Wisconsin Energy Corporation History

Company Perspectives:

While transforming our long-term growth strategy into reality, we are committed to: Focusing on our core businesses of electric generation, electric and gas distribution, and pump manufacturing. Operating our utility companies efficiently and effectively while continuing to generate and deliver safe, reliable and reasonably priced energy. Building the financial strength needed to fund our growth strategy by selling non-performing and non-core assets, paying down debt, continuing our $400 million share buy-back program, and increasing earnings retained in the company. Growing the global manufacturing businesses of WICOR Industries through acquisitions and product development.

Key Dates:

1890:

Milwaukee Street Railway Company goes into receivership.

1896:

Company emerges from receivership as the Milwaukee Electric Railway and Light Company.

1911:

Company begins to shift its focus from railways to electrical service.

1920:

A coal shortage and miners' strike threaten the company's existence.

Early 1920s:North American forms Wisconsin Electric Power Company (WEPCo); Lakeside Power Plant is built.

1935:

Company builds a new power plant at Port Washington.

1938:

The Milwaukee Electric Railway and Light Company is merged into WEPCo.

1943:

A second power plant is built at Port Washington.

1947:

North American spins off WEPCo to its shareholders.

1950:

North American subsidiary Wisconsin Gas and Electric's electrical properties are incorporated into WEPCo; its natural gas properties become a WEPCo subsidiary.

1951:

A new power plant is built at Oak Creek.

1970:

WEPCo's first nuclear power plant unit becomes operational.

1987:

WEPCo forms a new holding company, Wisconsin Energy, and establishes three new non-utility subsidiaries.

1994:

Wisconsin Energy acquires Wisconsin Southern Gas Co.

1995:

Company merges its Wisconsin Natural Gas and Wisconsin Electric subsidiaries.

2000:

Wisconsin Energy acquires Wicor, Inc., the parent company of Wisconsin Gas Co.; announces its long-range Power the Future plan.

Company History:

Wisconsin Energy Corporation is an $8.4 billion holding company with subsidiaries in electric generation, pump manufacturing, energy services and development, real estate, and electric, gas, steam, and water distribution. Its electric utilities serve more than one million customers, and its natural gas subsidiaries serve some 950,000.

Early Days: Streetcars and Rail Lines

Wisconsin Energy's origins lie in the late 1880s, when financier Henry Villard consolidated Milwaukee's electric and streetcar companies into the Milwaukee Street Railway Company, a subsidiary of an early utility trust called the North American Company. Villard made his acquisitions quietly and in his own name. Within three years, his company held the properties of Edison Electric Illuminating Company, Badger Illuminating Company, Milwaukee Electric Light, Milwaukee City Railroad Company, and the Cream City Railway Company.

To run his Milwaukee holdings Villard recruited Edison executive John I. Beggs. But before Beggs could do much work, the panic of 1893 hit and sent the Milwaukee Street Railway Company into receivership.

On January 29, 1896, the company emerged from receivership as the Milwaukee Electric Railway and Light Company (TMER&L). Beggs, who had remained president, concentrated on a burgeoning electric streetcar business and soon organized the Milwaukee Light, Heat, and Traction Company (MLH&T) to operate in the suburbs. By 1900 TMER&L and MLH&T had a combined total of 1,511 customers and more than 41.5 million paying passengers.

Beggs also began making acquisitions. To MLH&T he added a series of southeastern Wisconsin utilities including the light, traction, and gas companies of Racine. In Milwaukee he consolidated the city's remaining electric and traction properties into TMER&L.

But Beggs's ambitions were not limited to TMER&L and MLH&T. He independently controlled and operated the Wisconsin Traction, Light, Heat and Power Company (WTLH&PCo), and his dream was to create a network of interurban rail lines that would radiate spoke-like from Milwaukee and include a line from Chicago to Milwaukee to Green Bay.

To execute his rail plan, Beggs first gained control of North American. He became the company's largest single shareholder by receiving stock in lieu of salary and buying shares at depressed prices. Once on the board, he welded together a coalition of like-minded members and was able to dictate company policy although he never held an executive post.

