NIPSCO INDUSTRIES, INC. History
Hammond, Indiana 46320-1775
Telephone: (219) 853-5200
Fax: (219) 853-5161
Incorporated: 1912 as Calumet Electric Company
Sales: $1.53 billion
Stock Exchanges: Midwest New York
NIPSCO Industries, Inc., is an energy-based holding company whose primary subsidiary is Northern Indiana Public Service Co., the largest gas and second largest electric utility in Indiana. Northern Indiana's service territory spans most of the upper third of the state, a major industrial region that includes approximately 2.2 million people in such communities as Fort Wayne, Gary, Hammond, Kokomo, and South Bend. Through a network of four coal-fired stations, two hydroelectric plants, four gas-fired combustion turbine units, and an underground gas storage field, Northern Indiana generates 97 percent of its electrical energy requirements and approximately 64 percent of its natural gas demands. Following an enormous financial setback during 1985 and several years of restructuring and expansion during the late 1980s, Northern Indiana and the rest of the NIPSCO corporate family have rebounded to become a vigorous, competitive, innovative, and respected company within the utility industry.
NIPSCO traces its origins to the mid-nineteenth century, when the utility industry of northern Indiana was still in its infancy. In 1853, a forerunner of NIPSCO, the Fort Wayne Gas Light Company, was established. Thomas A. Edison, who later worked as a telegrapher in the area, was for a time a frequent visitor to the plant. Another important predecessor, the South Bend Gas Light Company, was organized in 1868 by the Studebaker brothers, who the same year founded their wagon--and later automobile--manufacturing company. During the next three decades several other utilities in the area were formed; more important, however, were two momentous events of this early era: the experimental but unsuccessful introduction in 1880 of electric street lighting in Wabash, Indiana; and the discovery in 1886 of a large reserve of natural gas near Kokomo, which prompted the speculative drilling of more than 5,000 gas wells by more than 200 separate companies.
Consolidation of the existing utilities was hastened by the influx of major industry such as Standard Oil in 1889, Inland Steel in 1901, and U.S. Steel in 1906, as well as the completed construction in 1908 of the Chicago, Lake Shore, and South Bend Railroad. Together, these developments helped create a lasting economic tie between the cosmopolitan hub of Chicago and the Calumet area along the southern shore of Lake Michigan. In 1909, Northern Indiana Gas and Electric Company was formed; a year later, it acquired South Bend Gas Light Company and became a subsidiary of United Gas Improvement Co. This formative branch of NIPSCO was complemented by another, the Calumet Electric Company, whose 1912 date of incorporation is usually given as the inception of NIPSCO. Like Northern Indiana Gas, Calumet eventually attracted the interest of a large holding company, the multibillion-dollar Midland Utilities Company, managed by Samuel Insull, a former business secretary of Edison and a titan of the public utilities industry. In 1923, Midland acquired Northern Indiana Gas, thus uniting the two branches of NIPSCO; three years later NIPSCO attained its near-present form when Calumet changed its corporate name to Northern Indiana Public Service Company and then merged with Northern Indiana Gas. At that time, NIPSCO, chaired by Insull, served 25 counties and approximately 200,000 customers.
For a brief time, Samuel Insull, Jr., served as chairman, but by 1932, with the election of John N. Shannahan to the post, the Insull family ceased its direct participation in NIPSCO's affairs. Meanwhile, acquisitions, service territory, and power capability increased rapidly. Following Shannahan's death in 1938, NIPSCO embarked on a long, steady period of growth under the leadership of Dean H. Mitchell. In 1947, Midland sold its NIPSCO stockholdings, allowing the former subsidiary to go public. The 1950s, 1960s, and 1970s were marked by continued corporate expansion and the completion of the Mitchell, Bailly, and Schahfer generating stations, all located in the northwestern corner of Indiana. Together with the Michigan City plant, completed decades earlier, these electric stations possess a total capacity of 3,059 megawatts, or approximately 90 percent of NIPSCO's total power capability.
In 1974, three years after its original filing date, NIPSCO received a construction permit from the Atomic Energy Commission to build its first nuclear plant at a site adjacent to its Bailly station and to the Cowles Bog, an ecologically unique wetlands area within the recently created Indiana Dunes National Lakeshore. An enormously controversial and costly project, Bailly Nuclear One was eventually abandoned in 1981 after $191 million had been spent with only one percent of the construction being completed, according to Robert Barker in Barron's. Despite NIPSCO's eventual triumph in state supreme court litigation over the placement of the facility, new cost projections caused by the delays proved insurmountable. Intensifying NIPSCO's loss was the Indiana high court's later ruling that NIPSCO could not amortize the failed project's costs over a 15-year period, forcing the company in 1985 to declare a net loss of $94.8 million.
Presiding over NIPSCO during most of this troubled period was Edmund A. Schroer, who became chief executive officer in 1976 after serving as corporate legal counsel for the previous ten years. Schroer helped NIPSCO weather the 1985 crisis, associated court battles, and enforced reductions in employees by emphasizing a program of internal energy development, trenchant defense of the company's image and actions, and improved profitability through justifiable rate hikes and cost-effective management of labor and capital. By 1990, when these causes were restated in a five-year plan, NIPSCO had demonstrated marked improvements in its financial health, causing Moody's, and later Standard & Poor's, to elevate bond ratings for the company. By this time as well, NIPSCO had distanced itself from the Bailly project, allegations of double billing, and protracted negotiations with the Department of the Interior over its handling of fly ash--minute particles of unburned coal.
