Fortis Company History

Company History:

Fortis, Inc., through its subsidiaries, is the leading distributor of electricity in the Province of Newfoundland and the Province of Prince Edward Island, and the leading commercial distributor of electricity in the country of Belize. Fortis was created in 1987 as a holding company, with Newfoundland Light & Power Company, Limited as its chief subsidiary. Since then it has branched out into other power industry segments and diversified into the real estate and telecommunications industries. The company posted steady growth in the mid-1990s, as it expanded its power holdings into the United States and Central America.

Bringing Light to Canada in the Late 19th Century

Although Fortis is a relatively new company, its core subsidiary and predecessor, Newfoundland Light & Power Co., boasts a rich history dating back to the 1880s. By that time, Edison's breakthrough electric lamp had been introduced as had his design for an entire electrical supply system. Demand for Edison's system was immediate and overwhelming. Not exempt from the clamor to develop an electric system were Edison's northern neighbors in Newfoundland (which did not actually join the Canadian confederation until 1949). In fact, it was on October 19, 1885, that residents of Newfoundland's port city of St. John's saw an electric light demonstrated for the first time. That event sparked a concerted drive to bring electricity to St. John's and throughout the rugged, sparsely populated Newfoundland region.

Among the first communities along the North American coast to develop an electric system was St. John's, a relatively wealthy town of about 31,000 people who were mostly of English or Irish descent. In May 1885, five men--Alexander McLellan Mackay, John Steer, Walter Baine Grieve, Edwin John Duder, and Moses Monroe--incorporated themselves as Newfoundland Electric Light Company Limited. Through that venture, the investors planned to develop "an electric light station or stations in St. John's and elsewhere in Newfoundland."

Spearheading the effort were Monroe and Mackay. Mackay served as the company's first president until 1892, at which time he was succeeded by Monroe. Mackay had moved to Newfoundland in 1857 to head the local division of the New York, London, and Newfoundland Telegraph Company. He became a Newfoundland citizen and achieved notable success as a politician there. Monroe was a successful businessman and was operating a successful wholesale venture at the time.

The fledgling electricity company, which became known as St. John's Electric Light Company, strung electric wires and converted an old warehouse into a power station. By October 1885 the company was already burning electric street and store lamps. Despite initial glitches--one telephone office employee was blown six feet away from the switchboard when electric lines came into contact with the phone lines--the company was an early success. Several companies signed up for electric lighting service and, significantly, St. John's Electric secured a lucrative street lighting contract with the city. By 1887 St. John's Electric was supplying electric lighting to about 50 companies and by 1888 was fueling about 25 street lamps that replaced antiquated gas lamps.

Once the company had proven the viability of electric lighting, growth was rapid. In 1889 the company installed a new plant near its first generation building to produce power for incandescent lamps. The advanced system consisted of two horizontal steam engines that drove a shaft connected to two dynamos. The contraption was capable of producing a total of about 330 amps at 125 volts (a very small amount of power by modern standards). Demand for electricity surged and within a few years generation capacity was again increased. In addition to lighting, St. John's Electric began producing power for other uses, including an electric street car in the early 1890s. The company also realized demand growth as a result of an unfortunate 1892 fire, which burned much of the city and severely damaged the competing gas company's infrastructure.

St. John's Electric and most of Newfoundland were rocked by financial turbulence during the mid-1890s. One result was that ownership and control of the electric company changed hands before the turn of the century. Simultaneously, other events were transpiring that would have an impact on the future of St. John's Electric Light Co. Among them was the creation of a street railway company by entrepreneur and statesman Sir Robert Gillespie Reid.

Reid had moved to Newfoundland in 1890, by which time the 48-year-old was already a multimillionaire. He took on the construction of a regional rail system as a new challenge beginning in 1890 and by the early 1890s had effectively built a rail network in and around St. John's. The importance of the development of St. John's Street Railway Company was that the venture entailed the development of a hydroelectric station and other infrastructures that were eventually integrated with the original operations of St. John's Electric Light Co.

