Duke Power Company

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Duke Power Company

422 South Church Street
Charlotte, North Carolina 28242
U.S.A.
(704) 373-4011
Fax: (704) 382-8375

Public Company
Incorporated: 1905 as The Southern Power Company
Employees: 19,400
Sales: $3.68 billion
Stock Exchange: New York

Duke Power Company is one of the premier public utilities in the United States. Its system of nuclear, coal-fired, and hydroelectric power plants is among the most efficient in the country, and the company has performed well financially in recent years. Long noted for the large number of engineers in its top administrative ranks, Duke built a reputation as the country’s top nuclear utility before that industry ran into significant opposition in the 1980s, at which point Duke resumed its role as expert builder of coal-fired plants. To capitalize further on its coal plant expertise, Duke in 1989 formed a joint venture with Fluor Corporation, the nation’s largest construction firm, to design, build, and service coal facilities worldwide.

Duke Power owes its name and origin to James Buchanan (Buck) Duke, the hugely successful founder of The American Tobacco Company. In the tradition of Rockefeller and Carnegie, Duke turned his family’s modest business into a vast cartel wielding monopolistic control over the entire tobacco industry, until, like Rockefeller’s, his organization was formally dissolved through antitrust action in 1911.

Duke was born in 1856 to a farming family outside Durham, North Carolina. His father’s small farm and livestock holdings were ruined during the Civil War, leaving the family no choice but to peddle a barn of tobacco unnoticed by the looting soldiers. The tobacco was of the variety now known as bright leaf, a then-recently developed, mild, golden leaf grown in the Durham area and soon to become widely popular under the Bull Durham label. Young James Duke began selling tobacco with his father at age nine and never stopped; the family’s bright leaf sold well, and the Duke business grew rapidly. Along with his father, Washington Duke, brother Benjamin, and half-brother Brodie, Buck Duke worked day and night to make the family’s Pro Bono Publico brand of tobacco competitive with the Bull Durham leader, but as late as 1880 the Dukes remained a profitable also-ran in the booming bright leaf business.

James Duke was an ambitious young man, and in 1881 he shifted to the manufacture of cigarettes, a new and not yet fashionable form of tobacco use. Armed with a number of efficient automatic rolling machines and the excellent tobacco of his native area, Duke became a national power in the cigarette business within a few years. Relocating to New York City, Duke gained some 38% of the nation’s cigarette sales by 1889, and in the following year engineered the formation of The American Tobacco Company, merging W. Duke Sons & Company with the four leading cigarette makers in the country. During the following two decades Duke made American Tobacco the core of what came to be known as the tobacco trust, a network of interlocking corporations controlling about three-fourths of the U.S. tobacco business. Duke became an extremely wealthy, powerful, and well-known figure in U.S. business.

Among his myriad other ventures, Duke became interested in the 1890s in the future of North Carolina hydroelectric power. Electrification was slow in coming to the rural Piedmont, an area of central North Carolina and western South Carolina, but several early investors, including W. Gill Wylie of South Carolina, had begun harnessing the power generated by the many Appalachian mountain rivers coursing through the area. Duke saw the potential value of electricity to the local textile industry, in which he and his brother Ben already had extensive interests, and in 1898 the brothers began buying Piedmont river properties for later development. Duke also met Wylie and agreed to back his existing electric projects, but it was not until 1904 that the tobacco tycoon took a serious interest in the business of power.

In that year Duke, Wylie, and Wylie’s chief engineer, William States Lee, met in New York to discuss the future of electric power in the Piedmont. Impressed by Lee’s detailed plans for a series of hydroelectric plants along the Catawba and Yadkin rivers, Duke matched a $50,000 investment of Wylie’s, and the two men formed The Southern Power Company in June of 1905. Southern Power, incorporated in New Jersey and capitalized at $7.5 million, would be the holding company for Duke and Wylie’s power assets, which at that time included extensive tracts of land, several power stations, and manufacturing facilities. By 1907 Southern Power was operating two full-fledged electric plants, one at India Hook Shoals and the other at Great Falls, both in South Carolina. Three years later the company created a subsidiary, Mill Power Supply Company, to purchase, manufacture, and sell various types of electrical equipment.

