Philadelphia Suburban Corporation

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Philadelphia Suburban Corporation

762 West Lancaster Avenue
Bryn Mawr, Pennsylvania 19010-3489
U.S.A.
Telephone: (610) 525-1400
Fax: (610) 645-1061
Web site: http://www.suburbanwater.com

Public Company
Incorporated: 1886 as Springfield Water Company
Employees: 945
Sales: $257.3 million (1999)
Stock Exchanges: New York
Ticker Symbol: PSC
NAIC: 221310 Water Supply and Irrigation

Philadelphia Suburban Corporation (PSC) is one of the largest investor-owned water utilities in the United States. With a region spanning five states and serving nearly two million people, PSC is a leader not only in supplying water, but also in water treatment. PSC’s largest shareholder is the French company Vivendi/U.S. Filter, the largest water company in the world. From its earliest days as the Springfield Water Company in the 1880s, PSC has strongly believed in growth through acquisition. Yet the genesis for the company was a group of engineering professors at Swarthmore College in suburban Philadelphia—professors who wanted primarily to create a supply of running water for their homes.

Early Days: Bringing Water to the Suburbs

Philadelphia in the 1870s was one of the most important cities in the United States. Formerly a seat of government and culture, it was now also emerging as a key industrial city. Well into the 20th century, Philadelphia was known as the “Workshop of the World.” The land outside the city, however, was still primarily rural. Gradually, that began to change as more people flocked to the city. Wealthier people wanted to live in large houses surrounded by open space, and they looked to the farmland of Delaware and Montgomery counties.

As the population expanded, people realized that they needed safe and steady supplies of water. Wells and cisterns were unreliable under the best circumstances, and with more people to serve they became even more so. Both the growing suburban communities and the still plentiful farms wanted a source of water that they could rely on—easy to access and free of disease. The city of Philadelphia had its own well-known municipal system for water supply, the famed Fairmount Water Works. Fairmount’s plant filtered the water of the Schuylkill River and stored it in a reservoir located at the present site of the Philadelphia Museum of Art. The city purchased land along the river that later formed the basis for Fairmount Park, the largest municipal park in the world.

The outlying towns and villages saw the benefits of having a similar system, but the city of Philadelphia was prohibited from extending its water mains beyond the city boundaries. Several towns made attempts to transport water to their communities, but this was not cost-effective. In the mid-1880s, a group of engineering professors teaching at Swarthmore College, located in the township of Springfield, devised a way to get running water from a nearby spring to their homes.

After selecting a spring, they had a small pumping station built. Pipes were laid from the pumping station directly to the professors’ homes. Not surprisingly, as their neighbors found out what these enterprising engineers had done, they also wanted running water. The demand became strong enough that the professors had to expand their original idea. They received a charter to supply water to the public and they incorporated on January 4, 1886 as the Springfield Water Company.

Late 1800s–1930s: Rapid Expansion

It was not long before the small spring could not keep up with the growing demand for water. Springfield began looking for new sources, but it lacked adequate funding and experience. Help came from the American Pipe Manufacturing Company. This Philadelphia-based firm, which specialized in water works, realized that Springfield’s logic was sound, and the two companies entered into a contract. American Pipe would provide pipe to connect Springfield’s customers to new water supplies. Also, an American Pipe executive was named to Springfield’s board, whose meetings were moved from the Swarthmore campus to American Pipe’s offices in Philadelphia. With the help of American Pipe’s clout and expertise, Springfield was able to launch into a period of steady expansion. There were two primary benefits to expansion. First, it gave the company more territory and thus a larger customer base. Second, it gave Springfield access to more sources of water, without which there would be no company at all.

In June 1892 Springfield purchased six new companies recently established by American Pipe. A week later, Springfield purchased its first independent and actively functioning water company, the Ridley Park Cold Spring company, for $37,500. Over the next two decades, Springfield added some two dozen small companies, extending its reach beyond Delaware County into Montgomery and Chester Counties. This involved the laying of new pipe and the construction of new pumping facilities. For a period of about 30 years, Springfield was actually allowed to provide water to a neighborhood within Philadelphia’s city limits. After the Oak Lane Company was chartered to provide water to the Philadelphia suburb of Cheltenham, the nearby Oak Lane neighborhood in Philadelphia decided that its residents wanted running water as well. In 1894 the city of Philadelphia passed an ordinance giving Springfield the right to provide water within the city, with the city retaining the right to take over the piping at any time (after paying a price determined by arbitration). The city exercised this option in 1926.

