Dominion Resources, Inc. Business Information, Profile, and History
History of Dominion Resources, Inc.
Dominion Resources, Inc. (DRI) is a holding company whose largest subsidiary, Virginia Electric and Power Company (Vepco), accounted in the early 1990s for $3.46 billion of DRI's $3.53 billion operating revenues. Vepco, a regulated public utility, supplies electric power to more than 1.7 million customers in Virginia and the northeast portion of North Carolina, where it is known as North Carolina Power. Other subsidiaries are involved in real estate and investment. Vepco is a leader among U.S. electric utilities in the use of nuclear power and is able to sell power to other utilities.
Vepco was founded in 1909, but its corporate roots date to the Appomattox Trustees, established in 1781 by the Virginia General Assembly to foster navigation on the Appomattox River for hauling rum and tobacco. The trustees, who included George Washington and James Madison, founded the Upper Appomattox Company, a canal company, in 1795.
In 1888 Upper Appomattox, which possessed water rights in the area, took over some hydroelectric plants, adding a steam generating plant in 1889. In 1901 control of the water rights passed to the Virginia Passenger and Power Company, a transit and electric utility owned by George Fisher & Associates, which went into receivership in 1904. Virginia Passenger and Power was bought in 1909 by the newly formed Virginia Railway and Power Company, (VR & P) owned chiefly by Frank Jay Gould, son of financial speculator Jay Gould.
A Gould cousin, William Northrop, the new company's first president, died in 1912. Northrop's successor, Thomas S. Wheelwright, impatient with delays in reaching company objectives, once put his men to work chopping down trees on a main thoroughfare to make way for trolley tracks, precipitating a rush of protesters on city hall.
VR & P bought three more transit and power companies in Richmond, whose street railways had been the nation's first successful electrified trolley system--Richmond Passenger & Power, Richmond Traction Company, and Richmond & Petersburg Electric Railway Company. As was typical of the day, the new company's earnings came overwhelmingly from transit, $1.4 million compared to $614,000 for business and consumer electricity in 1910.
There followed a series of acquisitions by VR & P--Norfolk & Portsmouth Traction Company in 1911; Richmond Railway & Viaduct Company in 1916; and Norfolk & Ocean View Railway Company in 1917. In 1911 the company also acquired gas properties in Norfolk, Virginia and entered the natural gas distribution business. The Norfolk acquisitions provided access to a fast-growing market during World War I, since Norfolk was a major U.S. Navy port. Indeed, a naval officer was assigned to direct the use of electricity during the war, and trolley cars were halted when the military needed extra power. Disappointed passengers nicknamed the company "The Virginia Railway and Powerless Company." The electric-transit business was in decline.
In 1925 VR & P was purchased by a syndicate headed by Stone & Webster, Inc., a New York engineering and consulting company. A holding company, Engineers Public Service, was formed to own and manage the company, whose name was changed to Virginia Electric and Power Company, the better to reflect the changing electrical industry. Luke C. Bradley, former president of a Texas utility company, became president, succeeding Wheelwright. In the same year, Vepco acquired Petersburg Power Company and expanded electrical service north into the Fredericksburg-Ashland areas of Virginia and south into eastern North Carolina.
Vepco's new Petersburg, Virginia office building, fronting on a new bridge over the Appomattox River, was dedicated in October 1925. Its second floor opened onto the bridge and served as a waiting room for passengers on Vepco's interurban trolley between Richmond and Petersburg, 20 miles south. Vepco's goal was to put public transportation within four blocks of every Richmond resident. It spent more than $3.8 million on extensions and improvements in 1924 and 1925.
Because the auto had begun to challenge the streetcar, Vepco provided more comfortable trolley cars, including 15 with mahogany interiors and deep-cushioned leather seats. These were unveiled with fanfare and the offer of free rides for several days. Other cars were refurbished with seats of woven rattan over cushions. On the outside over the windows was painted the slogan, "Why not ride with us and save the difference?"
