Ppl Corporation Business Information, Profile, and History

Company Perspectives:

PPL Corporation's integrated business strategy&mdash well as its commitment to its customers and the communities it serves--is making the company one of the most successful generation-owning marketers of electricity in the evolving U.S. market, a premier energy delivery company in the Mid-Atlantic region, and a leading international energy company.

History of Ppl Corporation

PPL Corporation operates as an international energy company providing electricity and natural gas to more than 1.4 million consumers in Pennsylvania. With power plants in Pennsylvania, Maine, and Montana, the firm also provides wholesale and retail energy to 42 states as well as Canada. PPL Corp.'s international customer base includes 4.4 million consumers in Chile, Bolivia, Brazil, El Salvador, and the United Kingdom. The company's major operating units include PPL Utilities, PPL EnergyPlus, PPL Generation, and PPL Global.

Industry and Company Origins in the Early 20th Century

Pennsylvania Power & Light Company (PP & L) grew out of the consolidation of eight small Pennsylvania electric utilities in the first two decades of the 20th century. The utilities included several small electric lighting companies formed in the 1880s in eastern Pennsylvania and the Edison Electric Illuminating Company of Sunbury, used by Thomas Edison to perfect central-station incandescent lighting in small cities and towns in Pennsylvania. Small electric companies proliferated at this time, and by 1900, 64 companies served 88 communities in the area PP & L later would serve.

As consolidation began to sweep through the electric utilities industry in the 1920s, it became commonplace for electric utility firms to merge into small regional companies. Pennsylvania Power & Light Company was formed as a result in June 1920 as a holding company for eight such utilities. The new company operated 62 steam electric and hydroelectric generating plants. PP & L, backed by another holding company called the Lehigh Power Securities Corporation, sold stocks and bonds to the public, but kept control of voting common stock of the utilities.

Like many other U.S. utilities, PP & L went through an important growth period in the 1920s, buying out other utilities, which in turn already had bought smaller utilities. It continued to expand its territory in this way, acquiring five utilities in 1923, 34 in 1928, and 21 in 1930, including the Edison Electric Company of Lancaster, Pennsylvania, one of the earliest U.S. electric companies. The early PP & L primarily supplied power for industry in Pennsylvania's coal mining and steel producing region, concentrated in the Lehigh River valley. By 1930, 70 percent of its power was used by industrial customers, and 45 percent of that went to coal mining operations. PP & L also supplied small industry and agriculture in the Susquehanna River valley north of Harrisburg, capital of Pennsylvania. Allentown and Bethlehem were the largest cities in its territory, with populations of 90,000 and 60,000, respectively, in 1930. At this time PP & L's system consisted of a large territory with widely dispersed power plants, each with a relatively small network of transmission lines, and interconnections between the various systems.

While much of the United States began to feel the effects of the Great Depression, PP & L and most other electric utilities remained somewhat shielded from financial ruin because of their status as protected, regulated monopolies. Increasing residential sales made up most sales that were lost to declining industry. PP & L added hundreds of miles of high-voltage transmission lines to its system in the 1920s and 1930s, also building a 220,000-volt interconnection with two urban utilities, Philadelphia Electric Company and Public Service Electric & Gas Company of New Jersey. PP & L's industrial customers caused the company's load to peak in the morning, while the urban utilities' loads peaked in the late afternoon, when workers returned home. This led to an ideal power-sharing arrangement, although it required complex contracts to spell out which company would supply how much power under what circumstances. The firm also entered the natural gas industry during this time period.

Mid-1930s--Early 1970s: Expansion and Growth

PP & L continued to look for ways to expand and began to shift its emphasis from regions that had mined out their coal to regions with fresh coal seams. To encourage industrial use of power, the company charged industrial customers far lower rates than it charged residential and farm customers. Some political pressure was put on PP & L to change this practice, but it resisted, pointing out that it already encouraged rural electrification in other ways. PP & L had begun hooking up farmers rapidly in 1936, the year the U.S. government established the Rural Electrification Administration to make loans to farmers to create their own electric cooperatives. By 1939, 57 percent of farms in PP & L territory had electricity, compared with a U.S. average of 28 percent.