Duke’s investment in Piedmont power was not limited to the millions he poured into Southern Power, however. As he had in the tobacco business, Duke went into power expecting to change the face of the industry. Not only would he bring electricity to the Piedmont, he and his brother Ben would also bring the textile factories that would buy the electricity, in that way beginning an industrial revolution in the area with Duke power as its indispensable base. He and Ben made countless investments in new and existing textile mills, offering the financial backing of the mighty American Tobacco Company to any mill owner who would buy power from the Dukes. Many of them did, their mills prospering with the efficiencies made possible by electrified spindles. The Dukes would then sell their stock to buy into another mill and thus keep the expansionary cycle rolling. By this method the Dukes were largely responsible for a surge in Piedmont textiles, where, by the early 1920s, fully one-sixth of all U.S. spindles were powered by Duke generators. Duke Power Company, as the firm was known after the mid-1920s, supplied electricity to about 300 cotton mills, in many of which it held large shares of stock, and the Carolinas’ textile industry rivaled that of Massachusetts for national leadership.

In 1911 Duke’s tobacco trust was broken up by the U.S. Supreme Court, coincidentally, also the year in which Rockefeller’s Standard Oil was dissolved, but the change had little impact on either Duke’s fortune or the growing success of his power company. Along with its many textile industry customers, Duke Power began supplying electricity to private residences in the area, a source of revenue soon to be considerably expanded by the increasing number of electric appliances in the home. Mill-Power Supply Company, Duke’s equipment subsidiary, took a leading role in the appliance revolution in the Piedmont, introducing electric irons, water heaters, and other inventions to the largely rural, conservative homeowners. Together with the universal shift to electric lighting, the growth in appliance use would eventually make residential service one of Duke’s three main sources of revenue, the others being industrial and commercial. Once the electrical household was firmly established and most of the modern conveniences introduced, residential sales remained at the level of about 25% of total company revenue.

In 1923, W. Gill Wylie died, followed two years later by James Duke, leaving W.S. Lee as the company’s leader. At about the same time, Duke Power began adding to its hydroelectric generating stations a series of larger and more powerful steam plants. The company had previously used steam generators only as auxiliaries, but with the increasing demand for electricity in the Piedmont, W.S. Lee decided to embark on a comprehensive program of steam construction. The Buck Steam Station, named after the company’s late founder, went on line in 1927, the first of many steam plants that were later to dwarf the original hydroelectric network. In 1989, the latter consisted of 26 units that together generated only 2% of Duke’s 13-million-kilowatt capacity.

The Great Depression years were difficult for many utilities, especially those which depend heavily on industrial users for their revenue. W.S. Lee’s career as one of the country’s top power plant engineers came to an abrupt halt in October of 1929, the crash and ensuing lean years ending all plans for future construction in the Piedmont. With industrial usage down, Duke Power sought to increase its residential sales by once more pushing the acceptance of household appliances and several times cutting its rates. In the midst of these hard times, Lee died in 1934 at the age of 63, bringing to an end the first generation of leaders at Duke Power. Lee’s grandson, also called William S. Lee, later became chairman and president of the company. It was not until 1938 that Duke built another power plant, and not until after World War II that it regained its earlier rapid pace of expansion.

The postwar years brought a resurgence of business and consumer activity in the Piedmont, as it did elsewhere in the United States. Duke immediately began revamping and repairing its system of plants, and was soon to spend $200 million developing a number of new and highly efficient steam facilities. The two largest of these, Dan River and Plant Lee, were in service by 1952 and together added 320,000 kilowatts to the Duke Power grid, and both plants were praised as being unusually well engineered. Duke always excelled at the construction of power stations, doing all of its own design, building, and maintenance. The company attributed to the experience thus gained, the consistently high marks its plants have earned from industry analysts. In 1982, for example, six of the eight most efficient generating plants in the United States were owned by Duke Power; as of 1989, Duke’s team of coal-fired stations had been ranked number one nationally for 15 straight years.