In 1926 Vepco received a 30-year public-transit franchise from the city of Richmond, over the mayor's veto; he objected to provisions governing tax revenues. The agreement was generally well received, however, and an era of good feeling ensued, demonstrated in part by the stationing of police officers to help streetcars manage busy intersections during rush hours. William E. Wood, Vepco's vice president, succeeded Bradley in 1927 when Bradley left to head another utility company.
Vepco made two acquisitions in the next few years--the Norfolk Railway & Light Company in 1927 and the City Gas Company of Norfolk in 1930. The former added territory in the southern part of Virginia. In 1930 Vepco also made its last major track expansion, the Broad Street extension to the Richmond city limits. The company acquired new leadership in 1929, when Jack G. Holtzclaw became president a few months after Wood left for New York to become executive vice president of the holding company, Engineers Public Service. Vepco had 100,000 customers and annual revenues of $11 million.
Vepco's transit business suffered in the 1920s as the automobile grew in popularity. Annual revenues dropped from $290,000 in 1923 to $85,000 in 1931, and the company cut back service. The 40-mile round trip between Richmond and Petersburg was reduced from 70 to 58 minutes by making an earlier turnaround in Richmond, and baggage service was dropped. A more significant change was the substitution of motor buses for electric streetcars on this route in September 1936. The streetcars were on their way out; the last was to run in September 1949. During World War II, as in World War I, several Vepco-area cities in Virginia were central to the war effort, Norfolk as Atlantic Fleet headquarters, Newport News as site of a major shipyard, and Yorktown as site of the Naval Mine Depot.
Meanwhile, Vepco ownership was challenged by the Securities and Exchange Commission (SEC) in its widespread dissolution of utility holding companies. Sued by the SEC in 1940, the Vepco owner, Engineers Public Service, had to divest itself of everything but Vepco. It sold the Richmond and Norfolk transit systems, which became the Virginia Transit Company. The Portsmouth and Petersburg lines were sold a few months later.
Vepco merged in the same year with the Virginia Public Service Company, a series of systems in northern and western Virginia and in the Hampton Roads area near Norfolk. The merger more than doubled the Vepco service area, making Vepco one of the largest U.S. electric utilities. Rather than keep Vepco and divest its gas operations, as was required, Engineers Public Service dissolved itself. Vepco became independent in 1947, with 450,000 gas and electric customers. Vepco was ready to face the postwar rise in demand. In 1949 it acquired the East Coast Electric Company, operating in Virginia's Tidewater section; in 1952 it added the territory of the Hydro-Electric Corporation of Virginia, and in 1957 it acquired Roanoke Utilities Company, Inc.
In 1955 the Roanoke Rapids (North Carolina) dam, a remotely controlled hydroelectric operation on the Roanoke River, was completed after a long, hard court fight with the U.S. Department of the Interior. Vepco had received a license in 1929 from the Federal Power Commission to build the dam, but had not carried out construction during the Depression. When the company reapplied for a license after World War II, the Interior Department claimed responsibility for hydroelectric power development, and opposed the license grant. Ultimately, after hearings before the Federal Power Commission and the courts, the commission granted Vepco the license. The decision was upheld by the U.S. Supreme Court in 1953, and the project was begun. It was dedicated in April 1956, in honor of Jack Holtzclaw, who had died of a heart attack in 1955. In Holtzclaw's 26 years as president, Vepco had grown from a local power company to one serving two-thirds of the counties in Virginia and parts of North Carolina and West Virginia.
During these years, Vepco's general counsel was T. Justin Moore, whom Erwin H. Will described in his Newcomen Society lecture in 1965 as "probably the most outstanding utility lawyer in the United States." Its chief guide in financial matters was Donald C. Barnes, president of Engineers Public Service in the 1930s and 1940s and chairman of Vepco's board from 1947 to 1960.
Erwin Will succeeded Holtzclaw as president in 1956. He led Vepco into the nuclear power field as one of four utilities that formed a nonprofit corporation, Carolinas-Virginia Nuclear Power Association, to research and develop a prototype, experimental reactor. This was built in the early 1960s at Parr Shoals, South Carolina. Vepco thus became on of the nation's front-runners in nuclear energy.