Between 1900 and 1905, MLH&T launched a series of interurban lines through suburban Milwaukee toward Green Bay, Madison, Janesville, Beloit, and Chicago. Having reached the limits of its service area, Beggs worked unsuccessfully for the next five years to merge with the Eastern Wisconsin Railway and Light Company and to achieve agreements with other utility companies that would let the rail project continue.

In 1909 the membership of North American's board changed and sentiment shifted away from interurbans. Beggs was ordered to cease pursuing his interurban strategy. Nevertheless, he continued to follow his dream and ultimately used company money to acquire properties that might have led to a Milwaukee-Chicago line. In the wake of this action he was censured and forced to personally repay the money.

Early 1900s: A Focus on Electricity

In 1911, the board replaced Beggs with a young former Electric Bond and Share executive named James D. Mortimer. Finding that electrical service had been neglected in favor of interurban transportation, Mortimer set out to increase the Wisconsin company's customer base beyond the 13,582 it served in 1910.

Mortimer installed electric lighting and promoted electrically lit signs along streetcar lines. He reorganized and simplified corporate structure, worked out a new, modern rate structure, and instituted a program of extending and interconnecting existing power lines. For employees, he established liberal pension and loan fund systems, extended free medical benefits, and founded a savings and loan association. These efforts soon paid off. The customer count doubled by 1914, doubled again by the end of 1915, and reached 70,000 before the United States entered World War I.

The war years brought many problems. Coal supplies grew short, and rising operating costs and taxes squeezed finances. Since TMER&L could not keep up with rapidly rising wages, employees continually left for better paying jobs. Mortimer could do little to deal with the situation. His forward thinking of the prewar period left him a reserve of goodwill and at least kept the company strike-free. He introduced easy-to-deliver, efficiently burning pulverized coal, and in 1918 he merged the facilities of MLH&T and TMER&L.

After the war the situation grew worse; by 1920 it reached a crisis. The Milwaukee Public Service Commission refused to grant adequate rate relief, and Milwaukee's socialist mayor campaigned for municipal ownership of the utility. The coal shortage and a coal miners' strike pushed the price of coal up to over $8 a ton. There was no money to increase capacity, and the electrical system was overloading two or three times a week. TMER&L remained afloat that year only through weekly infusions of cash from North American.

1920s and Early 1930s: Birth of WEPCo

Cleveland capitalist Harrison Williams changed the situation late in 1920, when, with the help of Beggs, he gained control of North American. Williams reinstalled Beggs as TMER&L president, but the real mover in the company became manager S.B. Way. A dynamic man, Way solved the capital problem by forming Wisconsin Electric Power Company (WEPCo) and selling enough WEPCo stock to Milwaukee residents to complete the $4.8 million Lakeside generating plant. When newcomers backed by Chicago utility magnate Samuel Insull began competing directly with TMER&L, Way, who became president in 1925, responded with a customer recruitment campaign that increased customer rolls to 220,000 by 1929.

While Way recruited new customers, another North American subsidiary, Wisconsin Gas and Electric (WG&E), concentrated on expanding the company's franchise area. WG&E executives D.E. Callender and D.G. Evans bought small utilities, secured franchises from small municipalities, and extended service to rural areas. From a customer base of 9,086 in 1917, WG&E grew to 46,723 customers in 1930.

In the state's northern region, North American purchased Begg's Wisconsin Traction, Light, Heat and Power Company in 1923. The following year, it acquired Peninsular Power in the contiguous Upper Peninsula of Michigan. The two companies were merged in 1925 and jointly became the Wisconsin-Michigan Power Company. By 1929 Wisconsin-Michigan had 26,000 customers and assets of $21 million.

This period of growth ended when the Depression hit Wisconsin. At TMER&L alone sales fell more than 9 percent in 1931 and by more than 13 percent in 1932. To make matters worse, in 1934 TMER&L was hit with violent strikes after Way tried to avoid recognizing an American Federation of Labor union by firing 13 workers.

In response to the Depression, Way cut costs drastically. He revitalized the company's rural extension programs, increased sales of electric appliances, and instituted a variety of "free kilowatt-hour" promotions. He also took the unlikely step of building a new power plant. Taking advantage of low Depression prices, he completed the 80,000 kilowatt Port Washington plant in 1935 at a cost of less than $7 million.

Way's recovery program and an improving economy slowly pulled the North American group onto firmer financial ground. However, it was not until 1938 that the companies began paying dividends again, and not until 1942 that they reached the level of 1930 earnings.

