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Supply Chain Management of IPALCO ENTERPRISES, INC. -
January 10th, 2011
IPALCO Enterprises, Inc., is an Indianapolis-based utility holding company whose principal subsidiaries include Indianapolis Power & Light Company and Mid-America Capital Resources, Inc. Indianapolis Power & Light provides power to hundreds of thousands of customers in central Indiana, while Mid-America explores energy ventures and diversification opportunities in the unregulated sector.
Although IPALCO was not established until 1983, the company's roots date back over a century, to the formation of the Indianapolis Brush Electric Light & Power Company in 1881. Arc lights were lit at the city's Union Station a year later--four years after the technology first became available in the United States. In 1884 the company obtained the first streetlight contract ever awarded in Indianapolis.
America in the late 1800s witnessed many attempts by entrepreneurs to get a piece of the 'newfangled' electrical business, and Indiana was no exception. In 1885 the Jenney Electric Company formed to produce electric equipment and set up a lighting system for West Indianapolis. The Thomson-Houston Company of Boston, Massachusetts, purchased Jenney in 1889, and Nordyke & Marmon took over the lighting of West Indianapolis. The year before, the Marmon-Perry Light Company had supplied the first Edison electric light service to the Park Theater. In 1890 Marmon-Perry opened a lighting and central steam heating plant in a barn at 121 Monument Circle, and the residence became the city's first to use only incandescent lights.
In 1892 another round of mergers saw the consolidation of the Marmon-Perry Light Company and the Indianapolis Brush Electric Light & Power Company into the Indianapolis Light and Power Company. This firm took over the contract for street lights in West Indianapolis from Nordyke & Marmon, and the new utility erected an office building at 46-48 Monument Circle.
Such corporate start-ups and consolidations continued to flourish in the first decade of the twentieth century. Utilities Power & Light Corporation, a holding company, formed Indianapolis Power & Light in 1926 to consolidate and run the properties of the Indianapolis Light and Heat Company and the Merchants Heat & Light Company, which included a radio station that was sold in 1939. Several other heating and lighting companies with similar names formed during this time, and after a complicated succession of mergers, the Indianapolis Power & Light Company emerged in October of 1926. Norman A. Perry took the helm of this new venture, which began operations in 1927.
Indianapolis Power & Light completed an operating center at 1230 West Morris Street in 1928. Three years later the company reached a milestone with the construction of two generating units at the Harding Street station and a 132,000-volt loop around Indianapolis. In 1931 the company began providing Indianapolis residents and businesses with high-pressure steam through a contract with Eli Lilly & Company.
In 1940 the common stock of Indianapolis Power & Light, which until then had been owned by the holding company, was offered for sale to the public. This event marked the first time in the United States that ownership of a large electric utility passed from a holding company to individual shareholders.
The late 1940s and 1950s saw Indianapolis Power & Light building more power plants to supply the city and expand its service to a greater area of Marion County. The first generating unit of the White River Generating Station, which began construction in 1946, was functioning by 1949. This station was renamed the H. T. Pritchard Generating Station in 1957, one year after the sixth unit began operations. In 1951 the company began building the Petersburg Generating Station. Its first unit began functioning in 1967, and further units came on line in the 1970s.
In the 1980s Indianapolis Power & Light shepherded its resources and kept costs at a minimum. Nevertheless, the growing demand for services in the Indianapolis area seemed to warrant a reorganization. In 1983 IPALCO Enterprises was established as a holding company for Indianapolis Power & Light. Shortly thereafter, the Mid-America Capital Resources subsidiary was created to manage acquisitions and diversification.
The first new venture was a brief but profitable foray into the growing cable television business. It began in 1985, when Mid-America purchased two independent Indianapolis franchises for $72 million. IPALCO operated Indianapolis Cablevision for just over a year before the company found conditions in the cable television industry changing rapidly. Most independent cable systems were replaced by large, multisystem operators who could serve a larger number of customers at a lower cost. Rather than commit substantial resources to support Indianapolis Cablevision, IPALCO sold it in late 1986 to Comcast Corporation for $151.2 million--one of the highest prices ever paid for a system of its kind. IPALCO president John R. Hodowal indicated that the company did not intend to sell Indianapolis Cablevision so quickly, but he was pleased the deal turned out to be so lucrative.
Entering the 1990s, Indianapolis Power & Light relied on coal-fired generating plants near coal mines, rather than on the uncertainty of nuclear power, keeping consumers' rates low. As a result, IPALCO was well positioned for expansion and prepared 'for a rapidly changing and challenging future,' as noted its 1991 annual report. But these changes would not come without a price: IPALCO was preparing to draw on its resources for construction of costly emissions control equipment.
New electricity-generating facilities were also needed to meet the growing needs of the IPALCO service area. From 1990 to 1996, kilowatt hour sales were expected to increase at a compounded annual rate of 2.9 percent. The company estimated a need for 800 megawatts of new resources by the year 2000. As part of its efforts to meet those needs, IPALCO planned three new 80-megawatt combustion turbines, which would begin operating in the mid-1990s. The company estimated the cost of its production program from 1992 to 1996 at $1.5 billion, including $114.5 million for the new turbines.
IPALCO expected another major cost to be the installation of scrubbers to reduce sulphur-dioxide emissions from its coal-fired plants. Sulphur dioxide emissions declined 34 percent from 1973 to 1991, despite a 50 percent increase in coal usage and a 64 percent jump in kilowatt hour sales. The costs of complying with new Clean Air Act provisions in the early 1990s were estimated at $250 million.
In 1991 Indianapolis Power & Light was serving 380,000 customers in a 528-square-mile area with its four coal-fired generating plants. That same year, the area saw a net increase of 386 new industrial and commercial businesses, and the selection of Indianapolis as the site for a new aircraft maintenance facility by United Airlines was expected to make the airline one of IPALCO's largest customers.
In addition, sales of steam were expected to rise steadily as a newly introduced steam-driven district air-conditioning system began to consume large quantities of Indianapolis Power & Light's steam output. The system, a product of subsidiary Mid-America Energy Resources, uses steam-driven equipment to provide chilled water for building air-conditioning. The company planned to develop such district systems in other cities, and the acquisition of Cleveland Thermal Energy Corporation for $9 million in 1991 was a first step. Cleveland Thermal holds the franchise for that city's undeveloped district air-conditioning system.
In late 1991 IPALCO began publicly discussing a merger with Citizens Gas & Coke Utility, which until then was owned and operated by the city of Indianapolis. Some industry analysts favored the arrangement, predicting it would provide funds needed for improvement of the city's infrastructure, while others worried that it would decrease the competition among utilities that tends to hold down prices. IPALCO executives recognized that the gas and electric industries complement each other and share many functions, including meter-reading, that could be combined to reduce costs. Discussions and public debate continued into 1992.
IPALCO instituted several new programs to reduce costs and improve customer service in the 1990s. At Indianapolis Power & Light, for example, a new Centrex telephone system enabled the company to receive calls from multiple customers during power outages. Representatives from Indianapolis Power & Light also began demonstrating and promoting energy-efficient homes featuring intelligent systems that manage all the electrical equipment. In addition, changes in the way employees process mail have allowed the company to save more than $170,000 annually by taking advantage of U.S. Postal Service discount programs.
With the 21st century approaching, IPALCO's foundations--a growing residential and commercial base in the Indianapolis area--seemed solid. When new ventures and a strong record of holding down expenses and providing low-cost power were added into the equation, IPALCO appeared adequately prepared to meet the challenges of growth and expansion in the future.
Principal Subsidiaries: Indianapolis Power & Light Company; Mid-America Capital Resources, Inc.