It was no doubt this tradition of engineering excellence that encouraged Duke to join with three other utilities in a 1956 venture called Carolinas-Virginia Nuclear Power Association. Even as they continued adding ever-larger steam plants, more than doubling the company’s capacity during the 1950s, Duke engineers had become much interested in the long-term potential of nuclear energy as an alternative source of electricity. Carolinas-Virginia was formed to build a small, experimental nuclear generator as a first step toward the eventual construction of complete nuclear stations. Its Parr Shoals, South Carolina plant opened in 1962, the first nuclear facility in the southeastern United States and a generally successful conclusion to the years of planning required. Duke officials decided that, despite the evident environmental dangers inherent in the use of nuclear energy, its engineering abilities would allow it to shift its entire power grid over a number of years, from coal and water to nuclear without an unacceptable diminution of safety. Duke, like all other nuclear power utilities, was often faced with formidable opposition to its nuclear program. Scientists and the general public were alarmed by the possibility of radiation leaks and the more remote chance of explosion.

Steam construction continued apace, including the world’s largest such plant located at Lake Norman, North Carolina, but in 1967 Duke received a permit from the Atomic Energy Commission to build the first of its full-scale nuclear units, the Oconee Nuclear Station. The proportion of electricity generated by nuclear energy at Duke rose rapidly, reaching 31% as early as 1975, and Duke’s overall capacity approximately doubled during the same short span. To feed its massive coal system, in 1970 Duke bought four coal mines in Harlan County, Kentucky, creating a new subsidiary called Eastover Mining to operate the mines. Eastover soon became embroiled in a prolonged and bitter dispute with the United Mine Workers (UMW) union, which claimed that the Duke subsidiary was preventing its workers from joining their ranks. The union took out full-page ads in leading national financial newspapers urging investors to boycott Duke stock for the company’s antiunion stance and an assortment of other alleged corporate misdeeds, including pollution and poor worker housing. To make matters worse, the economy was rocked by the OPEC oil embargo of 1973, inducing a recession just as Duke began the most intensive campaign of capital expenditures in its history, a 10-year, $6.6 billion program to run until 1982. In 1974 a belated rate hike approval from the North Carolina Utilities Commission buoyed the company, sales in that year hitting $823 million and net income $103 million. The dispute with the UMW was eventually settled, and Duke later divested itself of the mines.

By 1977 sales had again jumped, to $1.3 billion, but Duke had already begun scaling back its plans for a wholesale shift to nuclear power. The 1979 accident at Three Mile Island further darkened the nuclear horizon; although Duke continued to bring on line the nuclear plants it had under construction, by 1985 it had cancelled or postponed a total of six new units. The rising tide of opposition to nuclear power was especially painful for Duke, which had already gained a reputation for outstanding work in the nuclear field and whose chairman, William S. Lee, had been called the leading expert on nuclear power in the utility industry. The company did not initiate new construction on any nuclear units after the early 1980s, confining development to a massive hydroelectric pumped-storage station in South Carolina. Duke nevertheless remained an ardent supporter of nuclear power, which in 1989 supplied 63% of its total kilowatts. That year Lee was elected president of the new World Association of Nuclear Operators (WANO), an organization he was instrumental in creating. WANO provides a forum in which owner-operators of the world’s more than 400 commercial nuclear reactors can meet to discuss safety and related technical issues.

Further evidence of Duke’s continued commitment to nuclear power was its 1989 formation, with four other companies, of Louisiana Energy Services, a joint venture to build the nation’s first privately owned uranium enrichment facility, capable of supplying 15% of the U.S. nuclear industry’s uranium needs. Also that year, Hurricane Hugo swept through the Carolinas, interrupting service to 700,000 of Duke’s customers and causing extensive damage to transmission lines and other company equipment. Repairs took up to two weeks of nonstop work by a crew of 9,000, but Duke’s response to the crisis seemed to have been generally well received and the effect on its financial performance was negligible. In 1990 construction proceeded—ahead of schedule—on Duke’s $1.1 billion Bad Creek Hydroelectric Station. Also that year, Duke split its common stock two-for-one to make the shares more accessible to individual investors, and sold Mill-Power Supply, whose business was too small to have a significant impact on corporate earnings.

Ranked in 1990 as the country’s seventh-largest public utility, Duke Power appeared to be situated to prosper in any future energy environment. An acknowledged leader in both nuclear and coal-fired technology, Duke, in the early 1990s, was prepared to build power plants for itself or on contract for other utilities, and its highly efficient designs result in fuel conservation as well as profits.

Principal Subsidiaries

Nantahala Power and Light Company; Church Street Capital Corp.; Crescent Resources, Inc.; Duke Energy Corp.; Duke Engineering & Services, Inc.; Duke/Fluor Daniel.