1930s and 40s: New Regulations Cause Restructuring

While North American's Wisconsin subsidiaries were struggling through the Depression, Congress passed a law that would ultimately separate the subsidiaries from their parent. The Public Utilities Holding Company Act of 1935 (PUHCA), passed in the wake of revelations about Insull and others, stated that utility holding companies could hold no more than one integrated utility.

In response to PUHCA, North American, which held several systems, simplified the structure of its Wisconsin subsidiaries and prepared them for divestiture. In 1938 it merged WEPCo into TMER&L, which in turn adopted the Wisconsin Electric Power Company name. All of TMER&L's money-losing traction properties were transferred to the newly created Milwaukee Electric Railway & Transport Company, which was ultimately sold. Finally, in 1941 it transferred the common stocks of Wisconsin Michigan Power Company and Wisconsin Gas and Electric to WEPCo. The entry of the United States into World War II delayed but did not cancel PUHCA's full effects. In 1947 North American spun off WEPCo to its stockholders.

World War II increased energy demands dramatically. In 1943, Way built a second 80,000 kilowatt unit at Port Washington. In the postwar period, when G.W. Van Derzee succeeded Way as president, demand continued to grow, and Wisconsin Electric Power continued building new units at Port Washington, completing 80,000 kilowatt generators in 1948, 1949, and 1950. By 1950 the company had 442,253 customers and sales that surpassed $58 million.

1950s and 60s: Increased Capacity and Modernization

The postwar expansion continued through the 1950s, as did the expansion of the Wisconsin Electric Power Company. In June 1950, Van Derzee integrated Wisconsin Gas and Electric's electrical properties into WEPCo and incorporated its natural gas properties as Wisconsin Natural Gas, which became a WEPCo subsidiary.

To keep up with rapidly increasing power needs, in 1951 the company broke ground for a massive new plant at Oak Creek. Big enough to satisfy the entire decade's worth of increasing demand, Oak Creek contained two 120,000 kilowatt units, which went online in 1953 and 1954; two 130,000 kilowatt units, which went online in 1955 and 1957; and two 275,000 kilowatt units, which went online in 1959 and 1961.

Not only was the Oak Creek plant huge, but it produced electricity more cheaply than the plants it replaced. Between 1950 and 1960, the price of a kilowatt-hour of electricity fell from 2.36 cents to 2.23 cents. By 1960, L.F. Seybold, who succeeded Van Derzee as president in 1956, could boast of 583,225 customers, almost 6.5 billion kilowatt-hours sold, and revenues surpassing $121 million.

In 1962, Alfred Gruhl succeeded Seybold as president. Gruhl presided over an important modernizing period. In 1964 WEPCo joined the power-pooling Mid-America Interpool Network. The same year, it installed customer billing and power dispatching computer systems, and in 1965, Wisconsin Natural Gas put the nation's first commercial liquefied natural gas storage plant into operation. It was a time of plentiful and cheap energy. The company repeatedly cut electric and gas rates and in 1965, added a 310,000 kilowatt unit to its Oak Creek plant, bringing that plant's total capacity to 1.67 million kilowatts.

In 1967 J.G. Quale became WEPCo's president. Like his three predecessors, Quale presided over a period of rapid increase in generating capacity. Unlike his predecessors, however, he was faced with a nascent environmental movement that began to pressure the company to take anti-pollution measures. The company had long been interested in nuclear energy, and in 1967 it and subsidiary Wisconsin Michigan Power began construction of the two-unit Point Beach nuclear plant at Two Rivers, Wisconsin. The following year, Quale presided over the opening of the first 140,000 kilowatt unit of the peak use Valley power plant. In 1969, the company bowed to environmental pressures and installed pollution controlling electrostatic precipitators at its Oak Creek plant. In December 1970, Unit 1 of WEPCo's Point Beach nuclear facility went online. Followed two years later by identically rated 497,000 kilowatt Unit 2, Point Beach was to be the company's last major power plant.

