Texas Utilities Company - Company Profile, Information, Business Description, History, Background Information on Texas Utilities Company

Energy Plaza
1601 Bryan Street
Dallas, Texas 75201

History of Texas Utilities Company

Texas Utilities Company is a holding company with six wholly owned subsidiaries, the largest of which is Texas Utilities Electric Company (TU Electric). TU Electric produces and distributes electricity in the eastern, north central, and western sections of Texas, including the Dallas-Forth Worth metropolitan area. This region has about one-third of Texas's population and is highly diversified economically, with such industries as aerospace manufacturing, oil and gas development, banking, insurance, and agriculture. As of the late 1990s, TU Electric had close to six million electricity customers. Other Texas Utilities subsidiaries are involved in the acquisition and transportation of fuels and in various other services for the electric utility. Texas Utilities also operates a natural gas distributor, owns stakes in several telecommunications firms, operates an electric utility in Australia, and owns an English electricity company that serves approximately three million customers in southeastern England and parts of London.

Early History

Texas Utilities was formed in 1945 as a holding company for three utilities: Dallas Power & Light Company (DP&L), Texas Electric Service Company (TESCO), and Texas Power & Light Company (TP&L). DP&L had been formed in 1917, TESCO in 1929, and TP&L in 1912, while predecessors of these companies dated back as far as the 1880s. Each company had its own electricity generation and distribution system.

Before the formation of Texas Utilities, DP&L had been a subsidiary of Electric Power & Light Company, while TESCO and TP&L had been subsidiaries of American Power & Light Company. Both parent companies, in turn, were subsidiaries of Electric Bond & Share Company, which had been set up by General Electric Company in 1905 to finance electrical power systems and form operating companies.

These holding companies were required to divest themselves of their utility operations under the Public Utility Holding Company Act of 1935. To that end, under an order of the Securities and Exchange Commission, Texas Utilities was formed in 1945 to acquire and run DP&L, TESCO, and TP&L. At the time, the utilities had combined revenues of $40.4 million, with about 427,000 electricity customers.

As Texas's population and industry grew, so did the utilities. Sales surpassed $100 million in the mid-1950s, $200 million by 1960, and $400 million by 1969. During the 1960s, the number of customers grew to more than one million.

While D&L, TESCO, and TP&L retained their own identities, they often combined their efforts for acquisition of fuel and construction of power plants. Their parent company formed other subsidiaries to meet these needs, such as Texas Utilities Fuel Company, established in 1970 to provide natural gas to the utilities. Other subsidiaries formed during the 1970s included Chaco Energy Company, focusing on the production and delivery of coal and other fuels to the utilities, and Basic Resources Inc., with the purpose of developing additional energy sources and technology.

Expanding Resources in the 1970s and 1980s

At the beginning of the 1970s, Texas Utilities, like other utility operators in Texas, depended almost wholly on natural gas to run its electricity generating plants. During the decade, as natural gas became increasingly scarce in Texas, the company turned to lignite, an inexpensive type of coal it already had in reserve. By 1975 Texas Utilities was meeting 25 percent of its fuel needs with lignite, and was continuing to acquire lignite reserves. Texas Utilities won praise for its foresight in turning to this fuel; its chairman and chief executive officer, T. L. Austin Jr., was named top utility executive for 1978 by Financial World. Even environmentalists liked Austin and his company: Howard Saxton, chairman of the Lone Star Sierra Club, told Financial World in June 1979 that Austin represented "the good side of an industry that has been under continuous attack."

Texas Utilities also looked to nuclear power to reduce its use of natural gas. Its Comanche Peak nuclear plant, about 35 miles southwest of Fort Worth, was originally scheduled to begin operation in 1980. As was the case with many other utilities' nuclear plants, however, Comanche Peak had numerous delays and cost escalations, which Austin blamed on design changes ordered by the Nuclear Regulatory Commission (NRC). By 1983 the plant was still not in operation, and its cost had risen from $787 million to $3.4 billion.

On the positive side, by 1983 Texas Utilities was using natural gas for only 45 percent of its fuel needs, with lignite supplying almost all of the remainder. Revenues had surpassed $3 billion, its earnings were rising steadily, and its credit rating was the highest possible. In 1984 the company reorganized, with each of the operating utilities becoming a division of a new sub-holding company, TU Electric. At that time Texas Utilities Mining Company, another subsidiary, took on the job of providing lignite to TU Electric's plants.

Nuclear Startup Problems Persist

Comanche Peak continued to encounter rising costs and extended delays. In 1985 its estimated total cost was revised to $5.46 billion. Because of studies and inspections mandated by the NRC and the Atomic Safety Licensing Board, Comanche Peak's first unit was expected to go into operation in mid-1987 and the second about six months later. These dates passed without startup of the units, however. By 1987, the NRC had identified a backlog of 20,000 problems the unit needed to correct.

In addition to regulatory hurdles, the plant was subject to continuing opposition by groups leery of the plant's safety and economic viability. One such group, Citizens Association for Sound Energy (CASE), had questioned the plant's safety numerous times during its construction. Juanita Ellis, a leader of the group, found that TU Electric employees who had made safety complaints had been fired. A total of 50 such employees sued the company.

TU Electric then took an unusual approach, deciding to negotiate with Ellis and the whistle-blowing employees. William G. Counsil, an executive vice-president of TU Electric, began meeting with Ellis in 1986 and providing her with information she requested. The NRC had certified CASE as an intervenor, with legal authority to raise questions and introduce evidence pertaining to the licensing of Comanche Peak. Until Counsil had begun meeting with Ellis, however, it had been difficult for CASE to obtain any TU Electric documents or to be taken seriously by the utility. In 1988 Ellis agreed to end her opposition to the licensing of Comanche Peak, and the utility made her a member of the plant's independent safety review committee. TU Electric also acknowledged the plant's past safety problems, and paid $4.5 million to reimburse CASE for its expenses and $5.5 million to settle with the employees who had sued. The lavishness of the settlement was unprecedented in the history of U.S. nuclear energy.

