More than 57,000 customers of Virginia Electric & Power Co. have taken the first step toward participating in a pioneer experiment in consumer capitalism will let them buy stock in their electric company on the installment plan.
Almost one out of every 20 Vepco customers asked for details of the customer stock purchase plan after reading about it in a note that came with their monthly electric bills.
It's too early to tell how many of the 57,000 customers who nibbled at Vepco's offer ultimately will sign up to buy stock every month, but the initial response is better than expected, said James Peterson, Vepco's vice president and treasurer.
Vepco customers have until July 25 to join the plan, which allows them to invest as little as $10 a month in Vepco stock.
No utility has ever tried selling shares to its customers before, and Vepco officials admit they aren't sure the plan will be a good deal either for them or for the buyers.
Selling stock to its customers wasn't Vepco's idea. The plan was drafted under pressure from some members of the Virginia legislature. The lawmakers figured Vepco's customer relations might improve if more Virginians owned a piece of the power firm.
Faced with a bill that would have required the company to offer stock to customers, Vepco "volunteered" to try it. The bill was turned into a non-binding resolution.
Vepco's main misgivings are that the plan won't produce much of the almost $400 million in capital the company needs this year and it will cost a lot of money.
The first year's sales target is $2.5 million. If customers haven't pledged to buy that much stock by Aug. 31, Vepco has the right to cancel the offer.
Regardless of how much money is raised, the first year of the program will cost an estimated $250,000, Vepco says in the prospectus sent to potential buyers.
Even if the $2.5 million target is met, the underwriting expenses will amount to 10 percent of the total, more than twice the 3 or 4 percent Vepco pays ordinarily.
Vepco won't pay for the cost overruns. The company will absorb only 4 percent of the total amount of stock sold; any expenses above the "normal costs" will have to be paid by the buyers.
Under that formula, if customers buy $2.5 million worth of stock, Vepco will pick up the first $100,000 in expenses: the remaining $150,000 will be deducted from the amount of stock the buyers get.
The prospectus was carefully scrutinized by the Securities and Exchange Commission because it is the first of its kind. Smaller and simpler than most stock offering statements, the Vepco prospectus hasn't benefitted from the trend toward writing legal documents in plain English. For example:
"The company hereby undertakes to provide without charge to each person to whom a copy of the prospectus has been delivered, on the written request of any such person, a copy of any or all of the documents referred to above which have been or may be incorporated in this prospectus by reference, other than exhibits to such documents." In other words, if you want a copy of one of Vepco's reports, they'll send it it you.
Lawyer language aside, the basic deal offered Vepco shareholders is simple:
Each month you put a little money away to buy Vepco stock. The minimum monthly contribution is $10. There is no maximum, but the payments must be in $5 steps -- $10, $15, $20, etc. Once you decide how much to put in each month, you cannot increase it, but you can drop out at any time.
Customers who sign up for the plan will get a little book of payment coupons from United Virginia Bank, which runs the program. Every month you mail your check and the coupon to the bank.
The bank holds your money until September 1981 and pays you 8 percent interest on it. If you drop out of the program, you don't collect your interest, but you do get your money back.
The interest is added to your payments at the end of the year and increases the amount of stock you get. Your share of the cost of running the program is deducted from your account and decreases the amount of stock you get. You don't have to pay the usual sales commission on the stock you buy.
The price you pay for the stock will be roughly the average selling price of Vepco shares during the year. The bank checks the price on the 20th of each month, averages the monthly prices and pays Vepco that amount per share.
In the past 24 months, Vepco stock has sold as high as $15 3/4 a share and as low as $9 1/8. It closed Friday at $11 5/8.
Vepco common stock currently pays a dividend of 35 cents per share per quarter, $1.40 a year. At present prices, the dividend amounts to about 12 percent a year return on investment.
Future prospects for the stock depend on the financial health of the utility. What's good for Vepco's customers isn't always good for its stockholders. For Vepco's customers-turned-capitalists, that could create a conflict about which side to root for in electric-rate cases. If rates go up, so could Vepco profits and the value of the stock. But if rates and profits are held down, the value of the shares will be too.