PacifiCorp

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PacifiCorp

700 Northeast Multnomah
Portland, Oregon 97232
U.S.A.
(503) 731-2000
Fax: (503) 233-0508

Public Company
Incorporated: 1910 as Pacific Power & Light Company
Employees: 16,426
Sales: $3.78 billion
Stock Exchanges: New York Pacific Boston Midwest Philadelphia

The most diversified electric utility in the United States and the nation’s 14th-largest, PacifiCorp owns Pacific Telecom, a telecommunications company, and NERCO, a mining company, in addition to its electric properties. After a merger with Utah Power & Light Company in 1989, PacifiCorp provided electric power to more than one million customers in parts of seven states, including Washington, Oregon, Utah, Wyoming, California, Montana, and Idaho.

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.

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% 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 7% a year. The region’s hydroelectric potential was already tapped, so the company added thermal generating plants.

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 provides long-distance and local telephone service in Alaska, proved to be a good investment, as Alaskan toll calls grew 23% to 25% annually for the next several years. In 1981 Pacific bought about 48% of the second-largest independent phone equipment manufacturer in the United States, when it bought General Dynamics’s 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% 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 PacifCorp 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% since 1981, compared with 34% for Pacific Telecom and 29% 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 telecommunication 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.

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 serves 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% and 29.6%, 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% coal-powered and 13% 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.