Cap Rock Energy Corporation Business Information, Profile, and History

Company Perspectives:

Cap Rock Electric is united in its commitment to support and improve the lifestyle and business of our customers and community as the energy supplier of choice, with vision and leadership in enhancing customer ownership through value-added, high quality service based on progressive market development and a diversified energy and resource supply.

History of Cap Rock Energy Corporation

Based in Midland, Texas, Cap Rock Energy Corporation buys electric power at cost and distributes it to more than 34,000 customers in approximately 30 counties across Texas. Additionally, the firm operates an electric cooperative and manages a municipal electric utility. By the end of 2001, Cap Rock's operations had grown to include the McCulloch Division in Brady, Texas; the Hunt-Collin Division in Celeste, Texas; the Lone Wolf Division in Colorado City, Texas; and the Stanton Division in Stanton, Texas.

Rural America without Power: 1939

Cap Rock Energy's roots stretch back to 1939 when the company was founded as the Cap Rock Electric Cooperative. Like many electric cooperatives, it was founded because of the needs of rural citizens. Cities and towns across America enjoyed the benefits of electric power soon after it was invented. However, such was not the case for the nation's rural areas, where it was not economically feasible to run costly power lines to serve a handful of customers. This presented numerous difficulties for farmers and their families, who were forced to continue farming manually, light their homes with kerosene lamps, and rely on old-fashioned methods to perform domestic tasks like washing and ironing clothes. It also caused many farmers' children to break tradition and seek life in lighted cities. Aside from relying upon wind-chargers--and thus being at the mercy of the weather--rural residents had few options for obtaining electricity.

Less than ten percent of farms were equipped for electric power in 1929. As Peggy Luxton explained in Preserving Our Heritage--Facing Our Future, electric utilities and the holding companies that controlled them "continued to ignore the rural areas of the nation, except for those which were heavily populated, easy to reach, and well off economically--conditions necessary to assure early profits." Eventually, in May of 1935, the federal government paved the way for rural electrification when President Franklin Roosevelt established the Rural Electrification Act. A year later the act was passed, the Rural Electrification Administration was established, and a lending program was implemented that improved conditions for electrical co-op's.

In 1935, the Agricultural Census indicated that less than ten percent of the nation's 6.8 million farms enjoyed electric power. This was in addition to a large number of non-farm rural homes. In the following years, conditions slowly improved. Actually getting electric service established in rural areas was the challenge. Municipalities and private utility companies were considered for this task. However, for various reasons--including opposition to the Rural Electrification Administration by private industry--nonprofit cooperatives emerged as the solution. Although private power companies did much to thwart the success of rural electric cooperatives, which only made things difficult for rural customers, many survived and prospered.

Getting Organized: 1939-1949

Citizens in the west Texas counties of Howard and Martin eventually heard about the REA and the loans it offered to help rural areas establish electric service. On July 22, 1939, a small group of them met to form a committee, the purpose of which was to form an electric cooperative. H.W. Deavenport was elected committee president and Riggs Shepperd was named secretary. The committee retained H.N. Roberts, an engineer from Lubbock, Texas, who was given instructions to draw up plans for an electrification project. Additionally, the committee decided to print 500 customer contracts and easements so that everything would be in order once the REA approved their loan application. Many of the committee members were from the area of Stanton, Texas, which sits on the edge the Caprock, an escarpment that separates the state's low rolling plains from the high plains. Accordingly, the new organization was named Cap Rock Electric Cooperative.

By August 1939, an application had been sent to the REA for a project that would involve 500 members and 205 miles of electric lines. In the meantime, the REA worked with Cap Rock to get organized and sign up members. Cap Rock also named its first board of directors. Deavenport, a farmer from Martin County, was its first president. Glenn Cantrell, a farmer from Howard County, later succeeded Deavenport. Although some residents were skeptical, Cap Rock's small band of leaders went to work signing up new customers. A vacant storefront on East Second Street in Big Spring, Texas, was selected as the co-op's first headquarters.

