700 North Adams Street
As we move forward, we see a vibrant company that has the capacity to confront short-term challenges head-on without sacrificing its values or its drive to reach its long-term aspiration of creating the world-class energy company. We also see a company that is dedicated to creating value for its stakeholders.
WPS Resources Corporation (WPSR) was created in 1993 to act as a utilities holding company. Its four main subsidiaries include Wisconsin Public Service Corporation (WPSC), Upper Peninsula Power Company (UPPCO), WPS Power Development Inc. (PDI), and WPS Energy Services Inc. (ESI). WPSC, whose history can be traced back to the 1860s, provides electricity and natural gas to nearly 700,000 customers in Wisconsin and Michigan, while UPPCO serves over 50,000 customers in Michigan's Upper Peninsula. These two regulated units account for the majority of company earnings. PDI and ESI operate in the non-regulated energy sector--PDI develops and maintains electric generation facilities and ESI acts as an energy supply and services company in Illinois, Maine, Michigan, Ohio, and Wisconsin.
Early History: 1860s-1920s
Wisconsin Public Service traces its origins to Oshkosh Gas Light Company, the successor company to a franchise that had been taken out in 1868 to sell coal gas, which was used for lighting, to the citizens of Oshkosh. The franchise had lain dormant for about five years when E.P. Sawyer, a businessman whose previous experience had been in the lumber industry, acquired it in 1883 and reincorporated it under the name Oshkosh Gas Light. In 1885, the company received a franchise to sell electricity in Oshkosh, putting it into direct competition with Oshkosh Electric Light and Power. The two companies merged in 1907.
In these early years, the electrical utility industry in the United States little resembled its current state, in which a relatively small number of large companies are granted state-regulated franchises to produce and sell power in large geographic areas. Instead, a bewildering array of strictly local companies took out franchises to provide electricity and coal gas to small areas on a small scale. However, as the merger between Oshkosh Gas Light and Oshkosh Electric Power suggests, this began to change after the turn of the century, when the industry underwent a period of rapid consolidation and centralization of power.
In 1911, a Milwaukee engineer named Clement Smith joined with his brother-in-law, utility lawyer George Miller, to found Wisconsin Securities Company with the purpose of operating it as a utilities holding company. They quickly acquired Green Bay Gas and Electric Company, Green Bay Traction Company, and Northern Hydro-Electric Power Company. In 1922, Wisconsin Securities acquired Oshkosh Gas Light from the estate of E.P. Sawyer, changed its name to Wisconsin Public Service Corporation, and merged it with the other companies that it had acquired, which by now included Sheboygan Gas Light Company, Calumet Service Company, and Manitowoc and Northern Traction Company. Wisconsin Securities had also founded Peninsula Service Company to supply electricity to Door County in 1920; it, too, was merged into WPSC.
This rapid consolidation among electrical utilities did not escape notice and drew fire from some reform-minded journalists. New Republic magazine, for instance, published two books during the 1920s critical of current trends in the industry, one of which mentioned WPSC as a brief example. However, the desire to gain monopolistic control of regional markets for electrical power was not the sole factor at work, perhaps not even the most important one. The attrition rate for the small power companies that characterized the early days of the industry was quite high, and those small companies were not likely to have the capital to invest in new power plants. In the case of Wisconsin Securities, the owners of Green Bay Gas and Electric, Green Bay Traction, and Northern Hydro-Electric Power asked Clement Smith and George Miller for help after cost overruns from a hydro-electric plant they were building threatened to bankrupt them. Thus, a certain amount of consolidation was not only inevitable but healthy for the industry and necessary for maintaining consistency of service.
More mergers and acquisitions followed the creation of WPSC. In 1924, the company bought small electric companies operating in the towns of Brillion, Mishicot, and De Pere. The next year, it acquired all the assets of Northeastern Power Company, including its subsidiaries Riverview Motor Bus Company; Oslo Power and Light Company; Denmark Power and Light Company; Green Bay Park Railway Company; Northern Light, Heat, and Power Company of Suring; and Wabeno Lighting Company.