In 1947, PP & L acquired two electric utilities and the Allentown, Pennsylvania, operations of another. The firm also restructured its ownership, leaving it with more than 70,000 stockholders. By the following year, the company had 487,000 customers, and revenue of $62 million. In 1949 and 1951, PP & L sold all of its gas operations. It also sold its steam heating operations in Wilkes-Barre, Pennsylvania, in 1951, leaving it with steam operations in Harrisburg and Scranton, Pennsylvania. In 1953, it acquired Scranton Electric Company and in 1955, it laid claim to the Pennsylvania Water & Power Company. At this time, it had nearly 7,000 employees and operated in about 10,000 square miles of east central Pennsylvania. The firm supplied a population of 2.1 million people in a large number of communities including Allentown, Wilkes-Barre, Harrisburg, Lancaster, Bethlehem, Williamsport, Hazelton, Pottsville, Shenandoah, Shamokin, Mt. Carmel, Sunbury, and Scranton. PP & L owned one hydroelectric and eight steam power-generating stations and had 29,000 miles of transmission lines. Its principal fuel supply was purchased under 50-year contracts with coal companies based in Philadelphia and Reading, Pennsylvania.

The company's growth efforts continued. PP & L spent roughly $142 million on new construction between 1954 and 1959, including the building of two new power-generating stations. It also spent about $4 million between 1958 and 1962 as its share of a joint project with Philadelphia Electric Company to develop a prototype nuclear power station. In 1961, the company built a new conventionally fueled power station at Brunner Island, Pennsylvania, with a capacity of 302,000 kilowatts. Between 1961 and 1965 the company reduced rates seven times. By 1964, 29 percent of the company's electric revenue came from industrial customers. The firm also had began pooling power with other companies in Pennsylvania, New Jersey, and Maryland. This interconnection grew into one of the world's largest power pools, including many other electric utilities in a 48,700-square-mile area with a population of 18.4 million. In addition, PP & L planned $315 million in construction between 1965 and 1969, including two new power plants. It was at this time that female engineers first began to work on company crews.

By 1972, PP & L owned seven steam, two hydroelectric, 11 combustion turbine, and five diesel-engine generating stations with a total capacity of about four million kilowatts. It announced plans to build a 2.2-million kilowatt nuclear generating station on the Susquehanna River between Wilkes-Barre and Bloomsburg, Pennsylvania, in the late 1970s. PP & L began operating its own coal mines when commercial coal companies proved unable to meet the terms of PP & L's contracts. PP & L's ownership of mines protected the company from runaway fuel costs as well as interruptions in fuel supplies.

The power-sharing arrangement with Pennsylvania, New Jersey, and Maryland companies also was proving financially beneficial since PP & L was putting more electricity into the pool than it took out. In 1973, it sold 6.5 billion kilowatt-hours to other companies in the pool and earned $67 million on revenue of $385 million. Escalating fuel prices and an economic recession following the oil embargos in 1973 and 1974, however, sharply cut the growth of power utilities. PP & L used coal for 96 percent of its fossil fuel needs. Much of that coal came from PP & L's own mines at below-market costs, helping to insulate the company from oil price increases. Even so, PP & L's sales growth dropped to three percent in 1974 from seven percent in 1973. In response, the firm developed energy conservation programs for its residential consumers as well as an advisory panel to deal with the energy crisis. In 1977, PP & L appointed an outsider as president when it named Robert K. Campbell, formerly with Western Electric, to the position. By the end of the decade, PP & L was considered one of the best-managed utilities in the United States, with a profit margin of 17 percent, compared with a U.S. industry average of 12 percent. Net income for 1978 was $149 million.

