Central and South West Corporation
Central and South West Corporation
Incorporated: 1925 as Central & South West Utilities Company
Sales: $2.74 billion
Stock Exchanges: New York Midwest
Central and South West Corporation is a holding company for four electric utilities and six other subsidiaries involved in such businesses as the gathering and transmission of natural gas and various financial services. Its utility subsidiaries are Central Power and Light Company, serving south Texas; Public Service Company of Oklahoma, operating in the eastern and southwestern portions of that state; Southwestern Electric Power Company, whose service area includes northwestern Louisiana, northeastern Texas, and western Arkansas; and West Texas Utilities Company, operating in western and central Texas. More than half of Central and South West’s electricity sales come from Texas, and electric operations contribute about 95% of the company’s profits. The company’s operating area has enjoyed growth in both the residential and industrial sectors. After a brief downturn in the mid-1980s, the petrochemical, metal fabrication, and tourism industries in the region were booming in the early 1990s. In 1991 the company’s service area spanned 152,000 square miles and had a population of four million.
In 1925 Central & South West Utilities Company was formed to hold the following subsidiaries: American Public Service Company, Public Service Company of Oklahoma, Central Power and Light Company, and Chickasha Gas and Electric Company. Central & South West’s parent was Middle West Corporation. In 1935 the Public Utility Holding Company Act was passed, subjecting Central & South West to federal supervision, in addition to regulation by the states in which the company operated its subsidiaries. In 1947 Central & South West Utilities merged with its American Public Service Company and changed its name to Central and South West Corporation. The same year, to comply with the Public Utility Holding Company Act, Middle West divested itself of Central and South West, distributing its interest to shareholders.
In the 1950s the popularity of natural gas as an energy source proved a bonus to the region’s economy. Rich in oil and natural gas, Texas, Oklahoma, and western Louisiana enjoyed cheap energy prices. In 1961 Central and South West purchased the Transok Pipe Line Company. Transok operated throughout Oklahoma, piping natural gas from suppliers to Public Service Company of Oklahoma over its 720 miles of pipeline. In 1962 Transok was transferred to Public Service Company of Oklahoma and operated as a unit of that company for 20 years, adding an additional 200 miles of pipeline over time. In September 1982, Transok, Inc. was formed as a separate subsidiary of Central and South West, although it continued to serve Public Service Company of Oklahoma. In the early 1990s Transok began serving other utilities in the Central and South West system and delivering gas to outside companies as well.
In the late 1960s, increasing awareness of air pollution brought a number of utilities much criticism. Many burned coal or oil to generate electricity. Central and South West avoided this problem because its plants were all gas-powered, and most were located away from population centers. Growing opposition to nuclear-powered generators was also moot in the company’s operating region at this time. Central and South West enjoyed uninterrupted growth into the early 1970s, when the energy crisis brought into question the single fuel dependency of the system.
Ten new generating plants, which would boost capacity by 45% were planned between 1972 and 1976. Flattened earnings in 1974, a result of high natural gas prices and the subsequent need to burn oil, resulted in plans to diversify its fuels. Plans for new generating plants focused on coal, lignite, and nuclear facilities. The cost of generating electricity from oil and natural gas had risen 40% in 1976, justifying Central and South West’s program. In 1977 the company’s first coal-powered plant went on-line.
By the late 1970s, cheap natural gas was no longer available to Central and South West’s subsidiaries. The company laid down plans in 1976 to interconnect all of its subsidiaries’ power output into one grid, and link that to the Texas power grid. This would enable Central and South West to buy power from Texas Utilities and from Houston Lighting & Power, two companies that paid half the cost of power that Central and South West did because they had already converted to inexpensive lignite-fueled generators and had long-term contracts for cheap natural gas in force. Texas Utilities and Houston Lighting & Power, however, had no desire to send their power across state lines and subject themselves to federal regulation. They cut ties with Central and South West, which resulted in a flurry of litigation.
In 1981 Central and South West, the Federal Energy Regulatory Commission, and the Texas companies reached a settlement—the power shipped across Texas borders was sent as direct current rather than as alternating current. This was interpreted to mean that the other Texas utilities were not technically connected to the alternating-current power grid and thus were not subject to federal regulation. Although Central and South West had to build stations to reconvert the direct current back to alternating current, the savings were still substantial. By 1985 the lines and plants were in operation.
CSW Credit Incorporated was launched in the mid-1980s to buy and collect the accounts receivable of Central and South West’s subsidiaries and other utilities. The subsidiary borrowed money to purchase accounts receivable at significantly less than face value, then collected the bills, receiving nearly the full amount. This business, known as factoring, promised to add millions to Central and South West’s bottom line.
Central and South West’s revenues had risen steadily in the early 1980s, peaked in 1984, and decreased for the next four years. Annual dividend increases, however, continued as they had since 1950. The regional economy faltered as a result of plummeting oil prices worldwide. The earnings decline was also a result of Central Power and Light Company’s 25% participation in the South Texas Project, a nuclear plant. Central Power and Light had operated for several years with increased costs but without a rate increase. By 1989 the subsidiary’s investment was $2.3 billion, and annual costs related to the project were about $140 million. In 1988 Unit 1 of the South Texas Project began generating electricity, at five times the cost and eight years later than originally planned. A year later, Unit 2 came on-line. This completed Central and South West’s expansion program, and the company was able to reduce capital spending. In 1990 the Public Utility Commission of Texas granted Central Power and Light a $264 million rate increase so the utility could begin to earn a return on its $2.7 billion investment in the nuclear plant. Central Power and Light agreed not to seek further rate increases until 1994.
As of the early 1990s, Central and South West had invested $4.5 billion on eight new coal plants, two lignite plants, and the two nuclear generators since the early 1970s, when gas had provided 99.9% of the systems’ power needs. In 1991 coal provided 44% and natural gas provided 41% of Central and South West’s electricity, lignite provided 9%, and nuclear contributed 6%. Refurbishing of seven old gas-powered generators was planned for the 1990s, and one small gas generator was scheduled to come on-line in 1999. With major expansion behind them the operating subsidiaries of Central and South West were poised to profit from the economic boom that appeared to be heading in the direction of the region.
Central Power and Light Company; Public Service Company of Oklahoma; Southwestern Electric Power Company; West Texas Utility Company; Transok, Inc.; Central and South West Services, Inc.; CSW Financial, Inc.; CSW Leasing, Inc.; CSW Energy, Inc.; CSW Credit, Inc.
“Uptrend at Central and South West,” Financial World, November 29, 1972; “Texas Vs. Si Phillips,” Forbes, October 16, 1978.
—Thomas M. Tucker