700 Northeast Multnomah
Portland, Oregon 97232-4116
Telephone: (503) 731-2000
Toll Free: 800-547-2540
Fax: (503) 731-2136
Incorporated: 1910 as Pacific Power & Light Company
Sales: $6.27 billion (1997)
Stock Exchanges: New York Pacific Boston Midwest Philadelphia
Ticker Symbol: PPW
SICs: 4911 Electric Services; 6719 Holding Companies, Not Elsewhere Classified
Owner of Pacific Power & Light, Utah Power & Light, and the Australian utility Powercor, PacifiCorp is one of the largest electric utility holding companies in the United States. In the late 1990s, PacifiCorp provided electric power to 1.3 million customers in parts of Washington, Oregon, Utah, Wyoming, California, Montana, and Idaho, and more than half a million customers in Australia. PacifiCorp planned to use its expertise in the trading of bulk power to take advantage of the increasing deregulation in the U.S. power industry.
PacifiCorp began in 1910 as Pacific Power & Light Company, which was formed through the merger of several financially troubled electric utilities in the Pacific Northwest. Pacific included utilities in Astoria, Pendleton, and The Dalles, Oregon; Yakima, Walla Walla, and Pasco, Washington; and Lewiston, Idaho. It had a total of 14,344 electric, gas, and water customers and first-year revenues of $832,200.
The electric industry was in its infancy in 1910. Most large towns had their own electric companies, which often provided gas, steam, or water service as well. Because it was difficult for these small firms to raise enough capital to expand or improve service, holding companies sprang up across the United States, buying smaller companies and integrating them into regional electric utilities. Holding companies like Electric Bond & Share, which owned Pacific, provided capital and expertise.
Customers in Pacific's mostly rural area wanted the electricity-powered conveniences: lights, electric ranges, toasters, vacuum cleaners, washing machines, and water pumps. Pacific successfully marketed and sold electric appliances to help increase electricity sales, although the Great Depression slowed Pacific's sales until 1941. During the Depression employees were forced to take pay cuts, and stockholders' dividends were cut.
Except for the worst years of the Great Depression, rural electrification was an important source of company growth. By 1938 Pacific's system included 10,000 farms. In addition to lighting, farmers used electric power to run irrigation pumps, which created more farm land and more demand for electricity. Pacific often wired the houses and sheds of its new customers and supplied the power.
By 1941 Pacific was in a solid financial position, with income of $740,000 on sales of $6.7 million. It had 73,000 customers, including 4,400 electrified farms. In 1942 it joined the newly formed Northwest Power Pool, formed with several other regional power companies to coordinate resources when capacity was stretched.
One of the biggest of U.S. President Franklin D. Roosevelt's New Deal projects was the development of regional hydroelectric systems, such as the Pacific Northwest system, which included the Bonneville dam and the Grand Coulee dam. Paul B. McKee, president of Pacific starting in 1933, realized that the massive government projects presented Pacific with tremendous opportunities for growth--partly because the projects would stimulate the regional economy, but also because the company could buy a share of the low-cost hydroelectric power that the dams would produce. McKee also dealt with a strong government-ownership movement in Washington and northern Oregon from the Depression through the mid-1950s. More than 100 votes were held on establishing public utility districts or municipal ownership, and Pacific won most of them. It had fairly strong support from the public because of its good service record and its efforts to stimulate economic growth in the regions it served.
Mergers in the 1950s and 1960s
In 1950 Electric Bond & Share spun off Pacific as an independent, publicly traded company. Pacific pushed aggressively to build itself into a self-sufficient organization, moving to secure its power supply. The Pacific Northwest area was booming, and Pacific was unsure it would be able to renew its contract to buy cheap government power, so it began building its own hydroelectric generating stations. It completed Yale dam in southwest Washington in 1953, but the company still generated only 50 percent of its power. That generating dearth lead to Pacific's first major merger, with Mountain States Power Company.
Mountain States, founded in 1917, served western Oregon, northern Idaho, western Montana, and Wyoming. In 1940 the company reorganized because the lingering effects of the Depression left it unable to meet its bond debts. It became an independent company that year, when its holding company spun it off as a result of the Public Utility Holding Company Act of 1935. Throughout the 1940s Mountain States acquired nearby systems and built lines into rural areas that had no service. It pushed electric appliances hard, increasing demand. From 1941 to 1953 the company's customer load nearly doubled, leaving it unable to meet demand for electricity. Mountain States had no hydroelectric sites it could develop economically, did not have the capital to build new generating plants, and worried it might fold.
In 1954 Mountain States merged into Pacific, creating a company twice as large as it had been, with service territory spread over five states. The merger also brought Pacific two small telephone companies, one in Oregon and one in Montana. Pacific immediately began building generating plants in Wyoming, where Mountain States had been unable to meet demand. Large coal veins nearby fueled the new plants near Glenrock, Wyoming. Pacific also built a third hydroelectric plant on the Lewis River in Washington and a large coal-fired steam plant near Centralia, Washington.
