The men who send you those outrageous utility bills say there is another side to the story
In the very private washroom of the chief executive of the Virginia Electric Power Company on the 21st floor of the firm's New York-slick office building a few blocks from downtown Richmond there is a small color poster beside the sink. The poster is of four limp and confused chimpanzees hanging from the crossarms of a utility pole. Next to the chimps is this message: "And now a word from top management: 'Help.'"
When T. Justin Moore Jr. uses his washroom -- the only really private space he has in the new glass-walled building -- there isn't much to look at but the chimps. Which must make him chuckle. He likes to quote another board chairman of another company who says the most important quality for holding his job is a sense of humor.
The imposing 6-foot 5-inch Moore even chuckles when he tells, in his slightly more northern Jimmy Carter drawl, about a customer who called him at 3 one morning not long ago. "He calls and tells me his power is out at his home, and he just thought I ought to know about it. Well, I was pretty sleepy, but I asked him if he'd called the emergency number for service. 'No,' he says, 'My mother always told me to go to the top.'"
About 100 miles farther north, another utility chairman is sitting in a commanding position behind the desk in his plush top-floor office at the Potomac Electric Power Company three blocks from the White House. It is 9 a.m. and there is a stockholder in W. Reid Thompson's office. Not a big-time stockholder, but a retiree who lives at Leisure World and has invested much of his cash in Pepco stock to help him through the winter years. The elderly like utility stocks because the dividends are high -- about twice the current return on savings accounts.
"The stockholder is very upset," Thompson says. "Dividends have increased a total of 22 percent in 11 years . . . He's telling me we ought to have a higher payout. I've talked to this man on the phone many times before. I tell him we do what is reasonable. It hasn't been adequate, but we do the best we can."
Thompson is usually rather cheerful when he talks, waving his arms about as he makes a point, raising his voice to italicize certain words, confident and aggressive. But when he talks about the stockholder, he rubs his jowls with the palm of his hand. His voice becomes intimately quiet and soft. His eyes search the room for something. The old man is a painful reminder that his stockholders are not happy. And it seems as if Thompson can also see himself in Leisure World, scanning the stock prices in the morning paper each day like a masochist, wondering what's gone wrong with the world.
Nine blocks from Thompson, Paul E. Reichardt is trying to dig the Washington Gas Light Company out of a deep hole of decreasing earnings per share of stock over recent years. He is optimistic. Gas supplies are more than ample since deregulation of prices began last year, and the company is slowly beginning to grow with new hookups after a six-year moratorium. He is worried about customer anger over deregulated prices and expects bills may go up every year in the next five years. But he is not worried about being awakened at 3 in the morning. He is no longer listed in the phone book.
"I think I've got pretty good visibility as the guy who's running this company. We're not shy in speaking our piece. I do a lot of speaking to public groups. But I do it with mixed emotions. You like a private life as well as a public life."
Once a month the three energy utilities that serve the metropolitan Washington area send out 2.2 million bills. When delivered, they become an aggravation of uncharted dimension.
Families argue among themselves about doors left open when the air conditioning is on, who the last person in the rec room was because the color TV is still on, and whether the dinky 60-watt night light on the porch ought to be left on.
The products these people buy when they turn up the thermostat or switch on the coffeemaker are as much a part of everyday life as the mail service they pay for in taxes or the roads they use to get to work. But utility bills, unlike taxes, come every month. They are more direct, more personal, more seemingly controllable. Many people seem to have given up on their ability to do something about the costs of everyday services operated by mammoth bureaucracies like the Postal Service. But they have not given up on utility bills, and they don't seem likely to do so. They are angry.
The anger generated by those rising bills has returned to their source, the utilities themselves. State rate commissions, beset by an indignant public, are becoming increasingly tough about increases. Some people scream over the phone at service representatives when questioning bills. And those who do get through to the top man usually have less than an open mind about understanding the problems the utilities face.