Revamping the Power Infrastructure: 1900-50

Electric power was supplied to the St. John's region during the early 1900s primarily through a company named Reid Newfoundland, which was headed by the Reid family and had effectively absorbed St. John's Light Electric Light Co. As the number of applications for electricity increased, demand rose and Reid Newfoundland expanded capacity. Despite that growth, Reid Newfoundland enjoyed only spotty profitability from its electric power operations. In fact, the Reids tried to jettison the division in the 1910s. By the 1920s, moreover, the electric infrastructure was becoming outdated and needed an overhaul. Reid Newfoundland incorporated a subsidiary named St. John's Light and Power Company that consisted of its electricity-related assets. It sold that company, by means of a relatively complex transaction, in 1924 to Montreal Engineering. The company was reincorporated as Newfoundland Light and Power Co.

New ownership of the power company was welcomed by many, because it was assumed that the new owners would inject the capital needed to update the aging system. Indeed, Montreal Engineering boasted wide experience in the North American light and power industry. Its expertise became evident at Newfoundland Light and Power as the company invested heavily and upgraded the system during the 1920s and 1930s. It boosted capacity, renovated the street car system, and launched a drive to increase consumption of electricity in St. John's and outlying areas. The company's main power generation station, for example, was upgraded during the mid-1920s to produce more than twice as much power as it had delivered prior to 1924. Customers were given incentives to use electricity, for example, to heat their homes, and electricity prices dropped as the aggregate volume of consumption rose.

Also boosting consumption for Newfoundland Light and Power was increased use of electricity by the company's major consumer outside of St. John's: the Bell Island iron works. Expansions at that facility during the late 1920s and 1930s, combined with other growth in the region, significantly boosted electricity output. Furthermore, during World War II electricity demand increased and the company expanded with additional hydro generation plants. After the war, the street car service was terminated to make way for the increasingly popular automobile. Despite that loss of power use, demand for Newfoundland Light and Power's electricity would rise as the postwar economy boomed; immediately following the war, though, consumption declined as use by local military installations diminished.

Just as important to the company as evolving power needs during the late 1940s and 1950s were striking political changes. In 1949, shortly after the tram service was stopped, Newfoundland became a Canadian province. For Newfoundland Light and Power and its 135-member workforce, that meant that the company was suddenly subject to regulatory control by the national government. Furthermore, it played a part in the formation of a labor union at the company, Local 1620 of the International Brotherhood of Electrical Workers (IBEW). It was with those changes that the company met the challenges of the 1950s and 1960s, most paramount of which were population growth and increased consumption of electricity per capita.

Postwar Expansion: The 1950s and 1960s

Indeed, the population of St. John's increased from about 50,000 in 1950 to 80,000 by the mid-1960s. Similarly, the company's power output grew more than threefold between 1947 and 1957. Power output during the late 1950s and 1960s, moreover, increased rapidly as Newfoundland Light and Power labored to extend its services outside of St. John's and throughout Newfoundland. The company constructed several new generation facilities and updated infrastructure throughout the period. New infrastructure included an innovative steam plant during the mid-1950s and replacement of incandescent street lights with high-efficiency mercury-vapor lamps during the early 1960s. Meanwhile, the company overcame memorable obstacles to progress, including a devastating sleet storm that wreaked havoc on the electricity delivery systems.

It was during the 1950s and 1960s, when Newfoundland Light and Power began reaching outside of its traditional boundaries near St. John's, that its potential service offerings began to overlap with those of other power companies. Since the early 1900s, in fact, several smaller electric companies had emerged in more rural areas of Newfoundland. United Towns Electric (UTE), for example, had supplied power to areas outside of St. John's since the early 1900s. UTE had grown in part by purchasing other rural power companies, such as the Conception Bay Electric Company (which it bought in 1914), the Wabana Light and Power Company (acquired in 1931), and Public Service Electric Company (1932). As UTE grew, so did another regional power provider named Union Electric Light and Power Company (UELP). UELP had started in 1916 and, like UTE, had merged with or purchased several other power suppliers to become a major rural power company. By the 1960s both UTE and UELP had become major Newfoundland power suppliers.