As some of the names of the acquired Northeastern Power subsidiaries suggest, WPSC operated public transportation at this time in addition to supplying electricity. Electric companies had long been in this line of business, a natural consequence of the fact that they produced the electricity that made trolley cars run. After World War I, street railways were widely replaced by buses, which were more flexible and less expensive to operate. From the 1920s through World War II, WPSC operated transportation systems in Green Bay, Wausau, Merrill, and, briefly, in Menominee and Marinette.
A Change in Ownership: Late 1920s
Just after the Northeastern Power acquisition, WPSC was itself acquired by H.M. Byellsby, an electrical engineer who had worked for the Edison and Westinghouse Electric Corporation before going into business himself, designing and building power stations and hydro-electric plants for utility companies. Byellsby immediately turned over control of WPSC to Standard Gas and Electric, a public utility holding company that he had founded in 1910. As a result of the move, Clement Smith stepped down as president in 1926.
In 1927, Standard Gas and Electric acquired another large electrical utility, Wisconsin Valley Electric Company. Like WPSC, Wisconsin Valley Electric had grown rapidly through a series of mergers and acquisitions and was selling electricity to the towns of Merrill, Stevens Point, Tomahawk, Antigo, Rhinelander, and Waupaca when Standard Gas and Electric won a bidding war to acquire it. Though a successful and growing company, Wisconsin Valley Electric operated hydro-electric plants exclusively and ran into trouble in winter because of ice and low water on the Wisconsin River. In 1933, Standard Gas and Electric decided to merge its two main subsidiaries, so that WPSC's steam turbine plants could pick up Wisconsin Valley Electric's wintertime slack.
During World War II, WPSC's public transportation systems saw increases in ridership due to gas rationing and reduced automobile production. However, wartime shortages also made running bus lines difficult, despite the increases in business. For instance, the company's fleet in Green Bay was forced to bring an old 1925 Reo bus out of mothballs and press it into service. It was christened the Queen Marie, and a slogan painted on her side declared that she would be retired again "When the clock strikes peace!" After the clock did, in fact, strike peace, bus ridership declined as gasoline rationing ended and private cars returned to the roads. In 1951, WPSC divested its bus lines in Wausau and Merrill, and they began independent operation under the name Wausau Transit Lines.
Growth and Expansion as a Public Company: 1950s-80s
WPSC also gained independence of a sort in the 1950s. In 1952, Standard Gas and Electric divested its entire stake in the company. Common stock was distributed to WPSC's preferred stockholders. The following year, Wisconsin Public Service was listed on the Midwest and New York Stock Exchanges for the first time.
In the 1960s, natural gas became an increasingly important fuel source, and WPSC responded by expanding its operations in that area. The company had been selling natural gas to its customers since 1950, just after the first pipeline from the Hugoton Field in the Oil Patch of Oklahoma and Texas to the Upper Midwest was built. In 1961, it made a move to control the means of distribution when it acquired two natural gas franchises, Merrill Gas Company and Oneida Gas Company. By 1963, over half of the homes in WPSC's service area were heated with gas, and by the mid-1970s natural gas sales would account for about 30 percent of the company's operating revenues.
In 1967, the firm acquired the electrical distribution system for the municipality of Kewaunee, which had been owned by the city. That year, the company also took its first plunge into the age of nuclear energy when it broke ground on a nuclear plant nine miles south of Kewaunee, on the shores of Lake Michigan. The Kewaunee nuclear plant, which did not begin operation until 1974 (once safety and environmental concerns had been assuaged), was built and operated by WPSC but was in fact a joint venture between three Wisconsin utility companies. WPSC owned 41.2 percent, with Wisconsin Power and Light Company holding 41 percent and Madison Gas and Electric Company 17.8 percent.
In 1970, the company consolidated its corporate offices. True to its roots as an amalgamation of many small, local companies, WPSC had long operated out of offices scattered among the cities of Green Bay, Milwaukee, and Oshkosh. For decades, the firm had used a stately old mansion in Milwaukee as one of its headquarters--which made little sense, since the city lay outside the company's operating area, except that Clement Smith had acquired the house from his brother-in-law. In 1970, the old Milwaukee mansion was vacated, and operations were consolidated at a new corporate headquarters in Green Bay.
