MCN Corporation

500 Griswold Street
Detroit, MI 48226
(313) 256-5500
Fax: (313) 965-6128

Public Company
Incorporated: 1988
Employees: 3,882
Sales: $ 1.27 billion
Stock Exchanges: New York

MCN Corporation is the holding company for two Michigan utilities, Michigan Consolidated Gas Company (Mich-Con) and Citizens Gas Fuel Company, as well as MCN Investment, which oversees the diversified non-utility enterprises. Through its wholly owned utility subsidiaries, MCN distributes, transports, and stores natural gas for more than 3 million residents in the 465 Michigan communities it serves. The non-utility subsidiary, MCN Investment, is the holding company for computer services, energy services and gas technology operations.

Although MCN has only been in existence since 1988, its main division, Michigan Consolidated Gas Company, has a history which predates the Civil War. Michigan Consolidated’s origins are found in the Detroit Gaslight Company, established in 1849. Before gas was manufactured, the City of Detroit used a variety of street lighting methods, including tallow dips, wax tapers, whale and lard oil, and later, kerosene. Beginning in September of 1851, streets were for the first time lighted with gas from the Detroit Gaslight Company. By 1867, Detroit Gaslight had expanded to two gasworks sites.

In 1871 Detroit Gaslight was challenged by a competitor—the Mutual Gaslight Company. Streets were torn up to lay down a second set of gas lines. The rivalry that followed produced a sharp decline in both prices and profit. Detroit Gaslight had been charging $3.50 per thousand cubic feet for its product, but lowered that rate by $1 when Mutual opened for business. Fierce competition eventually dropped prices to as low as 10 cents per thousand cubic feet. The price war was a delight for the customers, but the companies— fearing financial ruin—entered into a “gentlemen’s agreement” in which Detroit Gaslight would service all customers west of Woodward Avenue, the city’s main north-south thoroughfare, and Mutual would service the city’s east side.

The “agreement” did not simply stabilize prices, it allowed the companies to raise prices to the consumer. Detroit mayor Hazen Pingree reacted to his constituents’ concerns. Using the flagrant violation of a city ordinance by both companies, Mayor Pingree forced a consolidation of the utilities. This merger of Detroit Gaslight Company and Mutual Gaslight Company created Detroit City and Gas Company. As a result of the consolidation, consumer prices dropped. A provision was made to allow for further reductions as gas usage increased. Market stability continued for decades until the stock market crash of 1929, and the Great Depression that followed.

The utilities industry underwent a dramatic change with the passage of the Public Utilities Holding Act in 1935. A key measure of President Franklin Roosevelt’s New Deal, the act gave the federal government the authority to dissolve corporations that did not conform to certain standards. Under the new law’s Section 11, holding companies had to be limited to a single integrated public utility system. As a result, all holding companies were required to dispose of any property not “reasonably incidental or economically necessary.”

January 1, 1938 was the deadline given to all utility companies to register with the Securities and Exchange Commission, present plans to streamline their holdings and fulfill all requirements of the Public Utilities Act. Any firm not complying by that date was liable to have its fate determined by the Securities and Exchange Commission—a body with the power to abolish holding companies and sell all shares of their subsidiary companies to the public. While the Public Utilities Holding Act represented sweeping changes for utility companies, the federal legislation removed companies from the disarray of state and local politics.

By this time, Detroit City and Gas was owned by a holding company called American Light and Traction. While not as large as many of the utility holding companies of the era, American Light and Traction did not meet the definition of a single integrated utility and was forced to select what companies would comprise the new utility. American Light and Traction included among its holdings street railways, gas companies, and electric companies.

The plan that American Light and Traction presented to the Securities and Exchange Commission (SEC) was the merger of four of its natural gas companies that were located in Michigan: the Detroit City Gas Company; the Grand Rapids Gas Light Company; the Washtenaw Gas Company; and the Muskegon Gas Company. All of the companies were sufficiently close geographically to be economically practical to be included in this merger. The plan was accepted and approved by the SEC. American Light and Traction proceeded to sell its other holdings. What remained was a new utility company known as the Michigan Consolidated Gas Company. The consolidation was discussed and approved by the directors of the four companies in August of 1938, and Michigan’s public utility commission put its seal of approval on the merger the next month.

Muskegon Gas had paced its hometown’s growth as an industrial center on the shores of Lake Michigan. Washtenaw Gas serviced Ann Arbor (the home of the University of Michigan) and its surrounding communities in Washtenaw County. Grand Rapids Gas Light was considered to be one of American Light and Traction’s key properties. It was acquired by the company’s founder, Emerson McMillin, in 1895. To merge the four utilities, American Light and Traction gave Detroit City Gas all the voting stock of the other three companies. Detroit City Gas then issued more than $9.5 million of its stock as payment to American Light and Traction. Detroit City Gas also sold $42 million in new bonds to retire the obligations of the four merged companies.

