Potomac Electric Power Company, once one of the half-dozen fastest-growing electric utilities in the country, now ranks near the bottom of the industry in expansion plans and that's good news, Chairman Reid Thompson told shareholders at Pepco's annual meeting yesterday.
Thompson said both Peoco's shareholders and customers have benefited from the dramatic slowdown in demand for Pepco's power, which now is increasing only about 1 1/2 percent a year.
Because the company has to spend relatively little on new plants, electric rates have increased only 15 percent in the past three years, while other prices jumped 39 percent, Thompson noted. "We forecast the need for rate increases to be significantly less than inflation in the future," he added.
He noted that stockholders' return on their equity in the company hit a record 12.76 percent last year; earnings per share were a record $2.11, and the company's dividend was boosted last week by 8 cents a year to a record $1.60 a share.
Thompson said a recent study of the construction plans of the nation's 75 biggest utilities shows Pepco ranks sixth from the bottom in construction costs as a percentage of existing investment in facilities. Pepco's budget for planned new plants is 29 percent of its present investment; the fastest growing utilities have to spend 80 percent.
Answering a stockholder's question, Thompson said Pepco plans to finance its expansion without issuing new stock, so long as the company's shares are selling for less than their book value. The company could use additional funds, he said, but has made a decision "to postpone or defer" any offering "until the stock can sell at or near book value."
That strategy will mean better earnings per share for existing stockholders and will avoid dilution of their investment. Pepco stock currently sells for about $13 a share, while the assets behind each share are worth about $17.
After Thompson's highly favorable report on the company's finances, Pepco stockholders offered little criticism of the firm's management and overwhelmingly rejected two critical resolutions proposed by activist shareholder Evelyn Y. Davis.
About 11 percent of the shareholders voted in favor of a Davis proposal to prohibit corporate contributions to charities, and 8 percent favored a plan to change the company's annual meeting date so it does not conflict with other Washington firms.