In the late 1950s and early 1960s Pacific bought coal leases that gave it more than one billion tons of reserves. In 1961 the company merged with California Oregon Power Company (COPCO). COPCO, which served southern Oregon and northern California, was formed in 1911 and acquired by Standard Gas & Electric in 1925. In 1947 COPCO became independent again, partly as the result of the 1935 holding company act. With the COPCO acquisition, Pacific jumped to 411,000 customers from 318,000, and reached annual revenues of $90 million.
During the 1960s Pacific struggled to integrate the COPCO system and meet demand, which was growing at seven percent a year. The region's hydroelectric potential was already tapped, so the company added thermal generating plants.
Increased Diversification in the 1970s
In the early 1970s Pacific decided to build up its small but profitable phone operations. In 1973 the company bought a majority interest in Telephone Utilities, a company in rural Washington that had assembled a network by buying small local telephone companies that had been ignored by the Bell System. In 1979 Pacific bought Alascom from RCA Corporation for $210 million. Alascom, which provided long-distance and local telephone service in Alaska, proved to be a good investment, as Alaskan toll calls grew 23 percent to 25 percent annually for the next several years. In 1981 Pacific bought about 48 percent of the second largest independent phone equipment manufacturer in the United States when it bought General Dynamics' phone manufacturing operations for nearly $50 million. In 1982 Pacific changed the name of Telephone Utilities to Pacific Telecom and its own name to PacifiCorp, of which Pacific Power became a subsidiary. By 1983 Pacific Telecom had revenues of $341 million.
Pacific also continued expanding its coal mining and energy exploring operations. In 1976 it formed Northern Energy Resources Company (NERCO) to manage its coal properties and mining operations. Because Pacific already had bought so many coal and mineral properties, NERCO was one of the biggest producers of coal, silver, and gold in North America at the time it was formed. It continued to grow through acquisitions, spending $15.2 million in 1981 for a Fairbanks, Alaska, exploration company that owned mineral rights to 5.5 million acres of Alaska. NERCO had become the sixth largest U.S. coal miner. In 1982 NERCO acquired Clements Energy Incorporated, an oil and gas exploration company.
Pacific ran into trouble in the late 1970s and early 1980s because of inflation, runaway construction costs, shifts in energy supplies and costs, and then a recession. However, a collapse in energy demand left Pacific Power with excess capacity and investments in several nuclear power plants under construction that were no longer needed. The collapse of the Washington Public Power Supply System (WPPSS), financed by Pacific Power and three other utilities, attracted nationwide attention. PacifiCorp's diversification helped it weather a $292 million write-off in 1983 for investments in WPPSS and another $260 million write-off on three other nuclear plants.
By 1982, 46 percent of PacifiCorp's revenue came from nonutility operations, which offered a rate of return two to three times greater than the company's electric unit. At the same time, the company decided to push electricity sales to make use of its huge excess generating capacity. It took out ads touting electric home heating, tried to increase economic development in its territory by helping communities form industrial development groups, and sold surplus power to industry and neighboring utilities at wholesale rates. To reduce expenses PacifiCorp cut 600 positions from electricity operations between 1982 and 1984. NERCO launched a drive in 1983 to sign industrial customers to long-term coal contracts to make up for declining sales to utilities. Its earnings also were helped by the 1982 purchase of two gold and silver mines in Nevada. In 1984 PacifiCorp formed Inner PacifiCorp, Inc., to hold NERCO, Pacific Telecom, and other nonelectric businesses.
By 1985 conditions had improved for PacifiCorp's electric business. Electrical income was up nearly 85 percent since 1981, compared with 34 percent for Pacific Telecom and 29 percent for NERCO, which was hurt by declining coal prices. That year PacifiCorp formed a financial services arm, buying Northwest Acceptance Corporation for $53 million and changing its name to PacifiCorp Financial Services. It then bought Hyster Credit for $120 million. It lost, however, $44 million in an oil and gas exploration venture and $78 million in various venture capital and telecommunications manufacturing investments. In 1987 NERCO bought 42 oil and gas wells in southern Louisiana, and PacifiCorp bought Thomas Nationwide Computer Corporation for $25 million. Net income for 1987 was $266 million.
Power Swapping Initiated in the Late 1980s
In 1987 PacifiCorp agreed to merge with Utah Power & Light Company, which ran along Pacific's southern flank, in a $1.85 billion stock swap, but the merger did not actually occur until 1989 because of regulatory hurdles. To get regulatory approval for the merger, PacifiCorp accepted conditions imposed by the Federal Energy Regulatory Commission, agreeing to open its transmission system to outside producers under certain circumstances. The company received criticism within the utility industry for the move, which other companies feared would set a harmful precedent. For PacifiCorp the agreement was worth a small amount of competition from independent producers. Utah Power's transmission system was connected to the southwestern and California markets, and the merger allowed PacifiCorp to move surplus power out of Wyoming and into those markets. The companies also fit together well because PacifiCorp's demand peaked in winter, while Utah Power's peaked in summer.