Cap Rock received a contract from the REA on July 8, 1940. After its original loan application for $144,000 was approved, it was possible for the new co-op to establish its first electric line, which was to stretch 125 miles. Cap Rock obtained power at wholesale from Texas Electric Service Co. (TESCO) at a location north of Big Spring, Texas. Power lines slowly began to run to farms. In preparation, a crew of 12 electricians worked to install meters and wire homes for electricity. On December 10, 1940, the co-op's first 25 customers received electric power. Rates for residential, commercial, and small-power service were set by the REA.

In 1940, Cap Rock hired O.B. Bryan as its first manager. Bryan would do much for Cap Rock in the following years. As the 1940s proceeded, Cap Rock worked to expand its service area by having contractors build new lines. Cap Rock's employees maintained the lines, working from two pick-up trucks. In 1941, Cap Rock instituted group purchasing of various electric appliances for its members, which then totaled about 125. In July 1942, the co-op moved its headquarters to a location on North St. Peter Street in Stanton, Texas. When World War II challenged the nation's human and material resources, the REA convinced the War Production Board that providing electricity to farms was essential to increasing food production. However, material shortages made this a challenging task for Cap Rock, which needed wire and poles, materials difficult to obtain in wartime, in order to expand.

By 1945, expansion was a realistic prospect, and Cap Rock grew as fast as new lines could be installed. In March 1947 alone, 159 people signed up for service. This level of demand also was happening in other regions. Eventually, it led to shortages and layoffs due to lack of work. In June 1947, two-way radio was instituted at Cap Rock, significantly improving safety and efficiency. By the end of the 1940s, more than 75 percent of the nation's farms had electricity thanks to projects financed by the REA. Cap Rock also was in fine shape. A new office building and warehouse were scheduled for completion in 1949, and James D. Eiland was hired to handle public relations.

Cap Rock Expands: 1950s

During the early 1950s, Cap Rock served more than 2,000 customers. When the decade began, the co-op's directors voted to start a telephone cooperative called Wes-Tex Telephone Cooperative. By 1952, O.B. Bryan served as managing director of Wes-Tex, in addition to his responsibilities at Cap Rock. Four years later, the cooperative would be able to actually offer telephone service. In addition to the telephone initiative, Cap Rock Refrigeration Cooperative, started during the 1940s, was among the nation's most successful. As Luxton explained, "In addition to slaughtering, processing, and storing meat for local people, the Cap Rock locker plant purchased and slaughtered beef calves and hogs for sale to the people in a wide area of west Texas."

Besides offering electric service, Cap Rock Electric was doing much to benefit its members during the early 1950s. For example, when individuals purchased new electric ranges, Cap Rock supplied breaker boxes, outlets, cable, and even the labor required to install them. Bylaws were changed so that any remaining monies, after operating expenses were paid, were annually returned to members through a capital credits plan. Cap Rock also provided loans to members for things like the plumbing, wiring, and installation of irrigation systems. The co-op's employees also enjoyed new benefits; a retirement plan was introduced in 1957 along with merit increases for some workers.

Cap Rock's reach extended to ten counties in west Texas by 1952. In addition to its residential base, the co-op was serving a growing number of oil field meters and oil company camps. According to Luxton, customers included "2,684 farms, ranches, schools, churches, stores, and oil field installations on 1,588 miles of service line in an area 70 miles wide and 120 miles long." Half-way through the decade, the co-op had outgrown its headquarters. In late 1955, construction began to add about 1,600 extra square feet to the building, which now was home to Wes-Tex, at a cost of $27,717. This growth came despite efforts by competing firms that falsely labeled co-op's as socialist institutions that did not pay taxes.

Propaganda Attacks: 1960s

When the 1960s arrived, almost all (96 percent) of the nation's farms had electric power. Cap Rock continued to grow. In 1960, the co-op received approval to expand and remodel its headquarters at a cost of $191,415. The project was completed in July of 1961. Other important developments included Manager O.B. Bryan being named to the board of Texas Electric Cooperatives Inc. (TEC) in 1968. The following year, Cap Rock submitted an application to join the National Rural Utilities Cooperative Finance Corp. (CFC), a private bank that the nation's co-op's had formed.

During the 1960s, Cap Rock continued to implement measures for the benefit of its members. Among these initiatives were "zero billing," whereby people were billed for even numbers of kilowatt hours; a toll-free telephone number that was shared with Wes-Tex; and a depository where Cap Rock and Wes-Tex customers could drop off payments after hours. Cap Rock also continued to issue capital credits to its membership base, which numbered 5,634 by the end of 1964. At that time, Cap Rock delivered electricity to 13 Texas counties across 2,460 miles of power lines.