During the early 1960s, UTE, UELP, and Newfoundland Light and Power--the three established private utility companies in Newfoundland--became physically joined when they linked power lines in various projects. The linking of the three companies started the ball rolling toward the inevitable merger of a province-wide utility company. Other factors driving the union included pubic pressure for uniform electric rates, territorial disputes between the three companies, and the need for an integrated provincial power grid system. That merger finally occurred in 1966, when executives at the three companies, with permission from regulators, agreed to become a single entity called Newfoundland Light & Power Company, Limited. The Newfoundland Light and Power moniker carried over primarily because that predecessor company was far and away the largest energy producer, with about 95,000 kilowatts of capacity, compared with 25,000 and 4,662 for UTE and UELP, respectively. The newly amalgamated company enjoyed a customer base of more than 80,000.

Executives spent the next few years consolidating operations and streamlining the 77 different rate categories into just three. Management and administrative operations were combined and the systems were updated to create a uniform, province-wide company. Meanwhile, electricity consumption in the region soared, particularly during the 1970s when the company encouraged customers to heat their homes with electricity. In 1974 alone, Newfoundland's electricity use surged more than 20 percent. To keep up with increased demand Newfoundland Light & Power added capacity and updated infrastructure. During the early 1980s rampant growth was squelched by the energy crises that pushed up electricity prices. Still, Newfoundland Light managed to post 5 percent annual consumption gains throughout the period and into the mid-1980s.

Diversification in the 1980s and 1990s

By the mid-1980s Newfoundland Light was generating about C$200 million in annual sales and capturing roughly C$16 million in net income. Its growth was predictably stable during most of the decade and into the 1990s because of its status as a government-regulated and protected utility. Revenues increased quickly to C$244 million in 1985 but then rose steadily to C$250 million in 1987 and then to about C$308 million in 1990, about C$24 million of which was netted as income. During the same period, the company's customer base increased from about 170,000 to 184,000, and then to 192,000. By 1990 the company was operating about 30 generating plants and serving roughly 85 percent of the province's electricity consumers. It purchased most of the electricity it sold from the Newfoundland and Labrador Hydro Electric Corporation. After years of operating purely as a government-regulated utility, however, Newfoundland Light & Power embarked on a new course in the late 1980s and early 1990s.

The change was partially the result of a new president. In 1985 Angus Bruneau was hired to run the company. Bruneau differed from his immediate predecessors in that his background was not in the utility or government sector. Among other initiatives, Bruneau created an advisory council designed to improve the company's customer relations. More important, it was under Bruneau's leadership that Newfoundland Light & Power began the transformation from a regulated public utility to a private-sector company engaged in nonregulated business. In 1987 the company created a holding company--Fortis, Inc.--to purchase the assets of Newfoundland Light & Power Co. The move was designed to allow the company, through Fortis, to participate in non-utility ventures.

Thus Newfoundland Light and Power Co. had suddenly become a subsidiary of a larger company named Fortis, Inc. The change was somewhat superficial, as existing management remained entrenched. It was important, though, because it allowed the company to diversify and invest its resources in potentially higher-profit businesses. To that end, in 1989 Fortis established Fortis Properties as a real estate arm. During the early 1990s that division began purchasing shopping malls, retail and office buildings, and other commercial properties. That effort was viewed as a way to benefit from depressed real estate prices caused by an ugly commercial real estate downturn. Between 1989 and 1994, Fortis Properties' assets increased from C$6 million to C$87 million.

Also in 1989, Fortis purchased Newfoundland Building Savings and Loan. It used that bargain buy to form the foundation for a new subsidiary called Fortis Trust. Fortis Trust, a mortgage company, started out with C$5 million in mortgage assets but grew to C$60 million within four years (it would eventually be sold, in 2001, to Scotia Bank). In 1990 Fortis bolstered its utility holdings when it acquired Maritime Electric, the power generation company that served approximately 90 percent of the population of nearby Prince Edward Island. During the early 1990s, Fortis used its expertise and deep pockets to whip the utility into shape. Rates were cut on the island by about 9 percent and customer service was improved. Maritime was unique in that it was a private company almost exempt from government regulation and, therefore, complemented Fortis's goal of private-sector diversification.

