Illinois Power Company Business Information, Profile, and History

History of Illinois Power Company

The Illinois Power Company is the second largest provider of gas and electricity in Illinois. It supplies electricity to more than 1.25 million subscribers in 309 municipalities and gas to more than 900,000 subscribers in 257 Illinois communities. Illinois Power has three belts of operation across the state: northern, central, and southern.

Illinois Power Company's history can be traced to dozens of small, independent utility and transportation companies formed in the late-19th and early-20th centuries, and two Illinois utility holding companies created between 1900 and 1920 to consolidate the smaller concerns. The two Illinois holding companies, Illinois Traction Company and Southern Illinois Light & Power Company, were themselves consolidated by a larger holding company in the 1920s, giving birth to Illinois Power Company's first formal predecessor.

Illinois Traction Company was formed in 1904 by utility investor William B. McKinley to bring together several heat, light, and power companies operating principally in the central Illinois communities of Danville, Champaign, Urbana, and Decatur. During the next 15 years, Illinois Traction expanded central Illinois operations and branched out into northern and southern portions of the state by acquiring utility systems in Bloomington, Normal, Jacksonville, Galesburg, LaSalle, Cairo, and Madison County.

Several electric-powered rail lines, including those operating out of Peoria, Springfield, and East St. Louis also became part of the Illinois Traction during its first few years, and by 1911 major steps had been taken to interconnect these lines.

In 1913 Southern Illinois Light & Power Company (SIL&P) was formed to consolidate the utility companies serving a few small communities east of St. Louis. By 1919 SIL&P had added more than a dozen communities to its service area when it was acquired by North American Light & Power Company, which had been formed four years earlier. In 1923 North American Light & Power acquired Illinois Traction and then consolidated it with SIL&P, to form Illinois Power & Light Corporation (IP&L). IP&L corporate offices were established in Chicago and William B. McKinley was named chairman of the board. Clement Studebaker Jr. was named president and H.L. Hanley was elected vice-president and general attorney.

At the time of IP&L's incorporation, North American Light & Power was part of two larger holding company structures, the Insull group and the North American group, which each owned a 50 percent stake in North American Light & Power Company and represented the third and fourth largest utility holding structures in the United States at the time.

Immediately following incorporation in 1923 IP&L acquired control of a number of public utility and transportation corporations operating in Illinois, Iowa, Missouri, Kansas, and Nebraska, including the Des Moines Electric Light Company and the Kansas Power and Light Company, both North American group affiliates. Three years later Missouri operations were sold. The bulk of utility operations centered around electricity service, while IP&L's territory was concentrated in Illinois where over 270 communities were initially served. Gas service, and to lesser degrees water and ice service, was also provided.

Excluding southern Illinois, IP&L's electric utility service was initially offered only in cities where the company operated transportation facilities, with generating plants adapted to primarily supply electricity for street and interurban railways. In the case of the Illinois towns of Danville, Champaign, Urbana, Decatur, and Bloomington, steam heating service was also powered by local generating stations.

Despite its widespread utility service areas, IP&L's early business emphasis was on urban and interurban transportation and freight facilities operating in the form of bus and street railway services. In 1925 IP&L acquired control of St. Louis Troy and Eastern Railroad Company and the St. Louis and Illinois Belt Railway. During the next seven years IP&L also took control of Illinois Terminal Company, Alton & Eastern Railroad Company, and Central Terminal Company of St. Louis.

Through small acquisitions and extension of power lines into rural and unincorporated areas, IP&L's utility service area grew modestly during the 1920s. During its first two years IP&L's response to the need for increased generating capacity was to construct or enlarge power plants in Des Moines, Iowa, Topeka, Kansas and the southern Illinois towns of Venice and Cairo. During the same period Illinois communities were tied together through six main sets of transmission lines.

Early in its history IP&L began buying power from Mississippi River Power Company to service west-central Illinois communities. Central and northern Illinois were also served by two other hydroelectric plants, including a company-owned facility at Marseilles on the Illinois River and another plant on the Fox River near Ottawa.

In 1927 IP&L sold its Venice Power Plant to neighboring Union Electric Light and Power Company and then negotiated a contract to purchase power from Union Electric in order to continue servicing southern Illinois territory. That same year IP&L also began buying power for southern Illinois from Central Illinois Public Service, one of the Insull group's holdings.