The 1960s presented several challenges for Cap Rock and other co-op's around the country. First, private electric companies continued to attack the nation's rural co-op's through lobbying efforts and propaganda, touting them as socialist threats to free enterprise. Organizations such as the Edison Electric Institute, the Electric Companies Advertising Program, and the National Association of Electric Companies carried out national advertising and lobbying campaigns backed by million-dollar budgets. In response, the National Rural Electric Cooperative Association launched its own national campaign called Tell the National the Truth, or TNT. Along with other co-op's across the country, Cap Rock contributed ten cents per member to help fund the effort. Despite these and other challenges, the demand for electricity remained strong when the 1960s concluded, painting a bright picture for the road ahead.

Challenging Times: 1970s

Although the 1960s ended on an optimistic note, the entire nation faced difficult challenges during the 1970s. The wholesale price of energy skyrocketed, coupled with double-digit inflation. The increased energy costs began in 1974 when TESCO, Cap Rock's supplier, increased its rates by 15 percent. By the decade's end, the energy crises was in full swing. In 1979, for the fourth time in its history, the co-op was forced to adjust its rates. Between 1940 and 1979, these adjustments amounted to a net increase of 45.4 percent. Due to changing circumstances within the federal government, and specifically the REA, the cost of borrowing money also increased during the 1970s. This added to the overall difficulties experienced by co-op's. Materials like wooden poles and aluminum conductors were once again in short supply, and their associated costs rose accordingly. Despite these challenges, Cap Rock's customer base grew to 11,451 by the end of the decade, and power was delivered over 3,843 miles of power lines.

In addition to the energy crisis and its related challenges, several other developments unfolded at Cap Rock during the 1970s. Cap Rock Refrigeration Cooperative folded in 1970. That same year, Wes-Tex announced that it would become a separate co-op located in a different facility. In 1971, Cap Rock joined other Texas co-op's in a data processing program that allowed things like capital credit payments and billing to be handled at a data center located in Austin, Texas. On August 1, 1973, James D. Eiland replaced O.B. Bryan as Cap Rock's manager. A 1940 graduate of Texas A&M University, Eiland worked for the Census Bureau in Washington and as a hospital administrator prior to joining Cap Rock.

One positive thing for Cap Rock during the 1970s was its stellar safety record. In 1972, the co-op received a certificate of commendation from the National Safety Council when it went 260,446 man-hours without any injuries. In 1974, Cap Rock received the General Electric Outstanding Safety Achievement Award. In 1977, for the seventh consecutive year, the Texas Job Training and Safety Program recognized Cap Rock's employees, who went 835,000 man-hours without a lost-time accident.

New Horizons: 1980s

When the 1980s arrived, Cap Rock continued to focus on its members. In 1980, the co-op issued capital credits for the 24th consecutive year. In 1983, it began allowing customers to pay their bills by credit card. The following year, an average payment plan was implemented, followed by a bank draft service in 1985. Two years later, Cap Rock formed a member advisory committee that helped to determine a 5.2 percent rate increase, implemented in 1986. By that time, members had three locations where they could pay their bills. Cap Rock began offering satellite TV service to members in 1987. Two years later it formed two corporations: Capstar Communications Inc., which was devoted to offering satellite services, as well as a corporation devoted to traditional electric offerings.

In addition to basic improvements like a new Pitman Polecat truck in 1980, Cap Rock continued on a path of general expansion. In 1983, the co-op purchased a former Dr. Pepper bottling plant adjacent to its headquarters and used the area for storage. The following year, a computer system was installed. In 1988, Cap Rock opened a new dispatching office that was equipped with an array of high-tech capabilities for monitoring service.

One change for Cap Rock during the 1980s was co-generation, whereby, as Luxton explains, power is "generated with steam as a by-product of a manufacturing process." Cap Rock entered into an agreement with Panda Energy Corp. that called for construction of a co-generation facility. This would allow Cap Rock to obtain power from a source other than TESCO, which was both supplying the co-op with wholesale power and competing for the co-op's customers.

