Carolina Power & Light Company

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Carolina Power & Light Company

411 Fayetteville Street
Raleigh, North Carolina 27602
U.S.A.
(919) 546-6111
Fax: (919) 546-7678

Public Company
Incorporated: 1926
Employees: 8,100
Sales: $2.62 billion
Stock Exchanges: New York Pacific

Carolina Power & Light Company (CPL) has supplied electricity to parts of North Carolina and South Carolina since the early years of the 20th century. In 1990 it served approximately one million customers with a balanced array of coal-fired steam, nuclear, and hydroelectric plants. Having planned in the 1970s to increase greatly the proportion of its nuclear generators, CPL, like many other utilities, ran into severe regulatory and cost problems and abandoned many of its nuclear projects. CPL continued to use nuclear and coal-fired plants for the bulk of its electricity in the 1990s, but the company had decided to meet new demands for power with a cautious program of inexpensive, flexible combustion turbines.

Carolina Power & Light was one of the many utilities created and nurtured by General Electric (GE). The latter was formed in 1889 by a group of investors led by J.P. Morgan, with the purpose of amalgamating a number of the manufacturing facilities associated with Thomas Edison’s early work in light and power transmission. GE supplied the nation’s new power industry with much of its equipment and technical leadership, often receiving as payment shares of stock in the young, undercapitalized utilities.

Some of GE’s client companies grew into thriving businesses, but many others—most of them small utilities in rural areas—had trouble attracting the vast amounts of capital needed to build a system of electrical distribution. In order to help these smaller utilities raise capital—and in turn become good customers for GE equipment as well as increase the value of GE’s equity holdings—GE created in 1905 a wholly owned subsidiary called Electric Bond & Share Company (EBS). EBS was given GE’s stock portfolio and told to arrange financing, provide technical aid, and advise the management of these struggling utilities, including a number of companies in England and France. EBS generally owned but a small percentage of stock in each of its client firms. It was not a holding company, but the recommendations of EBS were followed by its much-smaller partners.

Among the many U.S. cities in which EBS became active was Raleigh, North Carolina, where electric lights were first provided in 1886 by the Thomson-Houston Electric Light Company. In 1892 Thomson-Houston was merged with GE, which thereby acquired a position in a number of the small power plants then beginning to harness the hydroelectric potential of the Appalachian river systems. When GE had formed EBS in 1905, it transferred its interest in these local plants to EBS, which quickly arranged for a merger of three of them in 1908. In that year, Carolina Power & Light Company was established in Raleigh by the merger of Raleigh Electric Company, Central Carolina Power Company, and Consumer Light and Power Company. Unlike many of EBS’s ventures, CPL was controlled directly by EBS and its president, S.Z. Mitchell, who for many years was a leader of the electrical industry in the United States. As EBS was wholly owned by GE, Carolina Power was controlled indirectly by the company from which it bought all of its equipment, a situation that was common in the electrical industry and that later would prompt charges of conflict of interest leading to the dissolution of the great U.S. electrical holding companies.

The chief obstacle faced by Mitchell was the fragmentation of power generation in the Raleigh area, compounded by the difficulty of raising enough capital to consolidate and expand CPL’s system. The early electric power companies generally did not foresee the enormous growth in demand for electricity; they operated generators of limited capacity and charged customers a relatively high price for power. Mitchell and other early leaders of the electrical business recognized that electricity was unlike any other commodity; it was destined to become universally and intensively utilized, it was a fungible product, and its generation and distribution required so much capital that competing firms could not survive in the same geographical area. It was thought that electric power was a natural monopoly, with a large central power station serving many square miles of customers. It was the chief goal of men like Mitchell to develop the electrical industry according to these principles: Mitchell encouraged mergers and expansion among EBS’s many affiliates, and arranged the funding for same; he stressed the advantages of large central power stations; and he urged his colleagues to sell more electricity at a lower rate rather than less at a higher rate. That all of these rationalizations of the industry would benefit GE was, of course, understood from the beginning, but they were also to a large degree dictated by the nature of electric power.

