices wreaked havoc on the company's finances. Successive investment in nuclear power reduced oil dependency to ten percent. Though nuclear power production facilities represent an important and cost-efficient source of energy for utility companies and buffer those companies from cost fluctuations associated with other sources of fuel supply, they do come with some inherent costs, not least those associated with fuel disposal and with compliance with the labyrinth of local, state, and federal regulations.

In addition to its nuclear power generating capacity, UI owned and operated several fossil fuel plants. The company burned coal, residual oil, and natural gas at its generating stations in Bridgeport and New Haven. Four Bridgeport Harbor units combined to produce some 636.92 Mw of power, though the majority of the power came from units 2, built in 1961, and 3, built in 1968 and updated in 1985. The New Haven Harbor Station, built in 1975, generated 447 Mw of power, of which UI received 93.71 percent, or 418.86 Mw. UI also maintained two plants at English Station; these plants, the company's oldest, were placed in reserve in 1992 and are available if load increases call for additional capacity. During 1996, approximately 925,300 tons of coal, 3.0 million barrels of fuel oil, and 1.9 billion cubic feet of natural gas were consumed in the generation of electricity at these plants. The company's fuel oil storage tanks in Bridgeport and New Haven had maximum capacities of approximately 680,000 and 650,000 barrels of oil, respectively. In addition, the company maintained an approximate 45-day coal supply of 157,000 tons at its Bridgeport Harbor Station.

The 1990s and Beyond

UI transmitted power to its customers over a network of aboveground and underground transmission lines. In 1996 the company maintained approximately 102 circuit miles of overhead lines and approximately 17 circuit miles of underground lines, all located within or adjacent to the company's service area. These transmission lines connect the company's English, Bridgeport Harbor, and New Haven Harbor generating stations and link to the New England transmission grid through connections with the transmission lines of Connecticut Light and Power Company. The company owned and operated 24 bulk electric supply substations with a capacity of 2,656,000 KVA and 42 distribution substations with a capacity of 232,500 KVA. UI had 3,125 pole-line miles of overhead distribution lines and 130 conduit-bank miles of underground distribution lines.

Utility companies such as UI have traditionally had a "captive" customer base. Granted the right to produce and distribute power in a defined area by state regulatory agencies, such companies have automatically received every power customer within that area. While such an arrangement hardly encourages customer service, UI enjoyed a good reputation for service, receiving high marks from 90 percent of its customers in the late 1980s. These high rates of customer satisfaction will be needed as UI enters a new era of power distribution in the middle and late 1990s. The ability of larger industrial and commercial customers to produce their own electricity, rather than purchase it from UI, was bolstered by state regulation that ruled that UI must purchase any excess capacity from approved production facilities. This pressure has often encouraged UI to enter into special agreements with larger customers, offering lower rates or service agreements. One such agreement with Yale University, the company's largest customer, had UI cooperating with Yale in the construction of a cogeneration unit that would supply up to half of Yale's power needs.

An even greater challenge to UI's future power sales is posed by the national push to bring choice to the utility market. New rules formulated by the Federal Energy Regulatory Commission aim to promote competition in the wholesale market by requiring electric utilities to offer transmission service to all buyers and sellers in the power marketplace, an arrangement similar to requiring telephone giant AT&T to offer telephone transmission lines to its competitors. The rules are expected to lower costs and bring an array of power brokers and marketers into the market. An even greater challenge may come from the tendency of state regulatory agencies to support what is called "retail access," the right of individual customers to purchase their electricity from the lowest bidder. The Connecticut legislature was expected to introduce legislation to initiate retail access during the 1997 legislative session; UI expected that such legislation would have a substantive impact on its sales if it passed. One strategy UI developed to cope with these changes in the market was a long-term plan to increase the competitiveness of its power pricing and increase customer satisfaction. The plan, submitted to the Connecticut Department of Public Utility Control, calls for holding the line on utility rates through the year 2001 and for a performance-based regulation mechanism tied to customer satisfaction and reliability of service, among other goals. The plan was expected to reduce utility rates by an average of three percent in 1997-1999, four percent in the year 2000, and five percent in the year 2001 (all compared with 1996).

UI maintains several subsidiaries, none of which contributed substantial income to the company in the mid-1990s. The wholly owned subsidiary, United Resources, Inc., acts as the parent corporation for American Payment Systems, Inc., Thermal Energies, Inc., and Precision Power, Inc., each separate corporations that participate in business ventures designed to complement and enhance UI's electric utility business. American Payment Systems manages a national network of agents for the processing of utility bill payments; Thermal Energies, Inc. participates in the development of district heating and cooling facilities in the downtown New Haven area; and Precision Power, Inc. provides power-related equipment and services to the owners of commercial buildings and industrial facilities. In 1996, these subsidiaries "contributed" a net loss of $5.24 million to the company, though company forecasts predicted that these operations would become profitable in coming years. These combined subsidiaries employed 75 people in 1996.

Though the uncertainties and challenges facing all utilities make it difficult to predict UI's future prospects, the company has on its side a long history of intelligent management, a secure plan for retaining and adding customers, and plans for subsidiaries that should enhance their income-producing potential. During the mid-1990s the company enjoyed the benefits of a strong national economy, earning $39 million on revenues of $726 million in 1996. As it entered its second hundred years of power production, United Illuminating was well positioned to enjoy continued modest growth.

Principal Subsidiaries: United Resources, Inc. (includes American Payment Systems, Inc.; Thermal Energies, Inc.; and Precision Power, Inc.); United Funding Capital Partnership L.P.

The United Illuminating Company History

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