For the nation's electric utilities, and the regulatory agencies to which they answer, President Carter's energy package contains one clear message: There must be an improvement in efficiency.
Hundreds of billions of dollars have been invested in generating plants that sit idle at night, when most people sleep. During "peak" hours of the day, some utilities need to activate almost all their plants to meet surging demand. When air conditioning is turned on in the spring and summer, the daylight demand for electricity soars.
Even with all the conservation programs emphasized by the President, the outlook is for Americans to consume more and more electricity. In an interview last week, W. Donham Crawford, president of the Edison Electric Institute, said: "Even with maximum effort by 2000-or 25 years in the future you will have achieved only a 20 per cent reduction in consumption over what you'd have without conservation. But that still means you'll need an electric power system three times the size of today's."
While there may be great opportunity to make business and industry more efficient consumers of power. "I'm doubtful there will be a very significant effect on the use in homes," he added.
And that goes to the central problem in attempts by the Washington area's principal supplier of electricity. Potomac Electric Power Co., to make itself more efficient. Washington is a city of residences, not big industry, and Pepco suffers from what is known as one of the most unfavorable "load factors" in the entire utility industry. Its facilities must be adequate to handle the load of summer air conditioning demand in a muggy environment, but in winter there is a lot of power to spare.
So much extra power, in fact, that Pepco is able to sell electricity to other Northeast utilities during periods of weak local demand. Pepco is a member of the nation's oldest integrated power pool, the Pennsylvania-New Jersey-Maryland Interconnection (PJM), which ties together investor-owned utilities in those three states plus Delaware and the District.
By being able to tap the most efficient generating stations throughout the pool at any one moment, given total demand in a region that includes 21 million people, PJM is reported to have saved $156 million last year through exchanges of power from one company to the next.
PJM computers in Valley Forge, Pa., direct the operations of 116 generating stations, including the six owned by Washington-based Pepco. There are times when Pepco takes power from the pool, but more often Pepco is selling excess power. Last year, for example, sales exceeded purchases by $81.9 million and thus reduced the local firm's annual expenses by that amount.
That adds up to efficiency. But, by many industry measurements. Pepco is an inefficient company. Among 23 companies in the Intercompany Performance Comparison Group, for example, Pepco is at the bottom in some indices designed to relate efficiency.
The performance group study, conducted annually, previously was kept secret by member utilities. But when the most recent report was issued last fall, members were instructed to provide copies to state regulatory commissions. In the case of Pepco, that intercompany group report coincided with an ongoing examination by the D.C. public service commission of the Washington utility's efficiency - the first such investigation ever ordered, in conjunction with a rate case last year.
A copy of the report was made available to The Washington Post by Pepco officials, who emphasized their view that such comparison are of limited value because they compare data on electricity production and consumption in vastly different geographic areas. The comparative study does not show, in any event, what utilities may be operating more efficiently than others.
Edward F. Mitchell, Pepco's senior vice president for system engineering and operations, noted that his firm shows up poorly when various types of expenses per customer are cited. Pepco, in fact, was No. 23 in terms of highest general and administrative expense and highest operating and maintenance expense per customer and also had the highest amount in inventory per dollar of property and plant among all the firms surveyed.
However, Mitchell said, the U.S. government itself accounts for 20 per cent of Pepco's business but counts only as under 1,100 meters or "customers" of the utility's 457,000 installed meters; that means 20 per cent of sales go to one-fourth of 1 per cent of meters. "Thus, the per customer (meter) cost of serving the federal government is obviously very high," the Pepco official said.
Metropolitan Washington also has a high number of "master metered" apartment dwelling units (220,000 apartments are served under these meters, one to a complex). This also represents a large sales volume for a small number of meters, not typical of other companies.
Carter last week called for elimination of master meters for apartment complexes and Pepco chairman W. Reid Thompson said he agreed with Carter's goal. But, in the meantime, the existence of master meters help to distort Pepco's operations compared with other electric utilities.
According to the study, Pepco's administrative and general expenses per customer were $44.88 in 1975, the highest of the 23 firms and compared with $17.20 for New York State Electric & Gas. Virginia Electric & Power Co. was in the middle at $21.22.
Operations and materials expense per customer in 1975 reflected a similar situation. Pepco again was at the bottom, at $193.42 compared with $103.36 for New York Electric & Gas.
Mitchell of Pepco said, however, that if government business and master-metered apartments were split up into the individual customers they really represent, the per customer results of various expense categories would be about 60 per cent of the numbers that showed up in the survey.
Altogether, the intercompany comparison provides 54 separate statistical comparisons, and Pepco is not last in every category. Although the local firm is near the top ranks for only a few categories, it is 6th of 23 for the amount of fuel required to generate one unit of energy (known in the industry as "steam generation efficiency"). Also, the overall average cost of electricity in 1975 for the 23 utilities was 4.00 cents per kilowatt hour for residential users, with Pepco coming in an 3.95 cents per KWH and Vepco at 3.88 cents.
In a letter last year to Robert Stoner, head of an electric utilities study project in the economics department of the University of California at Berkeley, Pepco's Mitchell said: "No system has yet been devised or proposed which will allow true comparisons between companies using statistical data without a more detailed analysis of that data."
He cited as factors that vary from region to region 13 separate items, including accounting policies, transient characteristics of customers, environmental controls, percentage of more costly underground transmission facilities, population density and types of fuel.
In an interview, Mitchell noted that because of Pepco's huge summer demand, the company has to build facilities to handle the peak load. And yet, when spread out over 12 months that includes weak winter use, "our investment per kilowatt hour sold looks very bad. But to imply management inefficiency is very incorrect."
In addition, the participation of Pepco in the PJM pool, which constantly draws from the most efficient generating stations throughout the multistate region, has the effect of reducing use of some Pepco plants - making its capacity use factor look bad. A plant at Buzzards Point in the District, for example, is used only to meet the periods of greatest local demand, which adds up to about 10 per cent of the year. Obviously, that plant's low use makes Pepco's statistics on plant use poor to some extent.
Pepco also is unusual in the extent of its transmission facilities that are underground but more expensive to maintain.
Mitchell said Pepco has welcomed the D.C. commission's investigation of efficiency, being conducted by the accounting firm of Ernst & Ernst and due to be completed in July. "We want them to let us know where improvements can be made," he stated.Extensive new controls over management, employees, customers and the electric system have been installed in the last four to five years, he added.
While Pepco is about to install rates for its largest customers that will result in higher charges for consumption during periods of peak demand, the future of Washington as a non-industrial community appears set. Residential consumption will continue to be dominant, although the subway system will be a new, major user. It will be difficult to alter Pepco's unfavorable load factor of summer peaks unless people volunteer to live and work without air conditioning an unlikely development.