PSI RESOURCES
Address:
1000 East Main Street
Plainfield, Indiana 46168
U.S.A.
Telephone: (317) 839-9611
Fax: (317) 838-2208
Statistics:
Public Company
Incorporated: 1912 as Interstate Public Service Co.
Employees: 4,200
Sales: $1.122 billion
Stock Exchanges: New York
Company History:
PSI Resources, the parent company of PSI Energy, Indiana's largest utility, was founded in the heyday of electric transport. As trolleys and trains gave way to the automobile, the firm gradually shifted the focus of its business to energy, and since 1941 PSI has been engaged primarily in providing energy to the people and industries of Indiana. Despite a near-disastrous foray into nuclear energy in the 1980s, the firm has grown significantly in size, power, and area of coverage.
In the first decades of the twentieth century Samuel Insull, who had been Thomas Edison's personal secretary and working associate, assembled a large empire of utility and transportation companies under the umbrella of his Chicago holding company, Middle West Utilities Company. In 1902 Insull and an Indiana investor organized the United Gas and Electric Company of New Albany to provide light, water, and power for street railways in the Indiana towns of New Albany and Jeffersonville. Several years later the investor withdrew, leaving the company in the hands of Insull and his brother, Martin who, in 1912, turned United Gas into the Interstate Public Service Company, which became an operating unit of Middle West. Samuel Insull stayed on as chairman until 1931.
Middle West primarily produced electric power to operate electric railcars between cities. In 1912 Interstate leased the electric train that ran from Indianapolis to Louisville from the Indianapolis and Louisville Traction Company, and in 1919 Interstate bought the company's stock.
In these early years Interstate also acquired many other small companies. In 1913 alone Interstate bought six utilities serving small towns in Indiana. By 1918 Interstate was providing electricity to 19 towns in that state with revenues totaling nearly $1.5 million and net earnings of $420,000. In its first decade of operation, more than one-third of the utility's revenues came from transportation. In 1914 when the firm had only 10,000 electricity customers, Interstate owned or leased cars that carried 1.6 million passengers. Its interurban carriage trade peaked in 1923 when it carried 10 million passengers.
In addition to the Louisville-Indianapolis line, the utility operated city railway lines in the towns of Jefferson, New Albany, and Columbus. Interstate was providing electricity to some 50,000 customers by 1923 and the sale of electricity accounted for more than half of the utility's $6.4 million in revenues. Interstate also continued to acquire small plants and companies, and by 1923 it operated 17 electric generating stations and 76 electric substations. Sales rose each year in the 1920s, from $6.4 million in 1923 to $10.57 million in 1928, and profits rose from $1.7 million to $3.59 million in the same period.
In 1924 Interstate departed from its practice of acquiring small, isolated generating stations with its purchase of the Indiana Power Company, which had a huge plant in Edwardsport. Six years later it acquired the General Utilities Company, which supplied electric service to 16 Indiana communities, and the Interstate Power Company, which owned a 60,000 volt steel tower.
When J. N. Shannahan replaced Samuel Insull as chairman of the company in 1931, the utility changed its name to the Public Service Company of Indiana; the following year, it merged with the Indiana Electric Corporation, which served 32 communities and owned a 60,000 kilowatt generating plant at Dresser.
Despite the acquisitions and growth in revenues and electricity service, interurban rails, the service that allowed Interstate to grow in its early years, created problems for the company. With the advent of the automobile, railway travel became less appealing. Business travel and activity diminished during the Great Depression. In 1933 the number of riders dropped to three million and transportation accounted for less than 5 percent of the firm's total revenues; with electricity accounting for more than 75 percent, Public Service petitioned the regulatory commission to abandon or curtail its interurban service. In 1934 the firm ceased reporting revenues from its railways and motor coach services, though a passenger car continued to run as late as 1941. Between 1933 and 1941 losses from interurban operations virtually eradicated the firm's equity capital and after 1933 the firm ceased paying dividends.
In 1937 Robert Gallagher replaced Shannahan and realized that, despite the firm's poor performance, the electric utility system was doing quite well. Gallagher decided to reorganize the firm and initiated a recapitalization plan and a refunding of the firm's long-term debt. The utility attempted to issue $42 million of refunding bonds just before the attack on Pearl Harbor; and although the issue was postponed, by 1945 all outstanding bond issues were refunded at favorable interest rates.