1970s: Energy Crunch and Conservation Efforts

Economic and energy problems of the early 1970s drove up energy prices and cut demand. Despite changes in consumption patterns, Quale continued to plan for 6 percent annual growth, and in 1974 announced plans to build a large nuclear facility at Koshkonong. In 1975, Quale was replaced by Charles S. McNeer. An engineer who had joined the company in 1950, McNeer faced a variety of problems. Regulatory delays had repeatedly put Koshkonong on hold; soaring oil and gas prices were causing tumultuous rate hikes; and the Point Beach nuclear plant was experiencing tube deterioration problems that, while not dangerous, caused a series of closings.

McNeer responded by cutting costs and conserving energy. He merged Wisconsin Michigan Power into WEPCo. He lowered night and weekend rates for industrial customers and later offered customers $54 a year if they would install centrally controlled switches that shut off water heaters during peak use periods. As efficiency and conservation rose, he cut back on the number of planned generating plants, saving $1.5 billion in construction costs. One of the canceled plants was the Koshkonong Nuclear Plant--which, in the wake of Three Mile Island, the company wrote off to the tune of $40 million.

McNeer's conservation efforts were so successful that in 1985 the company announced it would not build any new power plants for the remainder of the century but would instead invest $600 million in a refurbishment plan for its Port Washington and Oak Creek plants. In addition to renovating and modernizing facilities, the refurbishment plan would include installation of a new clean coal technology system known as atmospheric fluidized-bed combustion (AFBC).

1980s and 90s: Non-Utility Subsidiaries

Such slow growth might suggest sluggish earnings, but McNeer, a respected manager, was able to achieve maximum rate of return while twice cutting rates in the mid-1980s. Still, he knew that to remain profitable WEPCo had to achieve at least 2 percent yearly growth. This seemed difficult to envisage in an area Forbes called "the struggling machine shop and smokestack belt from Kenosha to Milwaukee."

There was only one answer. WEPCo had to stimulate the economy of its service area. On August 31, 1983, the company announced plans to organize a new holding company and establish three non-utility subsidiaries intended to stimulate economic growth in Wisconsin, increase job opportunities, and help state businesses thrive. The proposed subsidiary Wisvest would provide capital for expanding Wisconsin businesses; Witech would help bring new technologies--especially those developed in Wisconsin--into commercial operation; and Wispark would develop property within Wisconsin Electric's service territory as industrial parks. "The best thing we can do," McNeer told Forbes, "is to have our customers working so they can pay their electric bills."

Three-and-a-half years later, after state regulators had okayed the plan and the state legislature passed a new law regulating the company, Wisconsin Energy Corporation (WEC) became the sole holder of Wisconsin Electric Power Company's stock. Common shareholders of WEPCo. became common shareholders of Wisconsin Energy. McNeer was not long in taking economic development action. In July 1987, the Wispark subsidiary broke ground on LakeView Corporate Park, a massive 1,200 acre industrial park, which by April 1992 had 15 tenants with a combined total of 2,000 employees. Succeeding developments have included a $1.7 million investment in Milwaukee's Historic King Place low-income housing development and a $5 million investment in Milwaukee's luxury East Pointe Commons project. In March 1992, Wispark announced joint plans with Wisconsin Energy to invest a total of $3.9 million in another Milwaukee low-income housing project.

The electric business continued to prosper while Wisconsin Energy worked on its diversification projects. In December 1987, the company paid what some consider the bargain price of $283.6 million for the Presque Isle Power Plant, a 592 megawatt, nine unit, coal-fired installation previously owned by the Cleveland Cliffs Iron Company and the Upper Peninsula Power Company. More recently, on December 6, 1991, R.A. Abdoo, who succeeded McNeer as Wisconsin Energy's chief executive officer in 1990, concluded an agreement to build a $187 million cogeneration power plant for pulp and paper manufacturer Repap Enterprises Inc.

More energy-related acquisitions followed through the remainder of the 90s. In 1994, Wisconsin Energy acquired the Lake Geneva-based Wisconsin Southern Gas Co., merging it into its Wisconsin Natural Gas subsidiary. The following year, Wisconsin Natural itself merged with Wisconsin Electric. In 1998, Wisconsin Energy acquired ESELCO, the parent company of Sault Ste. Marie, Michigan-based Edison Sault Electric. Edison Sault Electric was an energy utility with some 22,000 residential, commercial, and industrial customers located throughout Michigan's eastern Upper Peninsula.