CPL accordingly set about expanding its facilities, which originally consisted of two hydroelectric plants and one steam plant generating a total of 3,900 kilowatts of power. CPL’s capacity in 1991 was slightly less than 10 million kilowatts. In 1911 the company acquired the assets of two struggling power companies in nearby Henderson and Oxford, North Carolina, and the following year opened a western branch with the purchase of Asheville Power & Light Company. To help finance the construction of main transmission lines between CPL’s growing network of stations, EBS in 1911 created a second subsidiary to handle construction projects. North State Hydro Electric Company built and maintained power lines that it then leased to CPL, obviating the need for CPL to raise the cash needed for such large undertakings.

After battling the local gas company for several years, CPL bought out its rival in 1911, becoming the sole supplier of both gas and electricity for the city of Raleigh. Its next milestone was a 1913 agreement to sell electricity wholesale to the city of Smithfield, North Carolina, which would handle its distribution to the customer. Such rapid expansion on the part of power companies raised the concerns of local legislators, who saw the threat of onerous rates by utilities given such monopolies. In 1913 North Carolina accordingly placed all power companies under the jurisdiction of its Corporation Commission, which would eventually be granted power to regulate all utility business, including rate schedules. A similar commision had already been formed in South Carolina, where another EBS subsidiary, Yadkin River Power Company, was operated by CPL management. CPL thus became a regulated monopoly, one of a great many around the country affiliated with EBS and ultimately with General Electric.

As the economies of North Carolina and South Carolina grew following World War I, an increasing number of manufacturing plants and residential customers alike switched to electricity for a growing number of applications. Most important among industrial users were the textile and tobacco manufacturers. Residential customers were encouraged to use electricity for a plethora of new gadgets and tools, often sold directly by CPUs representatives. As with many technical evolutions, electrical customers often had to be shown the possibilities of electric power, and CPL was eager to push the sale of GE appliances. It was the dawn of a new era for rural Carolinians, and electricity was soon in great demand; but, as always, there remained a shortage of capital required to meet such demands. Through its wide experience in the industry, EBS had learned that the best method for smaller utilities such as CPL to raise large amounts of capital was to form a holding company in charge of many such small firms. The holding company’s larger asset base would attract investors more readily than could the individual utilities. One such holding company was National Power and Light, formed by EBS in 1921. Carolina Power & Light was made a part of National in 1927, and for the next 20 years would satisfy its capital requirements via its new parent company.

On April 6, 1926, CPL was itself reconstituted into a new and larger corporation. Along with the former CPL, the new company included Yadkin River Power Company, Asheville Power and Light, Pigeon River Power Company, and Carolina Power Company. Together, the utilities served 130 communities throughout the central parts of North Carolina and South Carolina, providing up to 59,000 kilowatts of power to about 20,000 customers. It was not long before the Great Depression slowed CPUs growth, however, as the region’s big textile mills reduced operations and the economy generally crumbled. To replace the lost industrial revenue, new CPL president Louis V. Sutton initiated a sales program designed once again to increase the amount of electricity used in the home. CPL published an “electric cookbook” and encouraged the adoption of the latest home conveniences, cut its rates, and halted all new construction until the economy showed signs of reviving.

In the meantime, the electrical industry’s highly concentrated organization continued to attract criticism. The power trust, as its opponents labeled the GE-based network of utilities, responded by pointing out that the cost of electricity per kilowatt hour had fallen steadily since the industry’s beginning; but the persistent allegations of monopoly caused GE to distribute its EBS stock to GE’s shareholders in 1924. Of equal concern, however, was the number of electrical holding companies across the country whose often-precarious financing was underscored in 1932 by the collapse of Samuel Insull’s mid western power conglomerate. In response, Congress passed the Public Utility Holding Company Act in 1935, setting restrictions on such organizations and placing them under the jurisdiction of the Securities and Exchange Commission (SEC). As part of a general campaign, the SEC began dissolution proceedings against National Power and Light in 1940, and the holding company’s stock was finally given over in 1946 to its parent, EBS. Two years later, EBS in turn sold most of its stock in CPL to the public, at which time CPL became a wholly independent, investor-owned utility with its stock traded on the New York Stock Exchange.