Perhaps more than any other utility in the Middle Atlantic states, Vepco has gained a reputation for generating customer anger.
That is because "they screw up more often than other utilities," says Taylor Cousins, an economist and volunteer research director for Virginia's Consumer Congress. "They seem to have an inability to operate within the budget the state corporation commission gives them without coming back again and again for rate increases." Taylor also says the company has historically not dealt well with its own customers.
Chairman Moore himself says the firm's number one problem is public relations. And he wishes he could have run the company at another time.
"I've always said if I were ever reincarnated, I'd like my present job from 1960 to 1970." Those were really "the golden days" of utilities, he says. In that decade, customers were getting bills of $10 to $14 a month; staggering increases in technology made each new power plant more efficient than the previous one; and fuel was cheap. From 1954 to 1970, Vepco had eight rate decreases.
"Life was happy," Moore says of that time. Today, "you have to make a lot of people mad to carry out the basic purpose of a public utility. You can't carry out that purpose without building new power stations, and that makes people mad because they don't want to give up the land. They don't like to live close to it if it's a coal-fired plant because of the pollution problem, and to some extent that's true of oil. And they don't like to live close to a nuclear power plant because now they'll say they're scared because of what happened at Three Mile Island . . .
"Then you also have to build transmission lines to hook these power stations together. That takes a lot of land and that makes people mad. You have to send out bills to a million two hundred thousand people every month. That involves meter readers going out and sometimes they step in the tulip bed, sometimes the computer gets fouled up, or a fellow doesn't record the meter right . . .
"You're dealing with a product people only think about when they have a problem with it. The only time you think about us is when you flick the switch and it doesn't come on. And then you're mad. You think about us when you pay your bill. And it's higher now than it used to be, and it's going to be higher in the future. And if paying higher bills than you used to pay makes you mad, you're going to be mad over that. And all the explaining that we can do about how this is related to OPEC, how the increase in electric rates is not as much as the cost of hamburger, or going to the barbershop, or much less the hospital, that still doesn't make you but so happy with us. And that's why you have sort of -- uh -- a majority mood of discontent, and you have a lot of discontent in this country anyway, and utilities are a very good lightnin' rod for that.
"In fact the piece de resistance of your bad public relations comes in a rate case, because that' the place where everybody can show up and express this frustration they have with inflation generally and everything going up. And the utilities are all on the defensive.
"Sometimes I walk out of those hearings and I say, 'God have mercy; I'm the only person in this room who's thinking about somebody's electric supply two or three years down the road. The only thing on anybody else's mind is reducing their bill tomorrow.'
"We'd love to reduce their bill tomorrow. Stop building all the power stations and you wouldn't need the rate increases . . . Utilities are the classic case where the customer's short-term interest is diametrically opposed to the long-term interest. In the final analysis, when the rate hearings are over, when all the oratory has been said, we still have to come back and keep the lights on, and keep them on tomorrow."
Moore's customers may be mad now, but they are likely, as he admits, to get even madder in the future. Vepco is engaged in extensive construction programs that will raise the costs to consumers because of the high rate of borrowing money these days, not to mention the costs of inflation.
"The inflation rate in the construction inducstry has run higher than the rate of inflation in the country as a whole and we already have double-digit inflation," he says.
The costs of construction in the utility biz are astounding. To increase Vepco's total generating capacity by about 12 percent, the company could build, let us say, one new nuclear power plant. Estimates are it would cost in excess of a billion dollars, and would take 10 or 12 years to complete. Almost nothing in private industry costs that much to build except major refineries. Breweries, which are cited as being among the most expensive construction projects in private industry, cost a fourth to a third as much as a single new nuclear plant. Building a four-lane interstate highway from Richmond to Washington would be cheaper.
The costs of building the plants is important because industrial growth in Virginia has been a matter of state policy, Moore says. As the state grows, so must Vepco.