In 1973, WPSC left the public transportation business entirely. Its Green Bay lines had been losing money since the 1950s, and the company finally sold its operations to the city of Green Bay that year. Its Green Bay bus system notwithstanding, WPSC prospered during the 1970s. In 1975, it posted revenues of $219.9 million, its best sales year ever. Its most important customer was the paper industry, which accounted for 15 percent of the company's electricity sales, and renewed strength among paper companies operating mills in northeastern Wisconsin meant increased demand for WPSC's main product. The company's reliance on the paper industry continued to serve it well into the 1980s, giving it a solid base of industrial demand.
In 1992, WPSC's contacts with the paper industry resulted in a joint venture seeking to find an efficient, ecologically sound way to generate electricity. That year, the company signed an agreement with Rhinelander Paper Company to build a 90 to 100 megawatt power plant that would be fueled by low-sulfur coal and paper mill waste. The firm began using more low-sulfur coal in its power plants in the 1990s in order to comply with state and federal air pollution laws.
Success in a Changing Industry: 1990s and Beyond
By this time, WPSC had established a record of good financial performance. Between 1975 and 1992, its revenues tripled. This growth pattern was impressive, considering that the relatively modest city of Green Bay was its largest urban market. It benefited from the presence of large industrial customers in its area of operations, showing that an electrical utility could prosper and grow large by hanging around small towns. In late 1993, the firm adopted a holding company structure, forming WPS Resources Corporation to oversee subsidiary operations, which at the time included WPSC, WPS Energy Services Inc., WPS Power Development Inc., Packerland Energy Services Inc., and WPS Communications Inc. The restructuring continued into 1995, when Packerland was merged into ESI and WPS Communications was folded into WPSC's operations.
Deregulation brought change to the utilities industry in the United States during the latter half of the 1990s. In 1995, the Wisconsin Public Service Commission outlined a plan for restructuring of the state's electrical utility sector. By 2000, however, it was clear that the state would not open its industry to retail competition in the near future. Instead the Commission focused on infrastructure improvements aimed at strengthening the state's electrical service. The Commission passed two legislative acts in 1998 and 1999 related to generation, distribution, and transmission, and, as a major utility operator in the state, WPSR was required to follow these acts. As part of Wisconsin Act 9, for example, the company would be subject to lessened statutory restrictions when making non-utility investments if it transferred its transmission assets to a state transmission company. In January 2001, it did just that when it allowed American Transmission Company to take over its transmission holdings.
WPSR maintained focus on both its regulated and non-regulated businesses during this time period. The firm bolstered its regulated holdings with the purchase of the Upper Peninsula Energy Corporation in 1997. It also merged Wisconsin Fuel and Light Company into its WPSC subsidiary. The company's non-regulated subsidiaries continued to grow, mainly by purchasing generation facilities and by moving into deregulated regions. In 2000, the firm began supplying customers in Maine. One year later, WPSR moved into Ohio when the state allowed competition in its retail electric market.
The firm's strategy of balancing its regulated and non-regulated businesses appeared to pay off. In 2001, the company reported its 43rd consecutive year of increasing dividends. Revenues had also climbed steadily, rising from $1 billion in 1999, to $2.67 billion in 2001. The company secured $112.5 million in net income during 2002--a 45 percent increase over the previous year. As WPSR faced tough economic times in 2003, the company continued to eye the future with optimism. It set plans in motion to build a 500-megawatt coal-fired plant near Wausau, Wisconsin, and purchased the De Pere Energy Center from Calpine Corp. With a long-standing history of success behind it, WPSR appeared to be well positioned for growth in a changing industry.
Principal Subsidiaries: Wisconsin Public Service Corp.; Upper Peninsula Power Co.; WPS Power Development Inc.; WPS Energy Services Inc.
Principal Competitors: Alliant Energy Corporation; Wisconsin Energy Corporation; Xcel Energy Inc.
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