The financial restructuring of Detroit City Gas strengthened the company by easing the interest burden paid on prior bond issues. This complete refinancing of bonds reduced payments on bonds from 5 and 6 percent to 4 percent. The nine directors of Detroit City Gas joined eight directors from Muskegon, Ann Arbor and Grand Rapids to form a new board of directors. The consolidation brought virtually no changes in personnel or distribution.

In January, 1940, Michigan Consolidated announced an expansion program designed to serve the needs of the growing communities that they served. The company appropriated $3.5 million to install approximately 80 miles of new gas mains. After World War II, Michigan Consolidated revealed a five-year postwar plan for the construction of new mains, service lines and meter installations. Henry Fink, general manager for the Detroit district, stated that the company was doing everything possible to ensure an adequate and uninterrupted gas supply to all residential, commercial and industrial customers.

Beginning in the early 1940s and continuing through the mid-1960s, Michigan Consolidated was actively involved in mergers and acquisitions. In 1942 they acquired the Gas Corporation of Michigan, the Gas Transportation Corporation of Michigan, and the Belding Gas Works. In 1943 four companies were added: Big Rapids Gas Company, Mecosta Pipe Line Company, American Michigan Pipe Line Company, and American Production Company. Other mergers and acquisitions included: West Michigan Consumers Company (1946); Austin Field Pipe Line Company (1947); Northland Natural Gas Corporation (1949); Cadillac Division (1954) and Traverse City Division (1955) of the Michigan Gas Utilities Company; Manistee Gas Company (1960); Sault Gas Company (1962); City of Escanaba-Gas Department (1965); and City of Ypsilanti-Gas Department (1965).

Increased supplies of natural gas in 1949 in conjunction with postwar prosperity spurred a flood of applications from residents who wanted to convert their existing heating systems to natural gas. Coal and oil prices had been increasing, so the lower cost of natural gas appealed to many. In June of 1950, Fink, who was then president of the company, announced that more than 97,000 space-heating customers had been added to Michigan Consolidated’s lines between August 1, 1949, and March 31, 1950.

Such an increase in demand required the company to once again curtail gas conversions. By 1953, however, Michigan Consolidated offered a plan to the Michigan Public Service Commission to buy enough additional gas from Panhandle Eastern Pipe Line Company to supply 50,000 new space heating customers in the Detroit area. When Michigan Consolidated officially celebrated its 100th anniversary in September, 1951, it was serving 715,000 customers living in 69 cities, villages and communities in Michigan. To commemorate the day, the company unveiled nine murals depicting the part that gas had played in the development of Michigan. They also presented an exhibit carrying out the same theme to the Detroit Historical Museum. The company reaffirmed its commitment to keep pace with the growing communities they served and to provide the highest standards of service.

In 1959, the company increased its construction budget by 75 percent to provide for construction in the Ann Arbor area and to install additional compressors at the company’s underground storage fields. The company also planned to install 189 miles of new gas mains throughout the state of Michigan. In 1963, the company opened a new processing plant in St. Clair, Michigan. The plant was built after a rich supply of natural gas was discovered in St. Clair, located just northeast of Detroit. Throughout the 1960s and the 1970s, Michigan Consolidated continued to store and distribute natural gas while maintaining a high level of customer service and customer satisfaction. By the late 1980s, the company was serving more than one million customers in the state of Michigan. In December of 1981 Michigan Consolidated Gas Company was spun-off to shareholders of its parent company, American Natural Resources Company (a successor company to American Natural Gas Company and American Light and Traction). MichCon formed Primark Corporation and its parent holding company. In addition to MichCon, Primark later diversified in telecommunications, financial services, and aviation services. In June of 1988 Primark spun-off MichCon again to shareholders to pursue a new strategic direction.

The locally well-known MichCon moniker was officially adopted in 1983. On August 15, 1988, MichCon formed a holding company, MCN, and became its subsidiary. At the same time, MichCon transferred ownership of its non-utility businesses (such as data processing and gas technology) to MCN Investment Corp., another subsidiary of MCN.

The Citizens Gas Fuel Company, a natural gas distribution utility, was added to the MCN family when the holding company officially acquired it in August of 1990. The acquisition of Citizens Gas Fuel Company was an important step that aided MCN’s expansion in the energy-related field and to further develop the company’s natural gas distribution in Michigan. At the time, Citizens served more than 11,400 residential, commercial and industrial customers in Lenawee County in southeastern Michigan. MCN exchanged approximately $14.6 million in MCN stock for all of the outstanding stock in Citizens. As a result, MCN had three principal subsidiaries: two utilities, MichCon and Citizens; and the non-utility holdings of MCN Investment.

The utilities industry across the nation benefitted when the Federal Energy Regulatory Commission (FERC) proposed a comprehensive restructuring of services provided by interstate pipelines in July of 1991. Regulations now allowed for the separation of pipeline sales service to local gas utilities into various service components, thus providing utilities with a greater selection of energy suppliers. The FERC hopes to increase the amount of interstate gas market competition through this change in regulation.

