CIPSCO Inc.

607 East Adams St.
Springfield, Illinois 62739
U.S.A.
(217) 523-3600
Fax: (217) 525-5825

Public Company
Incorporated: 1902 as Mattoon City Railway Company
Employees: 2,601
Sales: $722 million,
Stock Exchanges: New York Midwest

CIPSCO Inc. is a holding company whose principal subsidiary is Central Illinois Public Service Company (CIPS), a utility engaged in the sale of electricity and natural gas in a 20,000-square-mile region of central and southern Illinois. Non-utility assets include CIPSCO Investment Company, which manages non-utility investments and provides investment management services to CIPSCO and its affiliates.

While CIPSCO was formed as recently as 1986, the principal predecessor of the utility CIPS traces its roots to 1902, when the Mattoon City Railway Company was organized to provide streetcar service in Mattoon, Illinois. Mattoon City Railway quickly diversified, and between 1903 and 1904 an electric generating plant and distribution system in Mattoon was acquired and operations were extended to include electric service in Mattoon.

Additional acquisitions and diversification followed, and in 1910 the company’s name was changed to Central Illinois Public Service Company, more accurately reflecting the company’s activities, which by that time included a light and power business serving Mattoon and Charleston, Illinois, a heating service in Mattoon, separate electric street railway systems in Mattoon and Charleston, and an electric interurban railway system joining the two cities.

In 1912 CIPS became a subsidiary of Middle West Utilities Company, a predecessor of the present Middle West Corporation. That same year CIPS acquired 60 public service properties, including those operating in the Illinois communities of Jerseyville, Olney, Pana, Paris, Robinson, Taylorville, Tuscola, Anna, Carbondale, Harrisburg, Herrin, Macomb, Marion and West Frankfort. The company also obtained 50-year franchises in 30 communities previously without electric service, and by the close of 1912 was serving over 27,000 customers.

During the formative years of CIPS, company activities focused on linking groups of towns together with transmission lines, abandoning the small power houses inherited in acquisitions, and bringing central power stations on line. The company also began establishing two statewide transmission lines which were then interconnected with neighboring utilities in order to provide for emergency exchange of energy.

By 1914 CIPS was operating eight generating stations and serving 232 communities, including over 100,000 electric customers. In addition to its electric, gas, and heat utility businesses, the company was selling water wholesale, while selling ice wholesale to some communities, and operating a retail ice business in other towns. The company’s transportation system by that time had grown to include a network of five railway systems and interurban lines serving nine communities.

Business continued expanding rapidly in the 1920s, with corporate growth following suit. In 1921 CIPS moved its general offices from Mattoon to the Illinois capital of Springfield. In 1924 the company’s Grand Tower Power Station began operating, and the following year CIPS completed the acquisition of electric, gas, and heat companies serving Quincy, Illinois, which would become the largest community in CIPS service territory. In 1925 CIPS also acquired companies furnishing street railway service in Joliet, Illinois, and interurban railroad service connecting Joliet to Chicago.

In 1926 CIPS made power interconnections with utilities serving southern Illinois, eastern Missouri, and northern Kentucky. CIPS’s involvement with other utilities continued to grow, and in 1928 the Powerton Power Station, partially owned by CIPS, was placed in operation. CIPS sales surpassed the $1 million mark for the first time in 1928 and continued to grow the following year. As a result of this financial strength, the stock market crash in October of 1929 had little initial effect on the diversified company, which closed the decade having added community and interurban bus service to its list of non-utility businesses.

Despite the Great Depression, CIPS continued expanding in 1930 by acquiring minor electric and ice properties and extending both electric and gas service to previously unserved communities and rural areas. But by 1931 CIPS was feeling the effects of the depression and rate reductions were made in most classes of service.

Financial conditions worsened in 1932, and, with the company in the throes of rapidly declining sales, Lester A. Magraw was named president. In order to reduce its expenditures, in 1933 CIPS began retiring preferred stock and initiated a debt-reduction program. As a result of that program, during the mid-1930s CIPS abandoned all railway and bus operations, began selling off water properties and retiring ice properties, and divested itself of Powerton Station holdings. With economic conditions improving, in 1937 CIPS resumed its program of extending utility service into unserved portions of its service territory where business expansion would likely follow.

During the late 1930s, CIPS operations were expanded through the acquisition of electric and gas properties operating in Cuba, Illinois, and electric properties operating in the nearby cities of Fiatt and Smithfield. In order to keep up with increasing energy demands corresponding to an improving economy, in 1938 CIPS began the two-year construction of Hutsonville Station, a steam electric generating facility located on the Wabash River.

