Union Electric Company Business Information, Profile, and History

History of Union Electric Company

Union Electric Company is the largest electric utility in the state of Missouri. Also serving parts of Illinois and Iowa, the company supplies electricity to roughly one million customers and is a distributor of natural gas, steam, and water. Union Electric's territory is strong in the metal, chemical, and petroleum-refining industries. A major member of regional power pools and electric reliability councils, the company participates in planning, operating, and maintaining reserve supplies of energy for the states of Missouri, Illinois, and Wisconsin. Through its 100% ownership of Union Colliery Company, the company owns coal reserves and industrial properties in Illinois. Coal is Union Electric's major fuel, but at a number of sites, many constructed during the late 1960s and early 1970s, it has various hydroelectric, steam, and diesel plants. In late 1984 the Callaway nuclear plant came on line, contributing one-fourth of the company's energy supply.

Union Electric was incorporated in Missouri in 1922 as Union Electric Light and Power Company, a successor to a company of the same name incorporated in May 1902 as a result of the merger of Imperial Electric Light, Heat and Power Company; Citizens Electric Lighting and Power Company; and Missouri Edison Electric Company. An early task for Union Electric Light and Power was providing power for the St. Louis World's Fair of 1904. Through its Ashley Street Plant, the company controlled 12 megawatts of power, enough to light the fair and make clear that electricity was readily available.

As more individuals and businesses began to rely on electricity, Union Electric Light and Power sought out additional generating sources. In 1913 the company began buying power from the Keokuk dam, 150 miles north of St. Louis. Union Electric later bought the dam, providing power carried over a longer distance than had ever been achieved before.

During World War I the company expanded to serve rural areas. With the addition of a plant in Cahokia, Illinois, Union Electric Light and Power progressed through the 1920s, acquiring smaller light and power companies in Missouri and Illinois.

In the early 1930s, the Great Depression notwithstanding, Union Electric Light and Power completed construction of Bagnell dam in Missouri's Ozark mountains and organized Lakeside Light & Power Company in 1931 for residents in the surrounding area. In 1937 the company changed its name to Union Electric Company of Missouri. Its Illinois operations became a subsidiary, Union Electric Company of Illinois, with subsidiaries in Iowa renamed Iowa Union Electric Company. In 1940 the company proceeded with further corporate simplification, merging several Missouri subsidiaries into the parent. By 1945 surrounding Illinois and Iowa properties were merged into one subsidiary, Union Electric Power Company. In March 1945 Union Electric made the significant acquisition of Laclede Power & Light Company, a former competitor controlling 15% of the electric business in St. Louis.

With some delay in construction due to World War II, the company completed a new plant in Venice, Illinois, in 1950, bringing the total company capacity to 1,000 megawatts. Acquisitions continued. The company acquired Missouri Power & Light Company in 1950, following up with the 1954 addition of Missouri Edison Company to its roster. In February 1955 the company absorbed its holding company, North American Company, and in August 1955 purchased all properties and on-going businesses in Illinois and Iowa of the subsidiary Union Electric Power Company. Following this consolidation, Union Electric Company of Missouri became simply Union Electric Company in 1956. The company made one more electric company acquisition in southeastern Iowa in 1958.

Reacting to such growth, Union Electric recognized the need to organize the generation and storage of power at its various plants. In a program begun in the early 1950s the company built intercompany transmission lines, establishing power pools that any unit connected to the system could access. Soon outside companies joined the power pool; the total number of utilities reached 17.

Union Electric constructed the Merramec plant, with a capacity of 900 megawatts, in 1961, while launching construction for a plant at Taum Sauk, 90 miles southwest of St. Louis. The Taum Sauk plant was the world's first and largest pumped storage facility, more powerful than any yet built. The system was designed to pump up to five million tons of unused water from a lower to an upper reservoir. The water would then flow downhill during peak periods, funneled into two water wheels that would in turn drive turbines and other equipment to produce electricity. Major advantages of the plant were its automation--it requiring only 15 maintenance employees and its cost, $50 million, in contrast to $67 million for a comparable steam facility. Completed in 1963, the plant drew visiting engineers from the United States and Europe.

Approximately 75% of Union's business was providing electricity to St. Louis. The company benefited from the modernization of the metropolitian area; in the 1960s the city was adding a new expressway, civic center, sports stadium, riverfront memorial park, and a number of office and apartment complexes as well as industrial plants. In the early 1960s the company negotiated a contract with the city to redesign the street lighting. Using all mercury vapor fixtures, Union Electric in 1964 installed in St. Louis the brightest business district lighting of any city in the United States.

Another boon to the electric utility business in general came with the reduction of natural gas rates in 1964. The U.S. Supreme Court ordered the Federal Power Commission to extend the benefits of lower wholesale costs to the customers in the form of rate reductions, but due to the difference in federal and state regulations, not all rate cuts were mandatory. For those utilities whose earnings were below the allowed rate of return--and Union Electric was one of these--savings did not have to be passed along to the customers.