Alfred H. (Pete) McDowell Jr. succeeded Will in 1958, Will remaining as board chairman. In 1959 McDowell and Will observed that Vepco, unlike some utilities, did not depend on large customers in any one industry and had thus been insulated somewhat from economic hard times. Another factor was the population growth of its service area at about twice the rate of the United States as a whole, while the number of electric customers grew 47%, to 704,000 from 1950 through 1957.
In the realm of technical innovation, Vepco installed, in the 1960s, probably the first underground residential distribution system, using buried cables, of lighter weight than the lead cables used in major cities but permitting higher voltage than previously carried by such cables. The approach became standard for newly developed residential communities, where overhead cables became obsolete.
Another innovation of the 1960s was the world's first extra-high-voltage system, at Mount Storm, West Virginia, where Vepco built its Mine Mouth coal-fired steam station, which opened in 1965, virtually on top of West Virginia's estimated 100 million tons of unmined coal. Vepco also built the first 500,000-volt transmission system in the country and started one of the largest hydroelectric facilities in the world, in Bath County, in the mountainous western part of Virginia. The company developed it during the very difficult years of the 1970s, opening it in the mid-1980s. The Bath County system pumped water at night to a high elevation, and then used the energy of the falling water during the day to run turbines.
In 1965 Vepco's annual revenues were $215 million, compared to $11 million in 1929. Its property and plant had more than doubled in 10 years. Will stated "while some still don't seem to believe it," rates had dropped for each of the previous four years.
The 1970s brought great changes, caused by the oil embargo and the subsequent shortages and rising costs. Vepco had begun converting coal stations to oil-fired ones in the 1960s, because oil was priced low. It reversed the process in the 1970s, and by the 1980s most of its stations were coal-fired. The ill-timed switch to oil did not set well with some. The resulting image problems became one reason that Vepco, or Virginia Power as it is also known, is called North Carolina Power when it serves North Carolina.
The 1970s changed the industry because rising fuel bills, inflation, and high interest rates did away with the economies of scale that had in part justified the monopoly system for public utilities. Demand had been predictable, growing at 7% a year before the embargo, and technology had once lowered the price of electricity. Neither was the case in the 1970s. The industry faced new challenges.
Vepco's president in the late 1970s, Stanley Ragone, died in May 1980. In his short time as president, Ragone had promoted nuclear power and had worked to bring Vepco into nuclear prominence. It had been thought at one time that Vepco would have an all-nuclear system; a difficult regulatory climate put an end to such speculation. Ragone's successor, William W. Berry, was an electrical engineer with 24 years of experience with Vepco.
Reversals had been such during the difficult 1970s that Vepco was financially hard-pressed, nearly bankrupt in 1980, according to Forbes magazine, May 2, 1988. Berry pulled back from the nuclear commitment, canceling two units under construction. He made considerable managerial changes, and started a push to recovery with the help of his first assistant, Jack Ferguson. He persuaded state regulators to allow competitive bidding on cogenerated power, produced by one source for both industrial use and sale. Then he sold cogenerated power to utilities in states whose regulators did not allow competitive bidding. It was a strategy that less venturesome utilities shrank from, because of the risks involved, among them the problem of identifying reliable cogenerators and the possibility of adverse regulatory changes. Berry also promised that rate increases in the 1980s would be less than the rate of inflation, a promise he kept.
Early in his time as CEO, Berry was recognized as unique among electric utility executives for his advocacy of deregulation and competition. He proposed dividing electric utilities into three components: generation, transmission, and retail distribution. Only the latter should be considered a natural monopoly, he said. Into the process he wanted to insert regional energy brokers, owners of transmission equipment, who would act like stock exchange specialists making markets. Vepco was buying cheap coal-fired power from adjacent utilities near midwestern coal fields at the time, in mid-1982, and was taking advantage of a freer market in bulk power.
In 1983 Berry took a greater step towards competition, leading to the formation of a holding company, Dominion Resources, Inc., which would make use of Vepco's expertise in unregulated areas. Dominion Resources formed its first subsidiary, an investment and investment management company, Dominion Capital, in 1985. Its involvement in real estate led it to form a real estate development and management subsidiary, Dominion Lands, in 1987. Nonutility earnings were to exceed 20% annually in the next five years.