Most significant for the company's renewed success was the incorporation of NIPSCO Industries in 1987, the parent company of Northern Indiana Public Service Company, followed by an exchange of shares the following year. This made possible NIPSCO's viability as a holding company for a group of subsidiaries. These were individually responsible for oil and gas exploration, energy transmission and supply, financing, real estate development, and energy brokering. The various efforts of these companies helped NIPSCO meet its high expectations. Commenting on NIPSCO's technological and fiscal turnaround, Schroer, in his 1992 letter to shareholders published in the Wall Street Journal, wrote: 'We believe that our evolution from 40 percent dependence on external sources several years ago to independence with environmentally compliant units will continue to prove of benefit to the Company for many years to come and will allow us maximum flexibility in developing new sources on a profitable basis.'
NIPSCO's primary emphasis continued to be on a combination of gas and electrical power, and the company had thus earmarked some $779 million for construction between 1992 and 1996 to further this goal. Boasting a relatively low long-term debt to total capitalization ratio of 47 percent, a 1991 net income of $133.4 million--compared to $125.4 million for 1990--a first quarter 1992 income of $48.2 million, and the approval of investors who in 1991 raised the common stock price to its highest level in 18 years, NIPSCO appeared well prepared to embrace a future of determined expansion and steadily growing revenues. Although two crises in 1991, a March ice storm that downed over 130 miles of electric lines and the accidental collapse in July of two large circulating water pipes, was grist for skeptical analysts of the company, NIPSCO's swift response to both situations and its minimization of adverse financial effects prevented overreactions within the securities markets.
The February 1992 purchase of Kokomo Gas and Fuel Company, a transaction valued at $47.9 million, was one of many new developments intended to fulfill NIPSCO's five-year plan and Schroer's extended vision. Kokomo Gas, serving the city of Kokomo and surrounding rural areas, planned to expand the company's natural gas customer base by approximately 30,000. Outside the country, through the NIPSCO Development Company, NIPSCO actively negotiated financing for a 30 megawatt tires-to-energy plant in England and also pursued similar possibilities in Belgium and Scotland.
Like many utilities, NIPSCO may find its greatest challenge for the future in its ability to meet both regulatory requirements and the demands of federal environmental laws while maintaining its desired level of profitability. One of its largest environmental commitments is to Pure Air, a general partnership of Mitsubishi Heavy Industries America, Inc., and Air Products and Chemicals, Inc. The Pure Air project, which has been in operation since June 2, 1992, provides flue gas desulfurization and reduces sulfur dioxide emissions by nearly 95 percent through a scrubber at the Bailly Generating Station. Supplemented by $48.8 million in government funding for construction, Pure Air's scrubber cost NIPSCO an estimated $14.4 million in operating and maintenance expenses over a three-year period. The project, according to NIPSCO's 1991 annual report, should 'meet the standards of the new Clean Air Act Amendments more than two years ahead of schedule.' NIPSCO asserted that any additional financial measures the company must take to comply with the Clean Air Act will be recoverable through its charges for utility rates. However, a pending suit with the Environmental Protection Agency, which listed NIPSCO as one of several parties 'potentially responsible' for the cleanup of waste disposal sites, could have an undesirable impact on future expenditures.
Nevertheless, NIPSCO's hard-fought image for corporate responsibility seems intact. In 1992, the company intended to fulfill its plan to donate more than 2,150 acres of land to the Indiana Natural Resources Foundation for natural preservation and public recreation. Interestingly, the property included two small hydroelectric plants that the company planned to maintain and operate. Another example of NIPSCO's resolve in this area is its funding of studies of electric and magnetic fields and their effects, coordinated by the Electric Power Research Institute.
Principal Subsidiaries: Northern Indiana Public Service Company; Kokomo Gas and Fuel Company; NIPSCO Capital Markets, Inc.; NIPSCO Development Company, Inc.; NIPSCO Energy Services, Inc.
- Mitchell, Dean H., Northern Indiana Public Service Company: Serving Today--Building for the Future in the Workshop of America, New York, Newcomen Society in North America, 1960.
- Newsom-Brighton, Maryanne, 'Resource Management: The Indiana Dunes,' Environment, July/August, 1984.
- Read, Charlotte J., 'Indiana Dunes Revisited,' Environment, March, 1985.
- Barker, Robert, 'Generating Recovery: A Nuclear Casualty Is on the Mend,' Barron's, May 12, 1986.
- Foley, Kenneth P., Jr., 'NIPSCO's New Operations Center Features Many Innovations: SCADA, Gas Dispatch Integrated,' Pipeline and Gas Journal, September, 1986.
- Rudolph, Richard, and Scott Ridley, Regulation: The Impossible Task, Power Struggle: The Hundred-Year War over Electricity, Harper, 1986.
The Nipsco Story, Hammond, Indiana, Nipsco Industries, Inc., 1987.
NIPSCO Industries, Inc., Annual Report, 1991.
- 'Digest of Earnings Reports,' Wall Street Journal, May 1, 1992.
Source: International Directory of Company Histories, Vol. 6. St. James Press, 1992.comments powered by Disqus