The year 1941 represented a watershed for the Indiana utility, marking its shift to a huge, solid, and tightly managed utility system. That year Public Service and its subsidiary, Dresser Power, consolidated with two other companies, Terre Haute Electric and Central Indiana Power Company along with its subsidiary the Northern Indiana Power Company, and became the Public Service Company of Indiana, Inc. Brought together under the auspices of Midland United, the holding company that superseded Middle West, the firm comprised a vast network covering almost all of Indiana. By 1941 the new company was providing electricity, gas, or water to nearly 225,000 customers in 600 towns and cities. And in the following years, Public Service focused more directly on electricity, disposing of its gas and water properties in 1945 through a separate company, the Indiana Gas & Water Company, and shedding its remaining ice manufacturing plants.
In the postwar years, Public Service invested huge sums to improve its electric system. Construction spending increased, and the high-voltage transmission network grew from 2,800 miles in 1941 to more than 5,300 miles in 1961. Although the firm's old Dresser and Edwardsport plants continued in use, in 1950 the utility built a new facility at Noblesville, which had a capacity of 80,000 kilowatts. Revenues nearly doubled between 1945 and 1951, from $27 million to $49.7 million. In the same period, net income more than doubled, from $3 million to $8.3 million.
In 1948 the company ceased to be a subsidiary of Middle West and has operated independently ever since. Under Robert Gallagher's leadership, the utility continued to acquire property, debt, and equity in other companies. Public Service had reached 70 of the state's 92 counties, was serving 320,330 customers in 723 cities by 1952, and had three principal generating stations, all of which used coal to produce electricity.
With Gallagher at the helm, the firm continued to grow throughout the 1950s by focusing on what it did best--generating electricity at coal-powered plants. Public Service opened its new coal generating plant, the Wabash River station, in 1953, and in 1958 started service at a fifth generator at New Albany, the biggest plant in the state. Revenues jumped from $53 million in 1952 to $81 million in 1958, and income rose each year, climbing to $16 million in 1958; and in 1962 the authorized shares of common stock increased from 8 million to 15 million and the stock split on a two-to-one basis. Upon Gallagher's retirement in 1960, Carroll Blanchar continued the policy of steady expansion and upgrading. By purchasing small power firms in small towns throughout Indiana, most with a few thousand customers or less, the company supplied electricity to 408,000 customers in 709 cities by the middle 1960s.
The utility suffered a minor setback in 1965 when an explosion and fire closed the New Albany Station--which had been renamed the Robert A. Gallagher Generation Station--causing damage estimated at $2.75 million. Two years later, the firm's first hydroelectricity plant, the Markland Hydro Station, went into service. And in the late 1960s, the firm embarked on an ambitious construction program: two internal combustion generation stations--the Miami-Wabash and Connersville peaking stations; and a new coal-generated plant in Cayuga which, with its capacity of 500,000 kilowatts, produced more energy than any other Public Service facility.
Although revenues fluctuated throughout the 1960s and stood at $36 million in 1972, they tripled in the 1970s, soaring from $241 million in 1973 to $622 in 1979. Net income also rose significantly from $47 million in 1973 to $122.9 million in 1979; by the end of the decade, Public Service had 530,000 customers and 4,300 employees and experienced another stock split, boosting the number of shares from 30 million to 60 million. The utility continued to expand, adding another coal-generating unit at Gibson in 1979. That year, the firm spent $364 million on construction, much of which went to the firm's ill-fated Marble Hill nuclear plant.
In 1973 the company decided to enter the nuclear power business; and in 1978 the Nuclear Regulatory Commission (NRC) issued building permits for the construction of two nuclear units on the Ohio River in southeastern Indiana at the Company's Marble Hill Station. The company would own 83 percent of the project, with a consortium of smaller utilities owning the remainder.
The 1979 accident at the Three Mile Island nuclear facility in Pennsylvania affected the entire utility industry. That year Public Service had to suspend safety-related work at Marble Hill; after routine inspections, the NRC issued a lengthy list of requirements that had to be met before safety-related work could be resumed. The delays were only the first in a series that turned the Marble Hill project--originally scheduled for completion in 1982 at a cost of $1.85 billion--into a disaster that almost bankrupted the utility. With costs and projections far exceeding previous predictions, Public Service announced in 1984 that it had already spent $2.5 billion and was unable to complete the project. Construction halted primarily because a study commissioned by Indiana Governor Robert Orr concluded that the plant should not be finished. Later that year, the Wabash Valley Power Association, the cooperative that owned 17 percent of Marble Hill, stopped making payments. Public Service scrambled to renegotiate loans and lines of credits, and the utility's stock price plunged as it sought an emergency rate increase.