CIPS entered the 1940s continuing a policy of withdrawing from activities not directly related to the electric and gas utility business. In 1941 a second Hutsonville Station generating unit began operations, and preliminary construction began on the Meredosia Station, a steam electric generating plant on the Illinois River. Construction was brought to a quick close after the United States entered World War II, with the War Production Board effectively suspending work at the Meredosia Station in 1942. Construction resumed at Meredosia following the war, and the station’s first generating unit was completed in 1946. With the postwar economy thriving, in 1947 CIPS paid its first dividend on common stock since 1932.

CIPS became an independent public utility in 1948 after Middle West Corporation divested itself of CIPS, and CIPS common stock was offered to the public for the first time. In 1948 CIPS disposed of its remaining ice, water, and non-utility properties, and by the end of the year the company was engaged solely in electric and gas utility services, supplying electric service to 500 communities and adjacent rural areas and natural gas service to 20 communities. As a result of postwar increases in power demand, during the late 1940s CIPS added generating units at Grand Tower, Meredosia, and Hutsonville. In 1949 L. A. Magraw died and was succeeded as president by Marshall S. Luthringer, who would guide the company’s growth for the next 19 years.

During the 1950s CIPS joined with other utilities in seeking additional generating capacity. In 1950 it purchased 20 percent of Electric Energy Inc., which was organized to construct and operate a steam electric generating station on the Ohio River to supply a portion of the power needed by the Atomic Energy Commission at its Paducah, Kentucky plant. In 1952 CIPS, Illinois Power Company, and Union Electric Company agreed to form a power pool and interconnect their electric systems in order to provide for power exchanges and reduce the amount of generating capacity each utility would need.

CIPS’s own construction program during the 1950s was largely limited to the addition of generating units at Hutsonville and Grand Tower and completion of an interconnection program linking its Meredosia, Hutsonville, and Grand Tower power stations. After years of making voluntary rate reductions, the rising costs of doing business led CIPS to seek rate relief in 1953. The following year the Illinois Commerce Commission (ICC) granted CIPS its first electric rate increase in 23 years.

The natural gas supplies available to CIPS grew gradually throughout the 1950s, and in 1960 CIPS began developing an Illinois underground natural gas storage facility near Ashmore, preparing for a decade of phenomenal growth in its gas business. That growth was set up by a marked increase in available natural gas supplies beginning in the early 1960s which allowed the company to add thousands of residential gas customers, virtually eliminating a waiting list for gas service which had built up over the previous decade. CIPS also converted its remaining non-natural gas operation, a propane-air gas system at Beardstown, to natural gas.

Despite a recession, the early 1960s were also marked with continued construction of electric generating units, including an addition at Meredosia and ground-breaking for the company’s fourth power plant, Coffeen Station. Expansion of CIPS electric and gas service area continued in 1962 when the company acquired Illinois Electric and Gas Company, serving 14 southern Illinois communities. In 1965 the initial generating unit at Coffeen Station, the first major mine-mouth power station in Illinois, began operations adjacent to the coal mine that provided its power source.

Throughout the first eight years of the decade, CIPS gas business grew annually with corresponding increases in gas supplies, and by 1968 the company was serving 223 communities with gas service, an increase of over 200 communities in the decade. In 1968 CIPS tentatively agreed to be acquired by Illinois Power Company through a joint stock exchange that would combine the two Illinois utilities’ interlocking systems. That same year Luthringer retired, and Kenneth E. Bowen was elected president. In 1970 the agreement between Illinois Power and CIPS fell through after the ICC ruled that both companies would have to divest their gas properties in order to combine systems.

The issue of natural gas would continue to be a haunting one throughout the 1970s, with the company not only challenged by reduced gas deliveries, but also by interruptions in service stemming from strikes, weather-related emergencies, roller-coaster earnings, and increasing environmental regulations. After federal regulations restricting exploration for new natural gas were imposed, CIPS gas supplies were reduced in 1970, and the company was forced to establish a priority system to assure reasonable allocation of gas among its customers. As a result, the company resumed and expanded its propane-air gas operations and constructed ten new gas wells at its Ashmore Storage Reservoir. But despite such measures, in 1971 the company was forced to curtail the addition of new, large gas customers.

In 1972 gas deliveries were further reduced, resulting in lengthy interruptions in service for those customers with interruptible contracts, and leading to the establishment of a waiting list for those seeking new or additional gas service. To offset dwindling gas supplies, CIPS entered into a gas exchange agreement with Central Illinois Light Company and began work on an underground gas storage reservoir in McDonough County. Also in 1972 a new generating unit at Coffeen Station became operational, two of the oldest Grand Tower units were retired, construction of an oil-fired generating unit at Meredosia Station began, and plans were made for a new power plant, the Newton Station.

After seeking rate relief to compensate for costs associated with the growing energy crisis, in 1973 CIPS was granted its first gas rate increase since 1952 and its first electric rate increase since 1954. CIPS earnings still fell that year, though, due in part to a 48-day strike at Coffeen Station that forced the company to purchase power from neighboring utilities.