All of this benefited Springfield and also American Pipe (which eventually acquired a controlling interest in Springfield). Springfield’s expansion took on new significance in 1905 when the Pennsylvania General Assembly took away the right of “eminent domain” from public water companies. Eminent domain allows public agencies to take private land (for adequate compensation) when such acquisition is deemed in the public interest. Because Springfield had already developed a large network of water sources, it was able to continue its growth and expansion despite the new law. Laws passed in 1907 took still more rights away from water companies, making growth through purchase and acquisition less practical. Instead, Springfield turned to long-term leases as a means of consolidating water supplies.

Springfield continued to grow, building new pumps and plants and delivering water to more customers. World War I mobilized the country when the United States entered in 1917, and after the war life returned to normal relatively quickly. In the 1920s, Clarence Henry Geist became interested in Springfield. Geist had made a fortune buying up water companies—so much so that he was nicknamed the “Water Boy.” He acquired American Pipe’s controlling interest in Springfield on January 1, 1925 and was named president. Two other men joined Springfield at Geist’s invitation: Harold Schutt, a savvy businessman whom many called a financial genius; and Carleton Davis, an engineer who specialized in constructing dams and reservoirs.

Geist saw room for significant expansion in Springfield, which in April 1925 formally changed its name to Philadelphia Suburban Water Company. When he assumed control the company serviced just over 45,000 customers, with 752 miles of water main carrying more than 12 ½ million gallons per day. His first move was to create a play with the financiers at Drexel & Company that allowed for the issuance of Philadelphia Suburban bonds to raise money. The money raised by the sale of these bonds went toward major improvements that allowed more water to be pumped and filtered more efficiently. Aided by Schutt’s business acumen and Davis’ engineering skill, Geist moved quickly. A year after he had taken control of the company, there were more than $6 million worth of permanent additions.

Widely regarded as a colorful character, Geist was not known for his finesse. Despite his business success, he was never accepted into Philadelphia society—a society that viewed non-natives as outsiders and wealthy non-natives as parvenus. His three daughters married into prominent families from Philadelphia’s Main Line, which allowed him to gain a sort of vicarious acceptance.

The stock market crash of 1929 and the subsequent Great Depression slowed down growth at Philadelphia Suburban, but there was still activity—and Geist cut no jobs. New reservoirs were dug, new filters were installed, new water pipes were laid. By the mid-1930s the economy was starting to do better, and people were looking forward to stronger growth.

Geist did not live to see this renewed growth, however. He died suddenly on June 12, 1938. Schutt replaced him as president. He knew he had large shoes to fill, but his experience and knowledge helped him to effect a smooth transition. Schutt was a strong leader, like Geist; he was equally shrewd, and equally irascible. But he led the company successfully for more than two decades.

Company Perspectives:

Philadelphia Suburban Corporation’s strategy for success is growth, primarily through acquisition. PSC believes that only through growth can water companies meet the needs of their customers. These needs include clean and safe drinking water, a steady supply even during drought, and good overall service. By acquiring other companies and consolidating the industry, PSC hopes to create, in its words, “one unit more powerful than the sum of its parts.

The War and Postwar Years

World War II had an impact on businesses throughout the United States, and utilities were clearly no exception. One of the biggest challenges was finding people to replace the men who went into the Armed Forces. Philadelphia Suburban, like many companies, turned to women during the war years to fill jobs. Usually they worked as meter readers. Although there was much less growth at Philadelphia Suburban during the war years, business was still strong; in 1943, the number of customers and the gallon-per-day output were nearly double what they had been when Geist took over the company 18 years earlier. Just before the war some 180 employees of Philadelphia Suburban became members of the International Brotherhood of Firemen, Oilers, Powerhouse Operators and Maintenance Men. The union entered into a formal agreement with the company in 1947.

The postwar years were years of growth, particularly in the suburbs. Although suburban Philadelphia’s housing boom was somewhat slow getting started, by the late 1940s the customer base was increasing. To keep pace with the growing demand, more pipes were laid. To ensure that the water would continue to be safe and clean, new pumping facilities and filtration plants were built. By 1950, the company was serving 476,584 customers. Water was carried through some 1,417 miles of pipe. Around this time the company also began a small advertising campaign to educate the public about the procedures involved in providing clean, safe water to suburban homes.

