It is summer in the city. The time is late afternoon around the turn of the century--the next one.

The hum of air conditioning competes with the hum of insects. People just out of the pool are fluffing up their hair with hand-held dryers. Restless teen-agers twiddle the knobs of video games. In offices lighted as bright as the summer sky outside, word-processing equipment churns out the flood of paper that knows no seasonal slump.

All using electricity.

North of Washington, in a small pond near Sunshine, Md., the water level suddenly begins to drop 30 to 50 feet as the demand for electricity peaks. At the bottom of the pond, the water cascades down a shaft a half-mile long, surges through a powerhouse and an intermediate reservoir, then falls again.

At the foot of the second shaft, a mile underground, the water gushes into another reservoir--a series of tunnels carved in rock and as big around as subway stations--providing the energy for a second powerhouse.

What we're looking at is the power plant of the future, one of two gleams in Pepco's eye. In summer 1977, along with the Department of Energy and the Electric Power Research Institute, Pepco began a study of new ways to provide additional electricity.

The approach adopted was to find ways to store energy to be used when demand is heavy. What the study produced was a plan for two plants, one that would store compressed air and another that would store water in caverns deep underground. One or the other is likely to be built in the late 1990s, and the cost estimates make it clear why.

Using 1981 figures, a 1,000 megawatt compressed-air plant would cost $670 a kilowatt; a 2,000 megawatt underground hydro plant would cost $740 a kilowatt, while a coal-fired plant would cost $1,100 a kilowatt. The hydroplant, which uses no fuel except water, would be cheaper to operate, offsetting higher construction costs and making it hard for Pepco officials to choose between the two. Oil is so costly that it no longer is involved in such considerations.

Essentially, both plants operate by storing energy when demand is low and the system has excess capacity, compressing air or pumping water into underground reservoirs. When energy demand reaches its peak--in midafternoon when demand is twice that at predawn--the plants use the cheap stored energy to meet heavy withdrawals.

Storing water to provide electricity is nothing new. In some cases, nature is kind enough to provide flowing water to generate electricity, but in Washington the prospect of a hydropower plant at Great Falls or on the spillway at Pierce Mill seemed unlikely.

Other utility companies have stored water above ground in great reservoirs on mountaintops and used that force to generate power, but no one anywhere in the world has built a reservoir and power plant underground.

For conventional hydroelectric-pumped storage, "you need a high mountain and a low valley. Then you denude the mountain and dam the valley. The transmission line has to be sited as well. It's a major undertaking," said Peter Schaub, manager of new technology for Pepco and manager of the research project that produce the underground storage designs.

There was no site within approximately 100 miles that might be suitable for a traditional hydroelectric-pumped storage plant. In addition, using above-ground storage, the heights and depths that nature provides limits the distance that the water can fall, and the farther it falls, the more power it produces.

During the Pepco study, "somebody came up with the idea of, instead of going up onto the mountain, why not go underground," said Schaub. "Then what you need is a large mass of impermeable rock, and that you do have in the Washington area."

The rock is call gneiss, and it looks like granite. To build an underground hydro plant would require excavating roughly 8 million cubic feet. Aside from construction disruptions and getting rid of the rock, however, such a plan has little environmental impact. Instead of flooding farmland or blowing smoke in the air, production of power under this scheme does little to alter the world above ground.

Over a 30-year period, the hydro plants come out "dead even" in costs, said Schaub. "That's something of a dilemma." Schaub, an engineer, fancies the technology in the compressed air facility, but notes that its drawback is that it requires high-grade fuel to be mixed with the compressed air to provide power.

On the other hand, to be cost-effective, a hydro plant would have to be much larger than what Pepco expects to need.

"Both systems are almost benign environmentally," said Schaub. "Both would exist on 500 to 1,000 acres . . . There would be no smokestacks, no water release, no ash," he said. "With a 1,000 megawatt coal plant, it's something different."