Meanwhile, Berry called a halt to almost all plant construction. Vepco, now DRI's chief subsidiary, was operating four nuclear reactors but had canceled three others for lack of demand and a fourth because of high construction cost estimates. It was trying to sell part interest in two of the remaining four. The new emphasis was on transmission rather than generation, on being energy managers as one utility executive called it.
Vepco's nuclear capability meant much to the company. In 1984 it was one of the few utilities to reduce its rates, mainly due to its reliance on nuclear energy. Its four reactors were supplying 40% of its needs and were inexpensive to operate. Its fuel bill had dropped from more than $1 billion in 1980 to $725 million in 1983. Its customers were paying 2% less on average than a year earlier. Vepco had gotten out of nuclear construction, an expensive proposition, just in time. The strategy now was to rely on coal; Vepco embarked on the largest oil-to-coal conversion in the United States. By early 1987, it had only two oil units supplying just 3% of its power. Since the coal was a low-sulfur variety, acid rain was not a worry, and scrubbers were needed on only 1 of 11 units.
Demand was up 5%, but Berry was expecting no great upsurge, because, he argued, customers had learned to do with less. This situation was good for business, because it ruled out expensive new construction.
As cited in Electric Light & Power, November 1986, Berry argued for a "level playing field," or a chance to compete on equal terms. Economic efficiency demanded more than the "piecemeal changes" urged by regulators, he told a meeting of large industrial users, predicting an end to the "chummy fraternity" among electric utilities as those with excess capacity entered the open power market.
DRI entered northern Virginia in 1986, acquiring the retail territory of the Potomac Electric Power Company. The company formed a third subsidiary in 1987, Dominion Energy, a developer of power plants to perform in this open market. DRI sold its retail territory in West Virginia that year, to UtiliCorp United, Inc.
At Berry's side during these years was Jack Ferguson, president of Vepco since DRI was formed in 1983. Berry was the financial expert; Ferguson handled operations. Thomas E. Capps, executive vice president of Vepco, who succeeded Berry as DRI's president and CEO in 1990, was responsible for external social, legal, and political tasks.
In 1987 Berry's response to industry changes was called "cagey and controversial" by Forbes, May 2, 1988. DRI had taken a "regulatory sidestep," was engaged in "regulatory arbitrage," buying power at the low price that prevailed in Virginia and selling power at higher prices elsewhere. DRI was investing in 13 new plants out of state to produce power for other, nearby utilities. It was earning 20% to 25% return on its equity in these new units, in contrast to 13.25% on its Virginia plants.
DRI was thus expanding its unregulated business, which contributed only 4.4% of net earnings in fiscal 1987, while putting limits on its regulated business. Percentages of net earnings from unregulated business rose to 6% in 1988, 7% in 1989, and 8% in 1990.
Federal law had forced utilities to buy at a high fixed price from cogenerators, with a view to encouraging cogeneration, an energy-saving tactic, but Berry had pushed successfully for a bidding process in Virginia, and the idea began to gain momentum nationwide. It was a privatizing of generation sources, with investors building stations so as to sell power to the local utility. DRI through its Dominion Energy subsidiary went to West Virginia, California, and even South America for power.
In 1988 DRI bought half of Enron Cogeneration from Enron Corp. of Houston. It sold its natural gas operation in 1990, while its subsidiary Dominion Energy became involved in joint ventures to acquire and develop natural gas reserves.
In 1990 DRI prepared to make better use of its generating facilities. Nuclear units reached more than 80% of capacity compared to 67% of capacity that was average for U.S. nuclear plants. Every change in the economy showed in business volume. During the Gulf War, for instance, when fewer naval vessels docked in Virginia ports, business suffered, because an aircraft carrier in port uses a great deal of electricity. DRI was serving fast-growing areas, and plans for the 1990s were to increase capacity to meet rising demand, but with less construction, less borrowing, and more cash on hand.
Principal Subsidiaries: Virginia Electric and Power Company; Dominion Capital; Dominion Energy; Dominion Lands.
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