1980s: Battling a National Recession

In 1980, Standard Oil Company of Ohio signed an agreement with a PP & L subsidiary under which Standard mined coal on certain PP & L properties. One year later, the firm secured more than one million customers and the Pennsylvania Public Utility Commission (PUC) approved a $101 million annual rate increase for PP & L that went into effect in 1982. The company's Susquehanna nuclear power plant, delayed for years, was finally completed at a cost of more than $4 billion in 1982.

A dip in sales in the mid-1980s was caused by a weakening national economy. In response, PP & L began the first of a series of incentive rates designed to increase usage and attract new industry. The central effort focused on pricing schemes that would sell more power during off-peak hours, increasing company revenue without requiring the construction of new power plants. The company also began consulting with industrial customers to enhance their uses for electricity. Encouraged by the initial response, PP & L expanded the program in 1987. PP & L also began testing new lighting systems designed to use light more efficiently. The firm developed a lightweight steel transmission pole to replace its wooden poles, which were becoming expensive and scarce. In 1985, the Pennsylvania PUC approved only $121 million of a $330 million rate increase requested by the utility, boosting electricity prices about eight percent. PP & L spent about $850 million on construction between 1987 and 1989.

PP & L efforts seemed to pay off with record sales and earnings in 1989, despite rate decreases and a softening economy in the northeastern United States. The company implemented a strategy that stressed aggressive marketing, cost management, and increased sensitivity to customers. By 1990, PP & L's total generating capacity was 7.9 million kilowatts.

Growth and Restructuring in the 1990s

The firm started the 1990s under new management. Robert Campbell died and John T. Kauffman was named company president. PP & L decided to phase out its affiliated mining companies beginning in 1991, instead buying its coal through contract and on the open market. Mining its own coal had become more expensive than buying it on the open market and many of the company's mines were depleted. PP & L began working on plans to reduce its sulfur dioxide emissions by about 50 percent by 2000 because of pollution provisions in the 1990 Clean Air Act amendments. The firm also began a $22 million renovation of two of the four coal-fired generating units at its Sunbury power plant. In addition, the company discovered that fuel oil was leaking into groundwater at its Brunner Island generating station and that filters from that plant contained enough cadmium to be considered hazardous waste. Cleaning up these problems proved costly over the next several years.

At the same time, the electric utilities industry experienced another wave of consolidation prompted by deregulation. PP & L restructured to reflect industry changes and began to operate as a competitive power supplier. The firm began aggressive marketing to homeowners and new homebuilders, urging them to use electric heat. As a result, 18 fuel dealers brought suit against the firm in 1991 claiming that PP & L's use of $25 million in cash grants and advertising subsidies to lower rates and lure new customers violated antitrust laws. The suit was finally settled in 1997.

The company's business dealings continued to grow and diversify, and in 1994 management decided to form a holding company called PP & L Resources Inc. to oversee the electric utility firm's operations. Power Markets Development Co., an unregulated subsidiary, also was formed to handle domestic and international power ventures. In 1995, subsidiary Spectrum Energy Services Corporation was created to manage new business opportunities. The Energy Marketing Center also was established to buy and sell wholesale electricity.

PP & L Resources continued to experience a growth spurt in the mid-1990s. Its subsidiary, Power Markets Development Co., began a joint venture with an Austria-based company to manage hydroelectric plants in several Latin American countries. It also bought a 25 percent stake in British firm South Western Electricity plc. In 1997, the subsidiary acquired a 25.2 percent interest in Empresas Emel S.A., fostering its international presence in Chile and Bolivia.

The year 1997 proved to be a banner year for the company. Pennsylvania's electric and energy market became fully deregulated and the Pennsylvania Public Utility Commission granted PP & L Resources a license to sell its services in the state--PP & L was the first utility in the state to be granted such a license. As a result, the firm formed the Retail Energy Supply unit to provide consumers with its services in the new markets. The parent company also restructured its units. Utility operations were now called PP & L Inc., Spectrum Energy Services Corp. changed its name to PP & L Spectrum, and Power Markets Development Co. took the name PP & L Global. That year PP & L Resources also acquired H.T. Lyons, Inc., a mechanical and contracting and engineering firm. By this time, the company's Energy Marketing Center was servicing 18 states.