In 1928 several utilities held by the Insull group, including IP&L, formed the joint-venture Super-Power Company of Illinois. IP&L purchased a 25 percent share in the venture which constructed a power plant near Pekin, giving the company a share of generating capacity and access to interconnected Chicago-area power sources.

The Great Depression, which struck in October 1929, did not immediately effect IP&L. But by 1931 kilowatt hour sales were dropping and two years later dividend payments were suspended. In 1931 IP&L sold back its Kansas and Nebraska utilities operations to North American Light & Power.

Studebaker died in 1932 and Hanley was named president, in the first of several major officer changes during the decade. Allen Van Wyck joined the board in 1933 and became a vice-president. In 1934 Hanley assumed the additional duties of chairman and the following year gave up his president's title to J.D. Mortimer.

Company utility revenues began to rise again in 1935 as northern and central Illinois economies began recovering. IP&L emerged from the depression facing two major changes. Passage of the 1935 Public Utility Holding Company Act required significant modifications in company organization and financing; and increased ownership of automobiles had made the company's transportation business unprofitable.

IP&L's response to those changes came quickly. Between 1935 and 1936 the company sold its interest in the Super-Power Company to Commonwealth Edison, another utility under Insull group control, and then negotiated a power-purchase agreement with Commonwealth Edison. In 1936 a sizable block of IP&L's transportation business was abandoned or sold and the following year the company was recapitalized and reorganized as Illinois Iowa Power Company, with corporate headquarters established in St. Louis, and general offices in Marseilles, Illinois.

Hanley retired as chairman in 1940, and Van Wyck replaced Mortimer as president. By the time the United States entered World War II in 1941, Illinois Iowa Power was purchasing 85 percent of its power. War-related industrial activity placed new generating capacity demands on Illinois Iowa Power and its electricity suppliers, sparking a 1942 proposal for construction of a new company-owned plant.

The United States War Production Board, which oversaw utilities during the war, refused to approve construction of the new plant and Illinois Iowa Power Company turned to alternative power sources. Midway through the war the company began buying power from a glass company and the city of Springfield, as well as installing equipment to boost generating capacity.

In 1942 the Securities and Exchange Commission ordered Illinois Iowa Power to dispose of its investment in Iowa subsidiaries, as well as its remaining railroad and bus properties, ice service, and water supply business. That same year the company filed several claims in SEC dissolution proceedings pending against North American Light & Power, including charges that the parent unlawfully sold assets to and from its subsidiary.

In September 1943 the company sold its Iowa operations to non-affiliated interests and two months later adopted the name Illinois Power Company (IP), with headquarters established in Decatur, Illinois. In 1945 IP disposed of its remaining railroad assets and began construction of a new power plant, which the government approved following the war.

The construction of IP's new Havana Station power plant on the east bank of the Illinois River brought the company into a new era as it began moving away from being primarily a distributor of purchased power to a supplier of its own distribution needs. To that end, the Havanna Station was designed to serve the greater portion of IP's central and northern service areas, where only one of the company's older transportation-adapted plants was expected to have much longevity.

After the war the company's gas business began taking on greater importance as other business aspects were abandoned in compliance with SEC orders. New contracts were negotiated with pipeline companies and a program initiated to promote residential use of gas automatic water heaters.

Between 1946 and 1947 IP sold its remaining bus, water, and ice properties to comply with SEC orders. With its business concentrated solely on sales of natural gas and electricity, IP became a completely independent company in 1947 when North American Light & Power divested itself of its remaining interest in IP and was dissolved.

With independence came expansion and new energy sources. In 1947 IP acquired a small electric distribution system serving the southern Illinois town of Pakota. That same year the first two units of the Havana Station began operating and construction began on the Wood River Station, a power plant designed to replace power formerly purchased for southern Illinois service territory. In 1948 the Kewanee Public Service Company in central Illinois was purchased.

During the late-1940s IP began upgrading its gas and electric transmission systems and extending service in greater numbers to rural areas. By 1950 it was apparent that IP's two new power plants would not be enough to keep up with growing post-war demands and plans were made for the construction of two new plants.

IP also began looking to power pools and in 1950 it joined four neighboring utilities in Illinois and Kentucky to form Electric Energy, Inc., for the purpose of constructing a power plant in Paducah, Kentucky, near the Illinois border. Two years later IP and two other Illinois utilities formed a system called ILL-MO, entering an agreement to interconnect electrical systems and share excess generating capacity.