Throughout the 1960s and up until the Arab oil embargo, Vepco was growing at a rate in excess of 10 percent a year, which meant the utility had to double its output every seven years. And although the company has tended to be on the high side of forecasting its growth since 1973 when conservation became the name of the game, present projections allow for a more modest 4 percent a year growth well into the 1980s.
Vepco is proceeding with plans for two additional nuclear power plants and hopes to complete in 1982 its mammoth pumped storage project for Bath County -- a kind of giant utility battery in which water is pumped uphill at night when demand for electricity is low and allowed to run downhill during peak daytime demand to generate power. It takes 1.3 times as much electricity to do that than the storage unit can generate, but if Vepco can use nuclear power to provide electricity for the pumps, the project should pay off in the end because nuclear power generated by existing plants is still significantly cheaper than peak power produced by coal or oil.
How often Vepco will be able to use nuclear power is something of a question. Only one of Vepco's four nuclear plants is now in operation. Surrey 1 and 2 were ordered shut down this spring by the Nuclear Regulatory Commission for further stress analysis of cooling pipe supports. Surrey 2 had already been shut down for steam generator repairs. North Anna 1 is running well, but North Anna 2 has not been licensed and is part of a Nuclear Regulatory Commission moratorium on new licensing while the Three Mile Island study continues. Vepco hopes to have all its nuclear plants running again by the end of the year.
Vepco's commitment to nuclear power may be just fine if there is not another Three Mile Island accident. That, says Moore, could just about shut down nuclear power in this country. And if all his nuclear plants were closed? "That's like asking General Motors what would happen if autos were outlawed."
Across most of one glass wall in W. Reid Thompson's elegant office at 19th Street and Pennsylvania Avenue NW in Washington sit 23 mammoth vinyl-clad notebooks.The notebooks contain about 12,000 pages. Side by side, they stretch more than 6 feet. They are testimony to an error Pepco made in the early 1970s, but they are also witness to the fact that utilities in this decade of uncertainties are caught in a position of having to make sensible long-range plans when there seems to be little sense to what is happening.
The notebooks are environmental statements (eight notebooks) and safety analyses (15 notebooks), 300 copies of which were required by the Atomic Energy Commission. Filed in 1972, they were proposals for twin nuclear power plants to be called Douglas Point 1 and 2. This initial planning, design and equipment cost Pepco more than $62 million -- for initial work.
The error Pepco made, as did most utilities at the time, was assuming the roughly 10 percent per year increase in demand for electricity experienced in the 1950s and 1960s would continue throughout the 1970s. It did not.
"A remarkable thing happened in 1973 -- 1973 marked a complete turning point in this company's whole activities, planning, everything else," Thompson said. "The Arab oil embargo struck. Fuel tripled. Oil and coal. Oil tripled, coal just followed suit. Up through 1973 we were growing at this company at an annual rate of 8 to 10 percent a year . . . In 1974, our sales were down 7.7 percent. Down . . . " So Douglas Point was scrapped.
Pepco did not experience the peak demand for power it had in 1973 again until 1977 -- four years of essen "TEXT OMITTED FROM SOURCE"
"Conservation here was greater than at any utility in the United States" after the oil embargo, Thompson says, because the federal government, which Pepco supplies with electricity in the area, led the way. "We cut out the nuclear plants because we don't need them -- at all -- until the 1990s . . . kept the site.We're still seeking site certification for future use."
Despite scrapping the nuclear plants and drastically slowing other building programs, the company is still in a position of being overbuilt. That has cost consumers money in the '70s, but could make for bills lower than the rate of inflation for the next five or six years, Thompson says.
In the end, Pepco lucked out with its decision about the nuclear plants. The fuel contracts it had bought for the Douglas Point project were sold for a $97 million profit because, as oil and coal went up, so did nuclear fuel. Pepco actually made $35 million on its error. Best of all, perhaps, while many utilities are worried about being heavily invested in nuclear plants, Pepco is already on the road to the president's avowed energy future -- coal. This spring the company produced 90 percent of its power from coal, and hopes to average an 80 percent coal burn for the year.