The Clean Air Act of 1990 has also had a beneficial impact on public utilities specializing in natural gas, such as MichCon. The Congressional legislation requires that industries using high sulfur coal reduce their smokestack emissions. In comparison, natural gas is a comparatively clean-burning fuel. Its abundant supply and competitive pricing may attract industry conversion to natural gas from coal or oil. During 1991, MCN transported 18 billion cubic feet of natural gas that was used to replace coal as a fuel (representing an increase of 18 percent over 1990 figures). Furthermore, no major customers have converted from natural gas to other energy sources.

Part of MCN’s strategy has been to expand gas supply, transmission, and storage to benefit from an expanding market. MCN is located in one of the largest natural gas markets in the eastern half of the United States. In addition to industry usage growth, the residential and commercial market is increasing because nearly all new developments are selecting natural gas for heating. A strong base of residential consumers who heat their homes with natural gas reduces the company’s susceptibility to the impact of recessionary cycles since home heating during Michigan’s long and often harsh winters is an essential element in a family’s budget.

As part of its gas transmission system expansion, the St. Clair River Pipeline was completed in December 1989. The pipeline linked MichCon with a Canadian firm, Union Gas Limited of Ontario, and allows MichCon to move natural gas from the United States to Canada at the same time it provides a reserve supply from both company’s storage fields. In anticipation of significant business potential, a request was filed with the Federal Energy Regulatory Commission (FERC) to allow MichCon to expand its import authority to transport gas in exchange with Canadian utility firms. In addition to the St. Clair River Pipeline, the transmission expansion system was further enhance by the construction of the 25-mile Milford loop in 1991. The pipeline began operations in early 1992 and is anticipated to augment capacity. To complement the supply flexibility achieved through improved natural gas transmissions, MichCon began a program to realign gas supplies. Underground storage fields have provided stable and economical gas supply during heavy-use seasons. This approach allows MichCon the ability to purchase lower-priced natural gas during low-use seasons.

MichCon’s business mission stresses the importance of customer service. Through energy audits in their homes, customers are advised on energy savings measures. Payment assistance programs are available to low-income customers with referrals for those seeking bill payment assistance. MichCon also offers “round the clock” repair of furnaces and hot water heaters for a fee. Customer approval of the programs was reflected in the results of a consumer opinion survey that showed a 82 percent level of customer satisfaction. These figures compared favorably with all other Michigan utilities. MichCon also began a five-year program to install outside meter reading devices for inside gas meters in both residential and small commercial accounts. By eliminating the need to enter a building, MichCon employees increase efficiency, eliminate estimated billings and obtain accurate computerized meter readings. MichCon has also implemented a workstation network that is able to handle more than 10,000 calls daily in the Detroit area. As a result of the system, customer accounts are processed with fewer delays.

In 1989, MichCon also opened a new employee training facility to help prepare its employees for new challenges facing the utility in the future. While new employees will complete training courses initially, veterans will be able to take refresher instruction. MichCon also recognized that large utilities have a responsibility to the community. The company has worked through the Greater Detroit Chamber of Commerce on projects to beautify the city’s downtown and neighborhoods. It also sponsors the annual Senior Extravaganza for Detroit-area senior citizens.

During 1991, the State of Michigan eliminated public assistance for thousands of people. MichCon developed a new program to help those removed from public assistance continue their gas service. MichCon received authorization from the Michigan Public Service Commission to increase rates to help recover from higher costs associated with the realignment of gas supplies, reduction in storage revenues, higher costs related to the Michigan Department of Social Services, and uncollectible gas accounts. Under this four-year agreement, MichCon will increase or decrease rates if its return on common equity falls outside a specified range.

MCN’s non-utility operations reflect a diversification that complements its vital interests. MCN Investment Corporation is the holding company for firms in the areas of gas technology, energy services and computer processing services. MCN developed an adsorbent natural gas (ANG) technology, which permits storage of natural gas at one-tenth the pressures of traditional methods. This patented technology reduces container refueling time as well as cost. Adsorbent natural gas has been tested for fueling use in construction machinery, such as forklifts, and for use in industrial and golf carts. Low emissions and less frequent refueling may provide new applications in off-road vehicles as well as in future automobiles.

High-pressure combustion, another area of MCN’s research, promises increased fuel efficiency, heat uniformity, and compactness of equipment. In March 1991, MCN received a $1.3 million grant from the Gas Research Institute. Much of that grant is directed towards technology that will make for a more compact residential furnace, one designed to take up approximately one-third of the space of a conventional furnace. The firm believes the commercial potential will be enormous, especially for high-rise apartments and commercial zone heating markets.

The Genix Group is MCN’s computer processing business. Its products are: computer processing services, networking services, high-speed electronic printing, and direct-mail services. This area has developed as an extension of MCN’s internal expertise in these areas. And the Genix Group is expanding into the area of telecommunications with a customer base that includes Fortune 500 clients. By providing a quality service at a competitive price or at a lower cost than in-house development will allow, the Genix Group experienced a 10 percent revenue increase in 1991. Through strategic development and marketing, Genix Group has established itself as one of the largest outsourcing companies in the United States.