In 1965 Union Electric extended its reach in generation, transmission, and interconnection by joining six other utilities in Mid-Continent Area Power Planners to pool resources. Member area reached from St. Louis north to St. Paul, Minnesota. The company enlarged its scope further when it joined with a group of 12 utility companies to form the largest power pool in the United States, the Mid-America Interpool Network. Connecting ten states, from Michigan and Missouri east to Virginia, the group would increase its number of high voltage power lines to nearly 4,000 within six years. The interconnection would further reduce costs through the coordinated planning of power plants.

Union Electric continued building its own plants as well as joining power pools. The first section of its Sioux Plant in St. Charles County, near St. Louis, went into operation in 1967 and the second in 1968. The two units' combined capacity was 1,000 megawatts. The company added three smaller plants in Missouri in 1967. The Venice, Kirksville, and Viaduct combustion-turbine plants had a combined net capability of 62,000 kilowatts. The four-unit Labadie plant was launched in 1970, with one unit added each year. Labadie was by far the company's largest generating plant, with a total capacity of 2.22 million kilowatts. In July 1973 Union Electric announced its intention to build Missouri's first nuclear plant in Callaway County, approximately 100 miles west of St. Louis.

The 1970s brought environmental issues to the focus of U.S. civic and business organizations in a number of ways. In February 1977 the company announced its withdrawal from plans to generate electricity from solid waste, a scheme that had been in the works since 1972. The Environmental Protection Agency (EPA) had contributed $800,000 and Union Electric $600,000, to build a prototype waste-processing plant. By 1974 Union Electric was ready to set the station in motion, collecting trash from four sites in St. Louis and processing up to 2.5 million tons of garbage at the Labadie plant. One of the four sites was not approved by community residents, forcing Union Electric to buy another site, which also was not approved. The issue then went to court, at which time Union Electric decided to cancel the entire project.

The decision to discontinue the trash recycling plan coincided with Union Electric's plan to delay construction on its nuclear plant. Charles Dougherty, president, attributed the delay of its nuclear plant to a reaction to a 1976 referendum prohibiting Union Electric from including anticipated construction costs in its current utility rates.

Another event contributing to a delay in Union Electric's nuclear plant plans was the March 1979 accident at the Three Mile Island nuclear plant near Harrisburg, Pennsylvania. Due to failure of valves in the water cooling system, water levels in the reactor temporarily fell, unshielding nuclear radiation. The accident spurred public opposition to the construction and operation of nuclear plants. Union Electric waited for further information to apply to its own design and personnel training for the Callaway plant.

In August 1979 the Missouri Public Service Commission advised suspension of the company's nuclear plant construction permit. As a condition of a rate increase granted in 1978, the commission had been investigating Union Electric's generation-facility expansion program and found the company's load forecasts beyond peak demand levels. Union Electric held that its generation amounts had been leveling off, but the company also anticipated demand for electric power to increase, since other sources such as oil and natural gas were less available.

By November 1979 Union Electric made final arrangements for fuel financing sources including commercial paper and letters of credit, for its Callaway plant. The following December the company reached a settlement with Westinghouse Electric, which Union Electric had sued, charging failure to fulfill a 1975 uranium-supply contract. Union Electric stood to gain from the settlement $200 million in cash, uranium, and various other goods and services over a 20-year period.

In April 1980 Union Electric named president Charles Dougherty chairman, a position unoccupied since 1973. W.E. Cornelius, former director of corporate planning and more recently executive vice-president, was elected president at age 48. Company stockholders agreed to increase the number of common shares available to 100 million, up 25%.

In November the company increased the estimated costs of the first unit of the Callaway plant to $1.58 billion, $260 million more than previous estimates, while the second unit was priced at $1.72 billion, an increase of $54 million. The company cited inflation, financing, costs of meeting regulatory requirements, and two spring 1980 labor strikes as causes.

A respite for the company came with the July 1981 approval of a $50 million rate increase. September, however, brought announcement of further delays and higher estimates for the Callaway plant. Union Electric stated that complex testing and installation procedures postponed start-up of the first Callaway unit, and would raise costs, although by how much was unknown. The company also was considering canceling the second unit at a possible loss of $7 million, which it would seek to regain via rate increases.

By October Union Electric canceled the second unit, increased projected costs of the first unit to $2.1 billion, and consulted with state regulators regarding a time plan to write off the investment expenses. The company considered other means of power generation to replace, if necessary, the more than one million kilowatts lost in the second unit cancellation.