Thompson does not have to worry about anti-nuclear activists marching on his plants as they have done at Vepco's plants. He does not have the uncertainty that at any day the NRC may decide to shut down his plants for safety reasons. He does not need the armed guards in turret towers with guns and grenades as Vepco does at its nuclear plants.
So what is he worried about?
"The number one problem is inflation -- and all the ramifications of that," Thompson says. "What we face in this company is a constantly increasing cost of providing electric power . . . to keep increasing the price of the product in the face of totally understandable consumer resistance."
With the exception of 1978, Pepco has asked for rate increases every year since 1973. What that has meant to the average Maryland residential user is that from 1972 to 1977 his bills more than doubled, from an average annual bill of $245 in 1972 to $508 in 1977. Meanwhile, that average customer's increase in electric consumption went up only 6 percent.
Thompson says Pepco will be continually asking for rate increases as long as inflation continues and fuel costs go up. And that worries him because rate commissions, beseiged by angry consumers whom he says "still do not accept inflation," will be reluctant to raise rates.
"There's an understandable feeling among a great number of young people that this land flowing with milk and honey has an irreducible minimum of economic largesse that is just -- there. I don't think they realize the fragility of corporations and government and society. Here is this great abundance to be divided up and dealt with. And a lot of people don't have any understanding of what goes into the production of it, the economics of it."
For Pepco, Vepco and Washington Gas Light, customer anger over rising rates is the start of a vicious circle. The customers put pressure on the state regulatory commissions to keep rate increases as low as possible. Some commissions respond, Moore says, with the "drowning man syndrome . . . It's almost like the commission is trying to hold your head right down in the water, then just bring you up every now and then to let you get just enough air to keep you going."
Low rate increases create worries among people looking for stocks and bonds to invest in. If the utility can't get enough money to cover its costs, how, they wonder, will it pay back the interest on the bonds it sells to finance new power plants, much less give stockholders a high dividend? Their fears were realized in the early 1970s when New York's financially troubled Consolidated Edison Co. failed to pay a quarterly dividend.
"Billions of dollars of utility values were wiped out overnight," Thompson says. And many utility stocks have never recovered. Pepco itself was the first utility in modern times to skip cash dividends, which it did in 1969.
All this uncertainty about a utility's ability to raise money and meet dividend payments means the company must pay more to stockholders to make their risk seem worthwhile. In the end, those costs get passed along to customers when the utility files for another rate increase.
In Pepco's case, investors have a recent example of how uncertain utility rate cases can be. In July 1977 Pepco filed for a $45.5 million rate increase in the District of Columbia where nearly 40 percent of its customers live. Two years later -- the case became the oldest without interim relief for an electric utility in the U.S. -- the District granted the company only a 2 percent increase -- $5.9 million.
The costs Pepco was seeking to get reimbursed for were based on expenses in 1977. So Pepco will be collecting its 2 percent increase in 1979 dollars, worth a lot less than the 1977 dollars it paid out.
People who buy stocks view all this with a cautious eye. So cautious that Pepco stock sells for about 80 percent of book value -- what the company is worth in hardware and buildings and land after deducting debts. Earnings per share of stock have been going down since 1976, but the utility has been careful not to reduce the amount of its dividend in hopes of keeping investor confidence.
The common stock of all three Washington area energy utilities sells for well below book value. And all three are determined to get the selling price of their stock up to about one and a quarter of book value.If they can do that by aggressively pursuing rate increases and increasing dividends, they may be able to raise money more cheaply, because they could sell common stock instead of raising money through 30-year bonds in a time of unusually high interest rates.
If Pepco can get increased rate relief in the District, Thompson thinks it will help get the price of the company's stock up. But at the same time, an increase would create havoc with his own monthly bill. Because he is running an electric utility, Thompson decided more than a year ago to install electric baseboard heat in his own home, converting from oil heat. That was costly.