In the mid-1990s, Wisconsin Energy Corporation--and the entire Wisconsin electricity market--braced for change. As a number of states began to deregulate their electric utilities, Wisconsin policymakers developed a plan to do likewise. In 1995, the state Public Service Commission proposed a 32-step process for deregulating and restructuring the electric industry. Wisconsin Energy attempted to better position itself for the changing market by negotiating a merger with Northern States Power Company, a Minneapolis-based utility company with some two million customers in six states. State and federal regulatory agencies were equivocal about the merger, however, fearing that it would concentrate too much market power in a single utility. After two years of delays, the deal fell apart.

Meanwhile, Wisconsin's electric industry had begun to struggle with power shortages and reliability issues similar to, but on a smaller scale than, those that were to plague California in 2000. As a result, the state's fledgling deregulation efforts were suspended to focus on improving its generation capacity and transmission infrastructure.

Looking Forward from 2000

Wisconsin Energy kicked off the new century with two major announcements. In April 2000, the company finalized one of its most significant acquisitions, purchasing Milwaukee-based Wicor, Inc. Wicor was the parent company of Wisconsin Gas Co., and its acquisition made Wisconsin Energy the state's largest electric and natural gas provider. Wicor was also parent to a number of manufacturing subsidiaries that produced pumps, water-treatment products, and fluid-handling equipment for a range of industries.

The following autumn, Wisconsin Energy made headlines again, unveiling an ambitious long-term expansion plan. The $7 billion plan, called Power the Future, called for construction of two gas-fired power plants in Port Washington, followed by phase-two construction of three coal-fired plants in Oak Creek, Wisconsin. As part of the plan, Wisconsin Energy sought approval to form a new subsidiary, We Power, which would finance, build, and own the new plants. Wisconsin Energy planned to raise capital for Power the Future by selling off some of its non-utility assets.

In 2001, Wisconsin Energy launched a marketing campaign to brand its electric utility and its newly acquired gas utility (Wisconsin Gas) as a single energy provider: Wisconsin Electric-Wisconsin Gas. The new name was only transitional; in 2002, the electric and gas company became We Energies.

In December 2002, the Wisconsin Public Service Commission gave Wisconsin Energy approval for its We Power subsidiary to begin building its Power the Future phase-one plants. The company planned to begin construction late in the first quarter of 2003. The commission's ruling on Wisconsin Energy's phase-two plants was not expected until later in the year. Because those plants were to be coal-fired, the company faced significant opposition from environmental and community groups.

Principal Subsidiaries: We Energies; We Power LLC; Edison Sault Electric Company; WICOR Industries; Hypro; SHURflo; Sta-Rite; Minergy; Northern Tree Service; WISPARK LLC; Wisvest Corporation.

Principal Competitors: Alliant Energy Corporation; WPS Resources Corporation; Xcel Energy Inc.

Further Reading:

• "Fresh Sparks," Barron's, December 14, 1981.
• Harrell, Jeremy, "WI Public Service Commission Gives Go Ahead to Power the Future Energy Plan," Daily Reporter, December 23, 2002.
• Holley, Paul, "Wrangling over Power Plant Sale May Pay Off for County," Business Journal-Milwaukee, July 23, 1994, p. 8.
• Kueny, Barbara, "Wisconsin Energy Cautiously Becomes Area's Fastest-Growing Developer," Business Journal-Milwaukee, April 27, 1992, p. S8.
• McDonald, Forrest, Let There Be Light: The Electric Utility Industry in Wisconsin, 1881-1955, American History Research Center, 1957.
• Millard, Pete, "Introducing WE-WG," Business Journal-Milwaukee, June 29, 2001, p. 9.
• ------, "Wisconsin Energy Forms New Unit to Build Plants," Business Journal-Milwaukee, November 2, 2001, p. 3.
• ------, "Wisconsin Energy Targets Subsidiaries for Growth, Business Journal-Milwaukee, November 7, 1997, p. 7.
• Stavro, Harry, "Competition Is the Life of Trade," Forbes, November 18, 1985.
• "With Stock Up and CEO Pay Down, Wisconsin Energy Expects Calmer Annual Meeting," Knight Ridder/Tribune Business News, April 15, 2002.

Source: International Directory of Company Histories, Vol. 54. St. James Press, 2003.

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