Throughout the 1950s the growth continued. Despite—or perhaps, because of—the size and scope of Philadelphia Suburban by then, major changes in the weather created relatively little impact in service. A severe rainstorm in 1950 knocked down many trees and did some damage, but it also added 700 million gallons to the company’s reservoirs. A drought in 1952 caused some trouble but almost none of the company’s customers experienced a change in service. Even Hurricane Diane, which caused severe flooding in the region and disabled a major pumping station, did relatively little long-term damage overall.

In 1959, Schutt sold the outstanding shares of Philadelphia Suburban (then held by trustees and heirs of the Clarence Geist estate) to an investment group headed by Clint and John Murchison of Texas. This marked a major change in the company’s structure. Although there had been immense growth over the past several decades, there had always been a family atmosphere. With the new investment group as owners, the company was made more professional and more modern in its outlook. Some employees were uneasy at first, but under the leadership of the new president, Thomas Moses, the transition was a smooth one. Employees liked the fact that they were being informed much better about the company’s progress and goals. Moses was well-liked, but he came with responsibilities to the Murchisons that left him less time than he wanted to devote to the company. He stepped down in 1962 and was replaced by James Ballengee, whose background was not in water but in law. By this time, Philadelphia Suburban had more than 187,000 customers and distributed 56 million gallons per day.

New Structures, Same Focus

The next few years were plagued by a drought situation that affected water supplies in much of the Northeast. Philadelphia Suburban continued to deliver and continued to grow during those years. In 1968, the company’s Board of Directors voted to create the Philadelphia Suburban Corporation as a holding company for the water company and other utilities. Three years later, PSC became a public company; it first traded on the New York Stock Exchange on July 22, 1971.

A year later, PSC’suffered its greatest weather crisis to date: Tropical Storm Agnes. The rains came so fast and so heavily that June day that there was little anyone could do but wait. Water submerged much of one of PSC’s largest processing stations and the local electric utility cut off all electricity for safety reasons. An all-out effort by PSC’s employees kept damage to a minimum and service was restored in a relatively short time. Even with the outages, it was estimated that less than three percent of PSC’s customers were affected.

Throughout the 1970s growth at PSC continued. During those years the Federal government was enacting new regulations, many through the Environmental Protection Agency. Although PSC was sometimes painted with the same broad brush as other utilities when activists argued in favor of more regulation, its reputation for superior service, long-range planning, and commitment to its customers served it well. Also, the company worked hard to educate its customers about water and water conservation efforts, using everything from inserts in water bills to plant tours for schoolchildren to provide information.

Key Dates:

1886:: Springfield Water Company chartered to provide water to Swarthmore residents.
1892:: American Pipe Manufacturing Company establishes six water companies, which are acquired by Springfield in its first expansion.
1892–1910:: Rapid expansion through Delaware, Montgomery, and Chester Counties.
1925:: Clarence Geist purchases Springfield and becomes president; company changes name to Philadelphia Suburban Water Company.
1930:: Expansion continues despite Depression.
1938:: Geist dies and is replaced by Harold Schutt.
1968:: Philadelphia Suburban Corporation (PSC) created as umbrella company for Philadelphia Suburban Water and other utilities.
1971:: PSC makes its debut on New York Stock Exchange.
1981:: Non-water utilities spin off into separate company.
1992:: PSC launches renewed growth-through-acquisition strategy.
1999:: PSC merges with Consumers Water Company.

In 1981, PSC’s non-water utilities were spun off into a separate company, and PSC concentrated on water. This allowed each new company to be more focused and concentrate on industry-specific issues. Growth continued through the 1980s and into the 1990s. Between 1991 and 1999, the company increased its customer base by 35 percent to 319,000 customers. Drought conditions and severe storms like Hurricane Floyd took their toll, but again, PSC was able to deal with the weather in a way that had minimal impact on its customers. In 1999, PSC made its most significant acquisition in recent history when it paid $273.3 million for Consumers Water Company (CSC), the sixth largest in the country. (PSC also assumed $190 million in debt.) With customers in five states (Pennsylvania, Maine, Ohio, Illinois, and New Jersey), CSC added more than a quarter million customers to PSC. More than 100 years after its founding, PSC was still able to focus on a simple, basic concern. In the company’s 1999 annual report, chairman, president, and CEO Nicholas DeBenedictis wrote that PSC “is continually exploring water-related opportunities that will grow or complement our core business of providing efficient and high quality water service.”