In 1991 Fortis made its foray into the telecommunications business when Fortis Properties joined in a partnership with Unitel Communications to provide wireless and other alternative telecommunications services to Newfoundland. Unitel quickly built a C$30 million system in Newfoundland, which became the most successful Unitel operation in Canada. Fortis also attempted a venture into the gas pipeline industry when it made a bid for a Saskatchewan gas pipeline company. The effort failed but signaled the company's intent to diversify broadly. "I jokingly say that at Fortis we have two rules," said Stanley Marshall, vice-president of corporate affairs, in a Trade and Commerce Magazine special supplement in 1994, "one, we invest in nothing that grows, i.e. cucumbers, fish, anything like that; and two, where government invests our taxes, no further investment by Fortis is warranted."

The impact of Fortis's diversification on sales was negligible during the early 1990s, given the immense size of its core Newfoundland Light & Power Co. operations. Revenues rose to about C$380 million in 1994, about C$31.3 million of which was netted as income. Each of its new divisions was posting steady gains, however, and its core utility company continued to show profits. Net income at Fortis Trust, for example, grew from about C$50,000 to nearly C$500,000 between 1990 and 1994, while profits at Fortis Properties increased from almost nothing in 1991 to more than C$1.2 million. Its core utility operations, meanwhile, supplied power to more than a quarter of a million customers in 1994. The company's long-term goal was increased efficiency in its utility operations and ongoing diversification into growth industries.

Expanding Power Holdings in the 1990s

Although electric utilities in Canada suffered a period of stagnant growth and high interest rates during the early 1990s, Fortis held to its belief that its future prosperity depended on the further expansion of its core business. The key was to find ventures that offered stability and steady growth over the long term. A projected merger between Fortis and Newfoundland and Labrador Hydro in 1993 was particularly appealing to shareholders, since the latter already supplied Fortis subsidiary Newfoundland Light and Power with most of its electricity and would provide for greater efficiency and cost savings. The deal fell apart in the face of charges of political favoritism, however, and the company's stock subsequently declined.

Fortis rebounded nicely the following year, when it purchased the remaining 68 percent of Maritime Electric. It was a conservative move compared with the bid on Newfoundland and Labrador Hydro, and it made sound business sense: Maritime was a proven performer, and it dominated the electricity market on Prince Edward Island. The company further increased its market share of the Canadian power industry in 1998, with the purchase of 50 percent of the Canadian Niagara Power Company. The deal was significant in that it expanded the company's reach into Ontario, where Canadian Niagara already had a sizable customer base and a yearly power generation of 650,000 megawatt hours. Even more attractive to Fortis was Canadian Niagara's license to sell electricity in the United States; Fortis built on its U.S. holdings in 1999, when it purchased two hydroelectric stations in New York State. The company subsequently created the FortisUS Energy Corporation, in order both to manage the new generating facilities and to establish a strong foothold in power markets south of the border. FortisUS became a subsidiary of Maritime Electric and controlled a total of four hydroelectric stations in New York by 2002.

These acquisitions also served as the impetus for expanding the company's holdings outside of North America. One area with huge potential was in the country of Belize. By 2000 Fortis owned a 67 percent share of Belize Electricity Limited, the only commercial power distributor in the country, with a customer base of more than 50,000. In January 2001 Fortis acquired a 95 percent stake in Belize Electric Company Limited (BECOL), which owned the Mollejon hydroelectric plant. The Mollejon facility had a generating capacity of 80 gigawatt hours a year and was the sole commercial electricity supplier for Belize Electricity Limited.

The company's business dealings in Belize were not greeted with universal enthusiasm, however. In late 2001 the company's proposed dam project in the Macal River Valley came under fire from environmentalists both at home and abroad. One notable opponent was Robert Kennedy, Jr., who led a campaign against the dam's construction, citing the potential devastation to the country's wilderness areas. The company asserted that the dam would cause negligible damage to the environment and that it would help ensure that power rates in Belize remained affordable. Furthermore, greater generating capacity would allow Belize to become less dependent on power from Mexico, which was a dominant electricity supplier to the country. Although the opposition stirred up a great deal of media attention, by 2002 the government of Belize remained committed to the project, and Fortis had every hope that the venture would eventually reap huge rewards.

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