Investment-rating services lowered ratings on Union Electric bonds and preferred stock as a result of the utility's August 1982 announcment of a further delay in the Callaway nuclear plant. Originally scheduled for completion in April 1983, the plant operation was set for late 1984 or early 1985. The estimated cost increased to $2.85 billion. Union Electric cited continuing design changes required by the Nuclear Regulatory Commission and additional skilled labor costs as the major factors for the increase. Union Electric received a rate increase of 9% from Missouri regulators to help defray expenses, but the amount was not enough to keep industry investors from considering the company financially weakened. Union Electric requested a 16.8% rate increase for its 70,000 Illinois customers, a proposal that the Illinois attorney general opposed. The company offered 6.5 million common shares of stock in December 1982, and sold a total of $220 million in various bond issues to help offset the short-term debt caused by the nuclear plant construction delay.

In October 1984 the Callaway nuclear plant finally went on-line, producing enough power for one million customers. In November the company was granted a full-power operating license from the Nuclear Regulatory Commission. Full commercial operation commenced at the Callaway plant on December 19, 1984. The plant produced more electricity in its first year of operation than any other U.S. nuclear power plant.

In the spring of 1985 the Missouri commission significantly cut the amount that Union Electric attempted to charge its customers in rate increases to pay for Callaway-related expenses. The commission called the rate increase request a result of inefficiency and unreasonable or unexplained costs. The commission okayed a six-year phased-in rate increase designed to gain Union Electric a total of $455 million. Union Electric denied the commission's charges, commenting that the Callaway plant cost one-fifth less than nuclear plants under construction during the same time period. The company planned to appeal the Missouri decision and pursue further rate increases in Iowa and Illinois to recover costs.

By the end of April it was clear that the Missouri commission opposed Union Electric's appeal to include all Callaway-related construction costs in rate increases. Outstanding costs amounted to $384 million; after taxes, the amount was $250 million, which the company would post as a one-time loss. Utilities, formerly able to list construction costs expected to be regained in rate increases as profit, were under review by the financial accounting standards boards. Union Electric stated, however, that its 1985 net income would be reduced by only $50 million. Also during 1985, Illinois and Iowa granted phased-in rate increases, similar to the Missouri plan.

The year 1986 provided good news; sales of electricity to commercial and residential customers increased, while Union Electric's fuel costs decreased as a result of reduced generation. During 1987 and 1988, Moody's Investors Service and Standard & Poor's Corporation upgraded Union Electric's credit ratings, as the company regained its solid financial footing. The unusually hot summer of 1988 prompted extra use of electricity for air conditioning, boosting Union Electric sales to double the normal level.

Following a 15-month review of the Callaway nuclear plant, in mid-1988 the Nuclear Regulatory Commission concluded that Union Electric management was aggressive in responding to safety concerns, and granted the company a license to increase power generation at the plant. By the end of 1988, Callaway generated one-fourth of total electricity for Union Electric.

While much attention had been centered on the company's Callaway nuclear plant, coal continued to be Union Electric's chief source of fuel. Burning coal transforms water to steam, the steam powers generators, which in turn produce more than 70% of the utility's electric energy needs. The advantage of using coal is that the supply is plentiful and relatively inexpensive; a disadvantage is that the use of coal causes noxious emissions. Union Electric, however, reduced emissions by 33% from the mid-1970s to 1989. The company's Keokuk and Osage hydroelectric plants, while dependent on weather conditions, continued to provide power dependably and at low cost.

At the close of the 1980s Union Electric concentrated on increasing productivity and reducing its work force; by 1989 staff decreased by 16% in fossil-fuel and hydroelectric operations. To stay competitive in customer services the company introduced a new electronic telephone system, Braille billing, and home-weatherizing programs. Other projects stressing energy efficiency included an all-electric apartment complex designed jointly with residential developers.

In 1990 the U.S. Congress approved amendments to the Clean Air Act. The amendments require a two-thirds reduction, by 2000, of sulfur dioxide emissions as well as a decrease in nitrogen oxide output. The amendments do allow utility companies flexible means of compliance. In 1990 the company was also named a potentially responsible party for five hazardous waste sites. Costs for cleaning up the sites, however, were not expected to reduce earnings significantly.

Union Electric faces the 1990s a streamlined company. The work force in the early 1990s was decreasing at the rate of 100 people per year. The Callaway nuclear plant's performance had been consistently superior. Production costs were half that of the company's coal-based plants, and refueling took half the time comparable nuclear plants need. An agreement with the Missouri Public Service Commission to reduce rates and not seek an increase until 1993 freed both parties from rate-related disputes. The ensuing rate reductions, while reducing company revenue by $30 million a year, will likely spur commercial and industrial development. While implementation of the requirements of the Clean Air Act may cost up to $300 million through the 1990s, fuel prices likely will decrease by a similar amount. Union Electric, with no apparent need for new construction necessary, seemed financially fit for the future.

Principal Subsidiaries: Union Colliery Company.