The robust postwar economy of the 1950s was accompanied by a huge increase in the demand for electricity among both residential and industrial consumers. To provide the needed power, CPL began constucting a series of new plants of unprecedented size. Major plants were added at a rate of about one every two years during the 1950s, the majority of them using coal-fired steam generators in place of the earlier hydroelectric units. In 1956 CPL began experimenting with the third great source of electric power, nuclear reaction. It formed the Carolinas-Virginia Nuclear Power Association with three other regional utilities to study the details of nuclear power generation. The group built a prototype reactor at Parr Shoals, South Carolina, where electricity was first obtained from nuclear fission in 1963. Encouraged by the results, CPL applied for and received approval from the Atomic Energy Commission to build its own full-scale nuclear plant, upon which it began work at Harts ville, South Carolina, in 1966. When it came on-line several years later, the Robinson number 2 reactor was the first commercial nuclear reactor in the Carolinas, and, with energy sales tripling during the hectic 1960s, CPL planned a second unit at Southport, North Carolina. Along with its growing confidence in nuclear power, CPL increased its electrical capacity by joining a power pool formed by utilities in the Carolinas-Virginia area. This 1964 agreement, and its 1970 revision, provided for a flexible sale and purchase of power among the participating utilities as needed.

With the death of Sutton in 1970, CPL entered a new era, in several ways. Shearon Harris became the company’s chief executive, only the third to date, but more fundamental were the changes wrought by the 1973-1974 oil crisis and subsequent, prolonged “stagflation.” CPL was hit by a double blow of rocketing fuel costs and a contracting economy, at a time when its ambitious construction projects were well under way and soaking up great amounts of cash. When Consolidated Edison of New York, the nation’s largest public utility, failed to pay a dividend in the first quarter of 1974, Wall Street’s faith in utilities was shaken, and CPL found that it could not obtain financing at reasonable rates. Thus, although the company escaped immediate damage during the energy crunch by passing along to the customer its higher fuel costs, CPL was forced in 1975 to postpone plans for two steam and three nuclear generators, the first in a series of delays and cancellations that would continue to trouble CPL.

To cope with the company’s difficult conditions, CPL shook up its management. Harris remained chairman but handed the presidency to Sherwood H. Smith Jr., who remained the company’s chief executive in 1991. Under Smith, CPL abandoned uncontrolled growth for a more conservative strategy. With the financial, construction, and fuel costs of new plants rising faster than consumers would agree to higher rates, most utilities began to advocate energy conservation in the 1970s to relieve themselves of the need to raise ever more capital. In the aftermath of the Three Mile Island, Pennsylvania, nuclear accident of 1979, nuclear construction came to a virtual standstill for the next decade. CPL canceled the nuclear units it had postponed in 1975, and, during the 1980s, slowly gave up hope of completing more than one of the four nuclear units originally planned for its Shearon Harris Plant in New Hill, North Carolina. In the atmosphere of tighter inspections following Three Mile Island, CPL had not won for itself a particularly distinguished reputation. The Nuclear Regulatory Commission levied a number of fines against the company for poor performance, including a 1983 levy of $600,000 that was then the largest civil penalty ever assessed for nuclear mismanagement.

CPL planned no new coal or nuclear construction projects through the end of the century. With electrical demand slowing and the company’s problems with nuclear plants still fresh in the minds of management, CPL decided to supply its next 2,000 megawatts of capacity by means of smaller, combustion turbine generators. These provide, in the words of CPL chairman and president Smith, “reasonably short construction schedules, relatively low cost, and quick start-up when needed”—three qualities lacking in the average coal- or nuclear-fired steam plant. The company also planned to continue purchasing significant amounts of electricity from its sister utilities in the region, and had even resorted to selling four of its units to a state agency and then buying back electricity as needed.