"My bill is rather high," he says. "My electric bills have been as high as $600 a month. More than that. And it's not a large house. I'm not recommending electric heat for the same kind of house." Not that Thompson can't afford $600-a-month electric bills -- his salary last year was more than $192,000. And his electric bill in May, when he wasn't using heat, ran about $150.
Paul E. Reichardt's snug and restful office on 11th Street speaks subtly of a firm that has paid dividends for 127 years, of a company whose top 20 officers, except for a handful, have all served since at least 1950, of a utility which has only recently elected its first black member to the board of directors and which has never had a woman on its board, of a commercial enterprise that distributes a clean, sinple, natural product that happens to be very dangerous.
The office is lighted by glowing brass table lamps of the Stiffel variety; a stuffed Canada goose overlooks Reichardt's desk; there is a Kentucky flintlock rifle on the wall, an oriental carpet on the floor, and -- although out of character on the top floor of a gas utility company which is essentially in the heating business -- there is a marble fireplace that doesn't work.
The chairman and chief executive of the Washington Gas Light Company who works here is as quiet, reserved and private as his office. He is representative of the old guard in the utility business -- an engineer who worked his way up.
Before 1960, when the greatest challenges facing utilities were engineering problems, the companies were typically headed by men like Reichardt. As utilities struggled to raise millions for expensive new plants in the 1960s, financial wizards with Wall Street savvy rose to top management spots. In the 1970s, utilities began to feel a need for polished spokesmen who could rub shoulders with those in power at regulatory agencies, federal bureaucracies and in legislatures.
Moore, at Vepco, is a University of Virginia Law School graduate who spent his first six years out of school handling everything from traffic cases to corporate finance contracts. Thompson, at Pepco, spent 10 years in the small town of Pittsboro, N.C., practicing general law, went to the state legislature for two years, then became a judge for another two years before he joined Carolina Power and Light Company. He was graduated from Harvard Law School.
Most top engineers at utilities these days spend much of their time dealing in non-engineering areas. Reichardt himself says he "had to learn pretty quickly" the area of finance when his top financial officer died shortly after he became chairman. "I'm a chemical engineer, but you've got to remember I've been a wage earner now for about 30 years." Reichardt's "wages" last year were $112,667.
Although the chairman's office lacks the hard edge of a modern corporate workplace, he knows the gas business is no longer the staid venture it used to be. "People hit me with the idea: You're a monopoly, you don't have to worry about price. That's for the birds. We compete toe-to-toe and belly-to-belly with oil, with electric power, and we're going to be competing with solar energy and everything else when it comes along. If we're going to stay alive . . . we're going to have to be competitive. That's the name of the game."
The name of the game in the past for Washington Gas seems to have been keeping its head above water. From 1972 until last year, the company was forbidden to hook up new customers. Attrition of existing customers and conservation meant Washington Gas sold less and less of its product each year. Meanwhile, construction and maintenance costs, not to mention wages and the cost of borrowing money, were rising rapidly because of inflation. With fewer customers to bear increasing costs and with the price of gas doubling from 1974 to 1977, utility bills soared. Customers accustomed to the most efficient and cheapest of fuel -- gas -- got angry.
While costs and tempers were rising, the company's earnings per share of common stock were bouncing up and down, from a low of 90 cents a share in 1975, to a high of $2.84 in 1976.
Although earnings have been dropping since 1976, Washington Gas has raised dividends each year since.
Reichardt says if the company can keep increasing dividends, "then our stock will become more attractive to the average investor." An attractive stock would mean the company could finance some operations by selling stock instead of bonds or, as the firm sold last year, commercial notes.
"The gas business has been pretty rough over the past few years," Reichardt says. "But I'm optimistic about it now." Optimistic is one of his favorite words these days, and there is some reason for that. Gas has become plentiful and the company has permission to add to its present half-million users more than 12,000 new customers a year in Maryland and Virginia and 3,700 in the District. With total deregulation of gas prices due in the 1980s, Reichardt expects more gas to be available for new customers in the future. That prospect, however, may not last beyond 1985.