Comanche Peak's first unit finally went into operation in August 1990, with a capability of producing 1,150 megawatts of electricity. The second unit was scheduled for startup in 1993. Overall, Texas Utilities had put more than $9 billion into the nuclear plant. TU Electric's use of lignite and nuclear energy had greatly reduced its dependence on natural gas. In 1990 TU Electric generated 44.4 percent of its power with lignite; 37.7 percent with natural gas; 3.9 percent with the nuclear unit, which was in use only part of the year; and 0.2 percent with oil. The remaining 13.8 percent was power purchased from other utilities.

In 1990 the utility had record electricity sales of 84 billion kilowatt hours, up 2.2 percent from 1989. It also had record hourly peak demand of 18 million kilowatts on August 30, 1990. This also was 2.2 percent more than the previous record, set in August 1988.

Texas Utilities Mining reached a milestone in 1990, mining its 400 millionth ton of lignite. The fifth-largest coal-mining company in the United States, it produced 30.6 million tons in 1990, a single-year record. The company won praise for its efforts to reclaim mined land, with an award from the U.S. Department of the Interior in 1990.

Struggling for Growth in the 1990s

In January 1990 TU Electric requested a 10.2 percent rate increase, its first since 1984, from the Public Utility Commission (PUC) of Texas. The PUC allowed the utility to begin collecting this amount in August of that year. But late in 1991 the PUC ordered the utility to write off $1.38 billion of its investment in Comanche Peak. PUC staff members had questioned some of the expenditures on the nuclear plant. The ordered write-off meant that, after accounting and tax adjustments, Texas Utilities would have to subtract $1 billion from a year's net income. This produced a net loss for 1991 of $410 million. The posting of such a loss rendered the company unable to raise capital through debt issues or preferred stock for at least a year.

Comanche Peak's second unit finally began commercial operation in the summer of 1993. When the unit went on line, TU imposed a 15 percent rate increase on its electric customers. This added as much as $11 a month to the average residential consumer's bill. Meanwhile TU began to look for expansion opportunities. In 1995 the company paid $65 million for Southwestern Electric Service Company. It also bought a 20 percent stake in PCS PrimeCo, a wireless telecommunications firm. This move cost the company $200 million. The next year TU bought the Lone Star Gas Co. and Lone Star Pipelines from ENSERCH Corp. for $1.7 billion. This increased TU's ability to produce and deliver natural gas. Texas Utilities also began its overseas expansion by buying an Australian electric utility, Eastern Energy Limited, for $1.5 billion.

The reason for the sudden burst of acquisition activity was that new laws deregulating the power industry threatened to bring TU more competition. Fearing that changes might mean a loss of its traditional business, the company aimed to break new ground. Not only did the company become bigger, but it got involved in telecommunications--a new line altogether--and went abroad. After buying the share in PCS PrimeCo, TU went on to purchase another telecommunications entity, a privately held firm called Lufkin-Conroe Communications Co. in 1997. Lufkin-Conroe, based in Lufkin, Texas, was one of the state's largest phone companies, with annual revenue of close to $100 million. What apparently interested TU most was that Lufkin-Conroe served about 40,000 customers of TU Electric with local telephone service. TU hoped to take advantage of the customer overlap by offering a complete package of phone and energy use. Other utility companies around the country had been arranging similar deals in joint ventures or purchases of telecommunications businesses.

In 1998 TU offered to buy a large British utility company, the Energy Group PLC, for $6.9 billion. The Energy Group was one of twelve regional electric utilities in England, serving more than three million customers. It also owned Peabody Coal, one of the world's largest coal producers. The Energy Group was one of the last remaining utilities still in British hands after the privatization of the industry began in 1990. Its assets were valued at $14 billion, with 1996 revenue at around $7.3 billion. It was considered quite a prize, and TU's offer started a bidding war with another interested U.S. utility, PacifiCorp of Portland, Oregon. After a series of offers and counter-offers, British utility regulators ordered a sealed bid, and TU won, paying $7.4 billion for the Energy Group. The enormous price was considered worthwhile, as international expansion was key to TU's business strategy. TU immediately announced that Peabody Coal was up for sale.

Principal Subsidiaries: Texas Utilities Electric Company; Texas Utilities Fuel Company; Texas Utilities Mining Company; Texas Utilities Services Inc.; Basic Resources Inc.; Chaco Energy Company.

Additional Details

Further Reference

Aronson, Geoffrey, "The Co-Opting of CASE," Nation, December 4, 1989, pp. 678-82.Kranhold, Kathryn, "Bidding War Erupts for Energy Group," Wall Street Journal, March 3, 1998, p. A3.Levy, Robert, "Texas' Triple-A Utility," Dun's Business Month, June 1983.McKanic, Patricia Ann, "Texas Utilities Taking a Charge of $1 Billion," Wall Street Journal, August 9, 1991, p. A3.Mason, Todd, and Corie Brown, "Juanita Ellis: Antinuke Saint or Sellout?" Business Week, October 24, 1988.O'Brian, Bridget, "Texas Utilities Posts Big Loss in 3rd Quarter," Wall Street Journal, October 28, 1991, p. A7.Salpukas, Agis, "Texas Utilities Wins Fight for Energy Group," New York Times, May 1, 1998, p. D1."Texas Utilities to Buy Local Phone Service in Move to Diversify," Wall Street Journal, August 26, 1997, p. A4.

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