Virginia Electric & Power Co. is entering one of the most crucial periods of its long history with a new top management team.
Suffering from a bad image caused by problems of nuclear generation and consumer price increases over recent years, Vepco also has been experiencing hard times on Wall Street - the price of its stock is low compared with other major utilities and its dividend rate growth has been sluggish.
Over the next two years, Vepco will be seeking substantial increases in electricity rates to boost profits and dividends and help restore the firm's attraction to investors. But the rate increase process itself will generate new public scrutiny of the utility's operations and leadership.
Vepco announced in Richmond yesterday that top management will be realigned effective Jan. 1 in preparation for the planned retirement next October of chairman John M. McGurn, the crusty and no-nonsense chief executive who has headed Vepco since 1967.
T. Justin Moore Jr., who joined the firm a decade ago and has been president since 1970, will become vice chairman and chief executive officer. Moore then would replace McGurn as chairman later in the year.
In addition, Vepco said that Stanley Ragone will become president and chief operating officer, succeeding Moore. Ragone came to Vepco in 1948 as an engineering assistant and has been executive vice president since 1976.
McGurn, who is 64, said yesterday that he, Moore and Ragone will function from Jan. 1 as the "office of the chief executive," providing "an orderly transition during the period prior to my retirement."
By promoting Moore and Ragone, both 52, Vepco's board of directors apparently is not signaling any new direction for the company because both men had been thought to be likely candidates for their new jobs.
But by installing Moore and Ragone in the top positions nine months before McGurn steps down, Vepco is giving the incoming chairman and president an increased role in key decisions that must be made in the near future.
Vepco dates its history to 1787, when businessmen George Washington and James Madison joined with others to form the Appomattox Trustees. Its first line of business was clearing and improving the Appomattox River for shipping. Later, the company developed canals and water power, electric street car railways and electric power generation to run the rolleys, as well as natural gas distribution.
Today, Vepco no longer is engaged in transportation and its main business is supplying electric power over a 32,000-square-mile region that includes 66 of Virginia's 95 counties plus small areas in West Virginia and North Carolina.
Electricity sales account for 96 per cent of Vepco's annual revenues, and customers in Virginia account for more than 90 per cent of the company's electric revenues.
As a result, Virginia's State Corporation Commission is a major factor in the company's fortunes, as the regulatory agency seeks to establish fair rates of profit for the utility as well as fair electricity prices for consumers.
In this environment, the following are among the main issues Vepco's management faces:
Electricity rates must be increased over the next two years. According to a prospectus for a preferred stock exchange offer to take effect today, Vepco's management has determined that, with continued inflation and new plant expenditures, "very substantial increases" will be sought from the SCC in 1978 and 1979.
Although permitted to earn profits on total investment of 9.6 per cent (13.6 per cent on common equity), Vepco has not been earning at that level. Assuming a startup next February of a nuclear power plant at North Anna, Vepco is projecting that profits in the year ending next June 30 will be $127 million below that permitted by the state.
Wall Street analysts have forecast that Vepco will seek more than that amount in a rate increase early in 1978 to take effect by mid-year. Even if higher rates are approved, the investment firm of Kidder, Peabody & Co. is forecasting that Vepco won't reach its permitted level of profitability before 1979.
In balancing Vepco's needs, however, the SCC will be pressed to consider the impact on Virginians of recent rate requests - the most recent boost was $65.9 in December 1976.
Kuhn Loeb & Co., an investment firm, recently analyzed electric rates for 1976 and found that Vepco's residential rates rose 16.4 per cent a year from 1971 to 1976 - the third biggest annual growth rate in the nation (Potomac Electric Power Co. rates rose 13.6 per cent a year over the same period, 27th out of 80 utilities surveyed).
The company expects to continue to expand generating facilities to meet a growing demand for power. Vepco estimates capital expenditures of $1.9 billion for 1977-1979, of which $600 million would be spent next year. About $1.1 billion of the three-year total is expected to be raised by selling stocks and bonds.
Additional financing will be required if the company fails to receive payment on claims before 1980 in litigation involving Westinghouse Electric Corp. Vepco had contracts calling for delivery of 14 million pounds of uranium at $9.50 a pound, and the current price exceeds $40 a pound.
As part of the need to raise new capital and improve its financial condition, Vepco today is beginning an exchange offer of a new $8.60 dividend preferred stock for shares of five series of existing preferred - $5, $4.80, $4.20, $4.12 and $4.04. The offer extends to Dec. 20 and will benefits customers by reducing the cost of capital for expansion.
In addition, Vepco plans to sell 5 million new shares of common stock on Dec. 12.
In the exchange, Vepco is offering $54 million on a new preferred, with a higher dividend, for older issues with a combined value of $91 million that have been trading at about half par value.