In 1953 IP's third post-war power plant, the Hennepin Station, began operating in north-central Illinois. Two years later the Vermillion Power Plant began operating in east-central Illinois. Service area expansion continued during the first six years of the 1950s and IP acquired electric distribution systems in Wyanet, Staunton, Mt. Olive, White City, Oquawka, Salem, and several other unincorporated Illinois areas.

During the late 1950s IP continued to upgrade its transmission system while adding generating units at its Vermillion and Hennepin plants. With the luxury of increased generating capacity, IP began to abandon its older generating plants in 1957, and during the next three years facilities in Champaign, Urbana, Decatur, and Danville ceased operations.

With those abandonments went all of IP's steam heating business except in Bloomington, where steam service abandonment was reconsidered after the city approved a rate increase. Three years later IP acquired the municipally owned electric distribution system in Bloomington.

By 1960 post-war population growth had pushed operating revenues past $100 million, with 30 percent of those sales coming from an increasing gas business. During the early 1960s industrial growth in IP's service area led the company to add a generating unit at Wood River Station and to purchase southern Illinois property along the Kaskaskia River near Baldwin for a future power plant.

In 1964 IP joined with 11 other utilities from 10 states in the Midwest and East to form the power pool Mid-American Interpool Network (MAIN) to establish plans for a nationally interconnected electric distribution system and to provide economical backup generating capacity.

Van Wyck was named chairman in 1966, filling a position that had been vacant since he assumed the presidency 26 years earlier. At the time of Van Wyck's new appointment, Wendell J. Kelley, a vice-president, was promoted to president. After Kelley took over, in 1966 IP acquired small electric distribution systems in Fithia and Sawyerville, and in 1968 purchased a similar system in Ogden.

In 1969 IP, Union Electric Company, and Central Illinois Public Service Company entered a seasonal-diversity power exchange agreement with the Tennessee Valley Authority (TVA). The agreement called for the construction of electric transmission facilities which would allow the three Illinois utilities to tap into the TVA's power during the summer and allow TVA access to the Illinois utilities' excess power in the winter.

After being selected as a federal government test site in 1970, the Wood River Station became the first commercial power plant to test a method of removing and turning stack emissions into marketable sulfuric acid. That same year the first unit of the new Baldwin Power Plant began operating, with two other generating units following during the next five years.

In 1971 Van Wyck retired as chairman. That same year IP bowed out of the steam heating business, abandoning its remaining steam service operation in Bloomington. In 1972 the ILL-MO power pool arrangement was terminated, and was replaced with similar two-party agreements. With the onset of the 1973 oil crisis, IP formed the subsidiary IP Gas Supply Company, to invest in leases which could stimulate natural gas production.

By 1973 IP had complied with 1970 Clean Air Act requirements at its power stations, converting some Wood River and all Havana generating units to burn oil while other company generators were equipped with electrostatic precipitators to remove stack emissions. IP's only major territorial expansion of the decade came in 1974, when it purchased the electric distribution system serving the southern Illinois city of Jacksonville.

In 1976 Kelley was elected to the additional post of chairman, which had been vacant the previous five years. Wood River Station began burning only low-sulfur coal in 1976 and two years later a sixth unit at Havana Station went on line burning only low-sulfur coal. The Havana unit was equipped to handle daily peak loads and to shut down on nights and weekends if not needed.

After seven years in planning and permit stages, IP began construction of its first nuclear power plant in Clinton, Illinois, in 1977. IP agreed to sell two rural electric cooperatives, Soyland Power Cooperative and Western Illinois Power Cooperative, a combined 20 percent interest in the two-unit power plant.

In 1981 IP formed three subsidiaries. Illinois Power Fuel Company, a 50 percent-owned affiliate, was formed to finance part of the nuclear fuel costs for the Clinton Station. Illinois Power Finance Company N.V., a wholly-owned subsidiary incorporated in the Netherlands Antilles, was formed to borrow funds outside the United States to finance construction activities. IP Inc., another wholly-owned subsidiary, was created to issue common stock for a merger transaction in which IP acquired the Mt. Carmel Public Utility Company.