PacifiCorp operated Utah Power as a separate subsidiary, with about 535,000 customers in a 90,000-square-mile area in Utah and parts of Idaho and Wyoming. Pacific Power served about 682,000 customers in a 63,000-square-mile area in parts of Oregon, Wyoming, Washington, Idaho, Montana, and California. Utah and Oregon provided most of the company's electric revenue, with 37.2 percent and 29.6 percent, respectively, in 1989.
In 1989 PacifiCorp offered to buy the troubled Arizona Public Service Company for nearly $2 billion in cash and stock. When the plan faltered, PacifiCorp offered to buy Arizona Public's parent company, Pinnacle West Capital Corporation, which rejected PacifiCorp's $1.87 billion bid as inadequate. The purchase would have given PacifiCorp an electric grid stretching from the Canadian to the Mexican border. Arizona Public eventually agreed to seasonal power swaps with PacifiCorp, so both companies could take advantage of differences in their peak demand times. Also in 1989 Pacific Telecom agreed to buy Wisconsin's North West Telecommunications Incorporated for $250 million in cash and securities, completing the purchase in mid-1990. Net income for 1989 was $466 million on sales of $3.6 billion.
By 1990 PacifiCorp provided electricity to 1.2 million customers. Its generating capacity was 86 percent coal-powered and 13 percent hydroelectric. NERCO was one of the top ten U.S. coal producers, with most of its coal sold to electric utilities under long-term contracts. Pacific Telecom provided local telephone service for 352,000 access lines in parts of ten states. In 1991 NERCO bought Union Texas Petroleum's oil and gas operations in the Gulf of Mexico, dramatically increasing its petroleum reserves.
The 1990s: Refocusing on Power
The 1992 National Energy Act, which allowed independent energy developers to generate, buy, and sell electricity, transformed PacifiCorp's plans for the future. With their low-cost coal-fired and hydroelectric plants and their experience in bulk trading of energy, PacifiCorp was in an enviable position to take advantage of the new law. Although competition was only introduced in the industrial market in the early 1990s, eventually deregulation would reach the individual consumer market. PacifiCorp readied itself in several ways for the coming of full deregulation.
In the early 1990s PacifiCorp sold several nonutility subsidiaries that had been underperforming. The first to go was PacifiCorp's gold and silver mining operation, which was sold in 1992. The following year, the company sold NERCO, its coal-mining management subsidiary. In 1995 PacifiCorp sold its long-distance telephone provider Alascom to AT&T. Not only did these sales bring in cash that could be used in strategic acquisitions, it also helped the company focus on its electric utilities and its wholesale marketing of electricity.
As a first step in entering a competitive market, PacifiCorp established a marketing office for wholesale power in Las Vegas in 1994. The following year it reorganized its utility operations to reflect the new emphasis on competitive sales: Discrete units were created for electricity generation, wholesale transactions and transmission, and retail sales. In addition, PacifiCorp bought the remaining shares of Pacific Telecom, making it a wholly owned subsidiary.
The company's preparations for complete deregulation took an unusual turn in 1995. That year PacifiCorp bought the Australian electric utility Powercor for $1.6 billion. The recently privatized company made it the perfect test ground for how to transform a regulated electric utility into a competitive electric retailer. Like PacifiCorp's electric operations in the United States, Powercor served a large and diverse customer base with primarily coal-generated electricity. In addition to its usefulness as a learning tool, the Powercor acquisition gave PacifiCorp an entrée into the global marketplace.
Acquisitions continued at a rapid pace in the following years. In 1997 PacifiCorp bought TPC, a natural gas exploration and marketing company, for $435 million. The same year it began a joint venture with the natural gas company KN Energy that would offer power and communications services. The new company, Enable LLC, would send each customer a single bill for these services. In 1998 PacifiCorp moved to acquire The Energy Group, a diversified energy company with operations in the United Kingdom, Australia, and the United States. With an offer of $10.7 billion, PacifiCorp was the clear leader in the bidding process. Because the purchase would be primarily financed through increased debt, Standard & Poor's took a dim view of the acquisition, placing the ratings of PacifiCorp and its subsidiaries on CreditWatch with negative implications. To offset some of the purchase price, PacifiCorp agreed to sell Pacific Telecom to Century Telephone.
Principal Subsidiaries: PacifiCorp Holdings, Inc.; PacifiCorp Financial Services, Inc; Powercor Australia Limited, Pacific Power & Light Company; Utah Power & Light Company.
Burkhart, Lori A., "PacifiCorp to Acquire The Energy Group for $9.6 Billion," Public Utilities Fortnightly, August 1997, p. 12.
Frisbee, Don C., "The PacifiCorp Story," New York: Newcomen Society of the United States, 1985.
Marks, Anita E., "Dennis Steinberg: The Utility Man," Worldbusiness, July/August 1996, pp. 42-43.
"Nomura Exit Clears Way for PacifiCorp's TEG Takeover," Euroweek, February 13, 1998, p. 30.
Source: International Directory of Company Histories, Vol. 26. St. James Press, 1999.