When Virginia Electric & Power Co. first suggested selling stock to its customers via their monthly electric bill, a lot of people shook their heads in doubt.
Stockholders want a company to earn as much money as possible, but the utility customers' interest is in keeping down electric bills--two goals that can be hard to reconcile.
Three years and $25 million worth of stock later, the conflicting interests of the shareholder/customer are no longer an issue.
Vepco's customer stock-purchase plan has become a model for the electric industry, a source of inexpensive capital for the company, a blue-chip investment for customers and an ingenious innovation in customer relations.
With one more week left to sign up for next year's stock-purchase plan, more than 24,400 Vepco customers have already agreed to buy a record $12.4 million worth of stock, said Bill Riggs, Vepco's director of corporate services.
Both the number of Vepco shareholders buying the company's stock and the amount they invest have increased every year since the program started, he added.
Under the Vepco customer stock-purchase plan, anyone who gets electricity from the company can buy stock in Dominion Resources, the new holding company organized by Vepco. Before Dominion Resources was formed, customers bought Vepco shares, which were automatically converted to Dominion stock after organization of the holding company.
The cost of the stock is added to monthly power bills. The minimum investment is $10 a month with additional purchases in $5 increments.
So far this year, the average monthly purchase is $42--about $500 worth of stock in 12 months. The purchases averaged about $30 a month the first year of the program and increased to $35 and $37 a month in the second and third years. Even $500 is a relatively small stock purchase, which suggests the Vepco plan is reaching people who wouldn't ordinarily put their money in the stock market.
The number of participating customers has grown at about the same rate as the size of the purchases--from 14,900 the first year, to 20,400 the second and 23,300 the third, with 24,400 signed up for next year's plan as of a week ago.
In dollars, the customers' investment in Vepco/Dominion Resources has grown from $6.8 million to $9 million to $10.3 million to $12.4 million so far for the 1984 year.
Almost two-thirds of the customers who participate in the plan are up again the next year, a strong indication that they are satisfied with their investments. Though several other utilities have copied the plan or variations on it, none of them have been quite as successful as Vepco's.
To understand why Vepco customers like the stock-purchase plan, you have to look at the details of how it works. During the year, Vepco takes the money its customers send in each month, uses or invests it and pays the customers 8 percent interest until the end of the year when the cash is used to buy stock. No matter what happens to the price of the stock, the customer earns at least an 8 percent return on the monthly contribution.
The price the customer pays for the stock is determined by averaging the price of the shares on the 20th day of each month during the year, a process that roughly approximates the average price of the shares over the 12-month period.
Since the price of Vepco stock--like the shares of most healthy utility companies--has tended to follow an upward trend over time, customers have made an additional profit on the appreciating value of the shares. The shares have fluctuated significantly but in the last year have gone from the equivalent of around $19 a share to $21.50, adjusted for a reverse stock split when Vepco shares were converted to Dominion Resources.
In addition, Vepco has given stockholder/customers a bonus by paying a quarterly dividend on the stock even though the dividend is not promised in the formal offering statement. The quarterly dividend now is 40 cents a share.
There's another, sometimes overlooked, economic gain--buyers pay no brokerage commission, which can add a stiff surcharge to purchases of less than 100 shares.
While all this adds up to a good deal for investors, it's still a bargain for the power company. Vepco, which constantly needs money to pay for new power lines, upgrade its plants and build new generators, gets the use of relatively low-cost cash during the year. Plus, the company is able to operate the entire program for significantly less than it would cost to sell stock through a regular public offering, with its attendant legal fees and underwriting expenses.
On top of that is the intangible benefit of having almost 25,000 customers who own shares in their electric utility. It's a lot easier to keep the customers satisfied when they own a piece of the rock.