Although no electric utility had declared bankruptcy since the Great Depression, Public Service seemed to teeter on the edge of Chapter 11. In June of 1984, Public Service rejected a proposal by three companies--Bechtel, Westinghouse, and Sargent & Lundy--to help finish Marble Hill, indicating that it could not afford their terms. By that time, the total cost of completing the plant was estimated at $7.7 billion. In late 1984 Public Service received $310 million in loans from a consortium of banks, which attached new restrictions on capital spending and the sale of assets. And in 1986 the state's Public Service Commission approved a plan to deal with the financial burden of the canceled plant. The plan allowed the utility to raise rates by 8.2 percent on a temporary basis, bringing in $68.2 million annually. The commission also allowed the firm to claim $475 million in future tax benefits from its Marble Hill losses. In return, Public Service agreed to write off $1.34 billion, nearly depleting shareholder equity, and to suspend common dividends until 1989. Equity as a percentage of capital plummeted from 45 percent to 8 percent, and the stock's price dropped from $38 to $6.
Public Service's shaky financial situation and flirtation with bankruptcy made it the object of a speculative takeover bid. In 1986, a group that included William Ruckleshaus, a former Environmental Protection Agency director, offered to buy the firm, but Public Service did not respond. And although the firm did well in the early 1980s--reporting revenues of $873 million in 1983--the Marble Hill troubles almost ruined the company financially. Profits in 1984 shrunk to $85 million; and in the following years the firm took big hits due to the Marble Hill write-offs, tallying a $1.2 billion loss in 1985 and a $22 million loss in 1986. In the wake of the 1986 settlement agreement with the Public Service Commission, the directors of the troubled firm reorganized Public Service's corporate structure.
In June of 1988, Public Service became a subsidiary of a newly created holding company, PSI Holdings, Inc. And in October of that year, the company came under the chairmanship of James Rogers, Jr., a former official at the Federal Energy Regulatory Commission. In April of 1990, however, parent company PSI Holdings changed its name to PSI Resources, and the utility's name to PSI Energy.
PSI had recovered somewhat by 1989, when the firm supplied electricity to 586,000 customers, netting profits of $138 million on revenues of over $1 billion. However, PSI's heavy reliance on coal made it the country's most polluting utility for its size; and just as the firm was returning to sound financial ground, it had to contend with new requirements mandated by the Clean Air Act Amendments of 1990, under which PSI had to reduce sulfur dioxide emissions by 34 percent by 1995. In 1990 Rogers said that PSI would need about $1.4 billion to install new scrubbers and planned to spend $5 billion in the 1990s. As a cost-cutting measure, Rogers also moved to cut 10 percent of the company's white-collar work force.
In 1991 PSI Energy served 600,000 homes and operated six coal generation stations, one hydro facility, and two peaking stations. Although the firm's total revenues were $1.122 billion in 1991, net income was only $19 million, down from $119 million the year before. Earnings were affected in 1991 by an Indiana Supreme Court decision that forced the utility to take an after-tax charge of $85 million.
PSI looks to expand its conventional service in the 1990s by continuing to add and upgrade its facilities. In 1991 the firm received a grant of $198 million from the U.S. Department of Energy to fund a $590 million project: a clean-coal generating facility for PSI's Wabash River Generating Station. PSI also plans to build two 100-megawatt combustion turbine peaking units adjacent to the Cayuga Generation station.
Principal Subsidiaries: PSI Energy; PSI Investments; PSI Recycling; PSI International.
Further Reading:
'PS of Indiana Says Cash Crisis Is Eased for at Least a Year,' Wall Street Journal, May 1, 1984.
'PS Indiana Sees End to Nuclear Project Over Late Payment,' Wall Street Journal, May 14, 1984.
Wall Street Journal, June 19, 1984.
'PS Indiana Gets $310.5 Million in Bank Credit,' Wall Street Journal, November 30, 1984.
Wall Street Journal, March 10, 1986.
'PS Indiana to Post Marble Hill Charge and Loss for 1986,' Wall Street Journal, December 2, 1986.
'Deregulated Power Utilities?,' Forbes, December 26, 1988.
'The Dirtiest Utility,' Financial World, November 27, 1990.
PSI Resources, Inc. 1991 Annual Report, PSI Resources, Indianapolis, IN, 1992.
Indiana and the Electric Age: The Story of Public Service Indiana, Public Service Indiana.
Source: International Directory of Company Histories, Vol. 6. St. James Press, 1992.