IP expected to begin the 1980s with Clinton Station's first generating unit operational. But by 1981 the company was pushing back the Clinton construction schedule for the fifth time, citing increased regulations and rising constructions costs as factors in the delay.

In 1982 the Nuclear Regulatory Commission issued ten separate stop-work orders at the Clinton site resulting from concerns that inspection and documentation of completed work was not keeping pace with construction. That same year IP agreed to pay a $90 million NRC fine, stemming from charges that NRC quality control inspectors had been intimidated at the construction site and the company failed to appropriately document and implement electrical quality assurance programs.

A few months after the fine was levied, IP announced it would cut 121 jobs, defer pay raises, and trim nearly all of its construction budget except for matters related to the Clinton project. In 1983, after construction of unit two at the Clinton Station had been idled for six years, the second unit was canceled. Cost estimates for Clinton Station continued to mount during the mid-1980s and in 1984 the Rural Electrification Administration capped the two rural cooperatives investment in Clinton Station at $450 million, ultimately increasing IP's share in the project to about 82 percent.

In 1985, with Clinton Station about 99 percent complete, the Illinois Commerce Commission limited to $2.69 billion the amount IP could charge customers for the Clinton plant, with company stockholders expected to absorb any additional construction costs.

In 1987 the Clinton Station was granted a full-power operating license by the NRC. Economic development activities to lure potential industries into the IP electric service area were expanded to include international prospects. With gas sales and prices having been on the decline since the early-1980s, IP extended gas service in 1987 to the southern Illinois community of Carlyle and then constructed a gas delivery station there that allowed the company to buy gas from one of the least expensive suppliers in the area.

In late 1989 Larry D. Haab was elected president, while Kelley remained chairman. That same year IP experienced what its annual report referred to as 'financially the worst year in the company's history,' and posted a net loss of $288 million. The loss followed an ICC ruling that only 27 percent of the Clinton Station's power was needed and that the company had imprudently spent $666 million on the project, which could not be passed onto customers. The company responded by suspending dividend payments and writing off $340 million in construction costs.

In the wake of the ICC ruling, IP also initiated a dividend recovery plan, which included challenging the commission's ruling in court, filing a new rate request, reducing operating expenses, and expanding economic development activities. As a result, in 1989 the company began cutting its workforce by 500 through a program of early retirements, layoffs, and attrition, and closed or consolidated 13 service centers. That same year IP opened its Center for Site Selection, a computerized facility to help potential businesses find a location within the IP service area.

In 1990 the ICC ruled that 61 percent of Clinton Station was 'used or useful' and granted IP a rate increase based on that percentage of construction costs minus what costs were determined to be imprudent. That same year, IP agreed to pay a $112 million fine to the government after the NRC charged the utility with federal safety violations involving the Clinton Station's cooling and emergency generator systems.

During 1990 IP also began testing a process at Hennepin Station that removes coal-related pollutants without the use of scrubbers, and started test burning a blend of shredded tires and coal at its Baldwin Station. The company also established a natural gas division to develop new and expand existing gas markets and in 1991 a natural gas vehicle demonstration program was started, using 35 fleet vehicles with fuel systems converted to use compressed natural gas.

After posting a $78 million net loss in 1990, IP started 1991 on an up beat, ending two years of first quarter losses. IPF Company N.V. was dissolved and that same year Kelley retired, with Haab assuming the additional duties of chairman and chief executive officer.

IP's goals for the future include incorporating the Clinton Station's construction costs fully into customer rates--a decision expected to be resolved by the Illinois Supreme Court. Through emphasis on economic development activities for electric service and exploration of new markets for natural gas, the company also hopes, by the mid-1990s, to restore profitability to mid-1980s levels when annual net income was hovering at its historical peak of just below $300 million. IP expects dividend payments for common stockholders to resume sooner.

With new Clean Air Act standards taking effect in 1995 and 2001, the company plans to explore financial alternatives in reaching compliance with this legislation. Because IP prefers to burn high-sulfur coal, the construction of scrubbers may be required at some of its power plants. The company also hopes to be a host site for a Department of Energy project which would either help the company switch from high-sulfur coal to low-sulfur coal or install low-nitrogen-oxide burners.

Principal Subsidiaries: Illinois Power Fuel Company (50 percent); Illinois IP Inc.; IP Gas Supply Company, Project Development Corp.