In 1974 CIPS acquired the Albion area electric distribution system, serving portions of Edwards, Wabash, and Wayne counties. That same year the ICC approved an interim rate increase representing roughly half the amount the company had sought. In 1975 CIPS received a permanent rate increase from the ICC, which was followed by additional rate increases during the three succeeding years. But 1975 was not without its setbacks, including service interruptions stemming from a devastating tornado that hit CIPS’s service area during a 19-day strike, when supervisors were running company plants.

With gas in short supply, in 1977 the company was forced to ask large commercial, industrial, and school customers to reduce gas usage. The initial unit at Newton Station, designed to burn coal from a nearby Illinois mine, became operational, but problems procuring coal surfaced in 1978 during a 111-day national coal miners strike. CIPS was consequently forced to reduce its system voltage, purchase power from other companies, and ask customers to conserve electricity. On Good Friday that year a crippling ice storm caused a blackout in more than 175 towns in CIPS service area, costing the company nearly $5 million in repairs.

In 1979 CIPS activities were dominated by environmental regulation compliance, which included the installation of a $121 million sulfur dioxide removal system at Newton Station, completion of a new 526-foot chimney at Meredosia Station designed to replace four smaller stacks, and completion of waste-water treatment facilities at Coffeen Station.

The company entered the 1980s facing new weather-related problems. A July 1980 storm accompanied by 80-mile-per-hour winds crippled the company’s southern division and temporarily left 75,000 customers without electricity. One month later Bowen retired. In the reorganization that followed, Donald G. Raymer was elected president and chief executive, while Clifford L. Greenwalt was elected senior vice president of operations and Robert W. Jackson was elected senior vice president of finance.

In 1982 a second generating unit at Newton Station was completed, marking the close of a 12-year construction program at the site and giving the company sufficient power to meet customers’ electric needs. A rate increase reflecting the investment in Newton helped boost earnings that year, and for the first time in eight years the company expanded its operations through acquisition by purchasing Gas Utilities Company, a natural gas delivery company operating in eight Crawford County communities, six of which were being supplied with electricity through CIPS.

During the mid-1980s the company’s earnings improved as it won a major settlement from a former coal supplier over pricing practices. After adopting a policy of using Illinois coal when available, in 1983 CIPS signed a contract to supply Meredosia Station with coal from a new west central Illinois mine. In 1984 a new gas transportation rate went into effect, and large customers began purchasing gas directly from producers, using CIPS facilities to transport the gas.

Touting a surplus of generating power, in 1985 CIPS became the first Illinois electric utility to offer an economic development rate aimed at bringing new industry to its service area. With limited growth prospects and growing competition from other energy sources, the holding company CIPSCO Inc. was formed in 1986, and a petition to reorganize was filed with the ICC that would make CIPS a subsidiary of the holding company and allow for diversification and investment into unregulated areas. But the process of approving the reorganization became lengthy, and by the time Raymer retired and Greenwalt was named president in 1989, CIPSCO was still only a paper company.

On October 1, 1990, CIPSCO became operational, with Greenwalt named chairman and Jackson, senior vice president of the holding company. The next day CIPSCO Investment Company (CIC) was formed as a corporate vehicle to pursue non-utility investment opportunities. Greenwalt became chairman of CIC and Jackson, president and chief executive.

CIC’s initial activities in 1991 included investment in stock portfolios and leveraged lease transactions, with those activities undertaken by two non-utility subsidiaries formed that year to manage specific types of investments under CIC tutelage. CIPSCO Securities Company was formed, also, to invest in marketable securities, while CIPSCO Leasing Company was organized to invest in leveraged lease transactions.

During the early 1990s, CIPS initiated a gas expansion program and began seeking out potential gas customers who were using electricity for heat. The program paid quick dividends, and in 1991 the company logged its biggest year for gas expansion projects since the 1960s. In 1992 a rate increase request paid off and CIPS received a $11.6 million annual increase, including its first electric rate increase in nearly a decade. That same year CIPS entered a preliminary sales agreement with Union Electric that would extend CIPS service territory into Henderson and Hancock counties and add 4,200 electric customers.

CIPSCO and its subsidiaries entered the mid-1990s with no foreseeable need to increase electrical generating capacity until at least the second decade of the 21st century. As a result, CIPS appeared well positioned to continue efforts to sell power to other utilities and rural cooperatives. According to CIPSCO’s 1992 annual report, CIPS also expected to capitalize on its reputation as a low-cost gas supplier and extend gas service into areas presently using electrical heat. CIPSCO Investment was expected to continue a conservative investment strategy, remaining a passive investor in the short term while exploring additional businesses for long-term benefits.