In 1998, PP & L Global and Empresas Emel bought a 75 percent stake in Distributidora de Electricidad del Sur S.A. de C.V., an electrical distribution company in El Salvador. The firm also increased its interest in South Western Electricity plc to 49 percent. On the domestic home front, PP & L Resources continued to purchase local companies based in Pennsylvania, including Penn Fuel Gas, which expanded its business interests into the natural gas storage and delivery markets. It also acquired 13 Montana power plants for $1.6 billion--the largest deal in company history. Subsidiary PP & L EnergyPlus Co. was created later that year.

In 1999, the firm continued to grow at a rapid pace. The purchase of local companies continued and the firm also acquired the majority of assets from Bangor Hydro-Electric Company based in Maine. A Massachusetts-based mechanical and engineering company was also purchased. PP & L Global also continued to increase its interest in Empresas Emel. The company's aggressive growth strategy paid off and PP & L Resources secured the highest annual earnings in the firm's history. Sales in 1999 reached $4.59 billion.

A New Name in the New Era of the 21st Century

Sales and earnings continued to climb as the company entered the new millennium. The Y2K issues that threatened utility firms throughout the world were nonexistent for PP & L Resources. The firm ushered in the new era by changing its corporate structure once again. PP & L Resources became PPL Corporation, a holding company with four business units including PPL Utilities, PPL EnergyPlus, PPL Global, and PPL Generation.

PPL Global continued to embark on international endeavors and purchased an 84.7 percent stake in Companhia Energitica do Maranhco (CEMAR), Brazil-based electric distributions firm. PPL also set plans in motion to develop power plants in Washington and Arizona as part of its strategic move to double its operating capacity in the Western region of the United States. Paul T. Champagne, president of PPL Global, stated in a December 2000 press release, 'PPL is expanding in regions where there is an urgent need for new energy supply and where we feel that we can work well with the local community. We are concentrating our efforts in the East, where we already are one of the largest suppliers, and in the West, where we established a base of operations in Montana last year.'

PPL Corp. ended fiscal 2000 with $5.68 billion in sales, a 23.8 percent increase over the past year. The firm operated seven coal-fired plants, one nuclear plant, two oil-fired plants, ten natural gas plants, 19 hydro plants, and 23 combustion turbine power plants. Company plans included increased expansion with a concentration on wholesale sales of electricity. Its past performance and strategic initiatives led management to believe that the firm's good fortune would last well into the new millennium.

Principal Subsidiaries: PPL EnergyPlus LLC; PPL Electric Utilities Corp.; PPL Gas Utilities Corp.; PPL Generation LLC; PPL Global LLC; PPL Service Corp.

Principal Competitors: Allegheny Energy Inc.; Exelon Corp.; GPU Inc.

Chronology

• Key Dates:

• 1920: Pennsylvania Power & Light Co. is formed in Allentown, Pennsylvania.
• 1936: Government establishes the Rural Electrification Administration.
• 1947: The company takes on a new ownership structure.
• 1955: The company acquires Pennsylvania Water & Power Company.
• 1961: The company constructs a new, conventionally fueled power station at Brunner Island, Pennsylvania.
• 1968: Female engineers join company crews for the first time.
• 1977: Outsider Robert K. Campbell is appointed company president.
• 1981: Customer base exceeds one million.
• 1983: Construction on the Susquehanna nuclear power plant is complete.
• 1989: The company posts record sales and earnings.
• 1990: Campbell dies and John T. Kauffman is named president.
• 1994: PP & L Resources Inc. is formed as a holding company.
• 1997: Subsidiary Power Markets Development Co. purchases a 25.2 percent stake in Empresas Emel S.A., a Chile-based electrical holding company.
• 1998: The company acquires 13 Montana power plants--the largest acquisition in company history.
• 2000: The company restructures under the name PPL Corporation.