In August of 1980, James Eiland was appointed secretary-treasurer of the Association of Texas Electric Cooperatives (TEC) and named to the association's board of directors. In June of the following year, Eiland retired as Cap Rock's manager. His successor was Rodger Burch, who had much prior experience with electric cooperatives. Burch graduated from New Mexico State University, where he was involved in a cooperative education program. His father was a long-time manager of the San Patricio Electric Cooperative. Burch was succeeded by Cap Rock Assistant Manager David W. Pruitt in July 1987. A graduate of both Texas A&M and Texas Tech University, Pruitt had previously worked for two other electric cooperatives besides Cap Rock. He was named CEO of Cap Rock in 1988.

Throughout the 1980s, electric cooperatives endured a challenging relationship with the Reagan administration. This made it difficult for electric cooperatives to obtain financing from the REA and required them to pay higher interest rates--as much as 21 percent--on short-terms loans from other lenders. This came in addition to high wholesale energy costs, which by 1982 accounted for approximately 73 cents of each revenue dollar. To make matters worse, Cap Rock was forced to contend with customers who tampered with electric meters and stole electricity, as well as those who left the state with unpaid electric bills.

Despite these challenges, Cap Rock prospered through the 1980s. In 1987, the co-op took advantage of a special opportunity and refinanced all of the money it had borrowed from the REA through the National Rural Electric Cooperative Finance Corp. The move enabled Cap Rock to receive a discount of $11.5 million on its principal of $27.4 million. This had a positive effect on the co-op's bottom line, and by the decade's end it had evolved into a multi-million dollar corporation.

Growing for the Future: 1990 and Beyond

In 1992, Cap Rock signed an agreement to purchase the majority of its power at wholesale from Amarillo, Texas-based Southwestern Public Service Co. (SPS). At that time, the co-op was still buying power at wholesale from its competitor, Texas Utilities Electric Co., which then was the nation's fifth largest utility. By 1995, the changeover had occurred and Cap Rock, which was still a non-profit organization, had formed a for-profit subsidiary called NewCorp Resources to handle the acquisition of bulk power.

During the 1980s and 1990s, mergers and acquisitions occurred as a result of growing competition. These cut the number of Texas electric cooperatives in half. Cap Rock was involved in voluntary mergers with two other Texas cooperatives in the early 1990s. In 1991, it acquired Lone Wolf Electric Cooperative, followed by Hunt-Collin Electric Cooperative in 1992. Cap Rock then relocated its headquarters to a modern office building in downtown Midland Texas and began to form joint ventures with other energy companies and diversify into resources like natural gas. In 1999, Cap Rock merged with McCullough EC. When the new millennium arrived, it had been involved in more mergers than any other U.S. electric cooperative. In February 2000, Cap Rock announced its intent to buy the Arizona and Vermont electric utility operations of Citizens Utilities. However, the deal--which would have added about 91,500 meters to Cap Rock's customer base--fell through in March 2001 when Cap Rock could not obtain financing.

By 1993, Cap Rock supplied power to 25,000 meters in a service area that was similar in size to the state of Maryland. At that time it had revenues of approximately $40 million. In early 2000, the non-profit Cap Rock Electric Co-op Inc. was on its way to becoming an investor-owned, for-profit organization called Cap Rock Energy Corp. This was the result of a decision made at the co-op's October 1998 meeting. In early 2000, Cap Rock was serving 34,000 customers in 28 Texas counties. It had evolved from the simple needs of rural Americans into a multi-million dollar corporation poised to meet future challenges.

Principal Competitors: Brazos Electric Power Cooperative Inc.; El Paso Electric Company; TXU Corporation; Reliant Energy Inc.

Chronology

• Key Dates:
• 1939: A group of farmers form Cap Rock Electric Cooperative, an electric cooperative.
• 1950: Cap Rock's directors vote to start a telephone cooperative called Wes-Tex Telephone Cooperative.
• 1989: Cap Rock forms Capstar Communications Inc.
• 1999: Non-profit Cap Rock Electric Co-op Inc. forms Cap Rock Energy Corp. and begins the transition to becoming an investor-owned, for-profit organization.
• 2000: Cap Rock serves 34,000 customers in 28 Texas counties.