Insights > MP&L’s purchase of CEPA lays the foundation for Entergy Mississippi
MP&L’s purchase of CEPA lays the foundation for Entergy Mississippi
It’s difficult to imagine life without electricity today. For most, having power to their home is an afterthought. When we flip the switch, the lights come on. It’s simple.
But it took a long time to get that way.
Living in one of the most rural states in the U.S., Mississippi residents received electricity in waves: first in cities, then in the outlying areas. The revenue model dictated that utilities build where they could serve the most customers, leaving some rural areas in the dark. Power companies had little incentive to extend their infrastructure miles and miles beyond existing transmission lines, only to serve one or even a handful of customers.
After the creation of the Rural Electrification Administration by President Franklin D. Roosevelt in 1935, people living in rural regions could establish member-owned, cooperative electric power associations. The agency lent money at low interest rates to the cooperatives so that they could build electric infrastructure; these loans were paid back using revenues the co-ops generated from providing electricity to their members. As cooperatives, the EPA's avoided many of the taxes paid by the investor-owned utilities.
Mississippi Power & Light, an early iteration of what became known as Entergy Mississippi, provided much of the electricity to western Mississippi towns and cities and to some rural areas. As an investor-owned utility, MP&L was invested in delivering power while also generating a reasonable return for their investors. Their competitor in the west central market was Capital Electric Power Association (CEPA).
Early power grid sparked by competition
Without the state regulation that exists in the power business today, the electrical grid in Mississippi looked markedly different than it does now. In some areas, excessive distribution lines from both utilities ran along utility poles, cluttering the skyline as they competed for customers.
Investor-owned utilities like MP&L and member-owned utilities like CEPA weren’t friends—they were competitors. The entities were in constant legal negotiations over territory. But MP&L had an advantage.
“We took the effort to go out there and build circuits,” says Donald Meiners, a longtime MP&L executive who retired as president of Entergy Mississippi in 1999. “Of course, we wanted to serve more people, because serving a few customers wasn't nearly as efficient as it needed to be to support what you invested in building. It was sort of a free-for-all racing to gain territory at that time.”
CEPA began to experience growing pains after a period of heavy growth in areas like Jackson, Clinton and Vicksburg. They had spread their resources too thin across their seven-county footprint, and the situation was causing financial and operational challenges. By the 1960s, it was clear they were about to have a major rate increase while MP&L rates were stable. Some members were not happy with service issues.
“Capital Electric was a rural utility that was suddenly finding itself in an urban environment where things were growing,” Meiners says. “The residences and businesses were bigger, and there were more industrial customers, as well.”
MP&L acquires CEPA
During a plane ride shortly after Meiners was appointed director of division operations at MP&L, Donald Lutken, who was then president of the company, turned to Meiners. He saw an opportunity to acquire CEPA, and he wanted him to arrange the purchase. That curt directive led to the creation of a three-person committee whose sole objective was to negotiate with the CEPA board and plan the eventual integration of the companies.
Along with George Wynn, director of economic development, and Alex Rogers, senior vice president of finance, Meiners immediately went to work on the deal. But absorbing a highly decentralized, rural utility into a more agile, urbanized outfit wouldn’t be easy. The two types of utility models were at such philosophical odds, the purchase of a large co-op by another utility had never been done before—or since.
“Buying an electric power association was a new kind of challenge,” Meiners says. “The EPAs are member owned and must vote whether or not to sell. For a deal this significant, both parties had to see some advantages. We provided enough printed copies of the purchase contract for the CEPA board to mail to every member."
One immediate advantage to CEPA was the improving service and maintenance to the 17,000 customers spread across their footprint. MP&L had a robust team of linemen in the region, all ready to handle new customers and outages. MP&L also had greater price stability compared to CEPA, which was facing major upgrade needs with costs passed to members. As a larger and better-heeled organization, MP&L could absorb the costs without causing rate shock among customers. As a result, service improved, and rates dropped.
After upgrades, CEPA lines that ran near MP&L’s lines could be joined, avoiding costly duplication; now lines could be fed from more than one way. And MP&L was also positioned to serve large industry and help develop new industrial sites.
Purchase benefits customers and workers
Although a consortium of other electric power associations challenged the purchase with the state Public Service Commission, MP&L closed the purchase in December 1972 by paying CEPA $10.5 million for facilities and another $1.5 million for other assets. The sale netted payouts averaging more than $700 per member. In the end, CEPA customers voted 2 to 1 in favor of the deal.
MP&L made good on its promise to absorb the CEPA workforce and retained the dissolved association’s board of directors for 12 years to distribute funds to the former members and to ensure the utility’s new rural customers were treated fairly. Plus, as MP&L employees, their linemen could join the International Brotherhood of Electrical Workers union. The IBEW granted those employees seniority credit for their time with CEPA.
The lasting legacy of the CEPA acquisition is how it opened rural farmlands to new uses, thanks to MP&L’s economic development engine, Meiners says. Former CEPA-serviced land in central Madison County, for example, is now home to brands like Nissan, Amazon, Siemens, Levi’s and Bayer—the core of the region’s economic engine.