Deregulation which means more gas also causes the company problems. "One of our biggest problems is price. I say problem from the standpoint of our future, and the public's resistance to increasing energy prices . . . and believe me, it's going to be increasing. I see no direction but up."
Area regulatory agencies have already made it difficult, and sometimes impossible, for Washington Gas to cut off service in winter months to people who can't pay their heating bills.
Last year the company was unable to collect bills totalling $2.3 million. Through June this year the uncollectible bills total nearly $2 million -- nearly equal to last year's bad debt, and yet the start of the heating season is still months away. Reichardt would like to see the federal government issue energy stamps the way it issues food stamps to those who can't pay their bills. The energy stamp theme is becoming increasingly popular amont utility executives these days. Reichardt says he would also like to get more commercial and industrial customers to help spread the load of new facilities.
Brian Lederer, the public's representative before the District's Public Service Commission, thinks Washington Gas should develop more commercial customers, especially those who would cool their buildings with gas in the summer. Because the company stills considers itself primarily a heating firm, it loses money in summer months and makes money in winter months, he says. Lederer says competition from electric heat pumps and solar energy will make a more even spread of gas use all year long essential in the future.
The company's response to heat pumps has been to ask the rate regulators for higher rates from heat pump users. As for solar energy, Reichardt, Thompson and Moore all consider President Carter's goal of having 20 percent of the nation's power coming from solar energy by the year 2000 to be preposterous. "Idle dreaming," Thompson calls it. But Reichardt is clearly concerned about solar heating competition.
"We're looking ahead. We've got five solar installations either working or in construction where we're working solar in tandem with gas. We want to learn something about the solar field because we consider ourselves one day, perhaps, as a very effective merchandiser of solar equipment using gas as the adjunct . . . If there is an advantage [to solar heating], we want to have a market position on it."
If all goes well, Reichardt hopes solar heating will help extend natural gas supplies over a hump from 1985 until beyond the year 2000. Although there is a glut of natural gas on the market today, Washington Gas officers know it won't last.
"We've got to get into the synthetics and develop methane by any source we can to get over these years," Reichardt says. "The easy deposits have been found. The stuff we're going after now is in deeper and deeper water offshore, it's deeper and deeper on shore, it's going to take more money to do it." Gas will be found, he says, at a declining rate after about 1985. "You're going to have to make up this decline by producing methane from other sources." He hopes Mexican and Canadian gas will help the decline as well as supplies from the proposed Alaskan gas pipeline (which will cost "one hell of a lot of money" -- about $14 billion). But the long-range hope for Washington Gas having a product to sell, he suggests, is synthetic fuel techniques such as coal gasification.
The company is in the uncomfortable position of having to rely on the federal government to agree. "We don't have the assets," Reichardt says, to build such a plant. "A coal gasification plant of optimal size -- 250 million cubic feet per day -- would take about a billion and a half dollars, about the cost of a nuclear plant now." He laughs at the very thought of that much money for a single power plant. "Our total capitalization is $400 million. This [should be] done by consortium."
Gas deregulation, the Alaskan pipeline and projects like coal gasification will make gas prices rise even faster than inflation. Although cost increases in the fuel can be passed on to customers directly in some cases, other costs must await the approval of rate hikes from regulatory agencies. The same regulatory lag experienced by Pepco means the company never earns its allowed rate of return, Reichardt says.
So Reichardt is leading the company on an aggressive course to file frequent and "full-blown" rate cases, especially in the District where the lag has been worse than in Maryland and Virginia.
The new determination became obvious this spring. After being notified 20 months after it filed a rate case in the District that the commission was granting Washington Gas only two-thirds of what it had asked for, the company turned around in April and filed for reconsideration. When that was denied, the company filed suit in the D.C. Court of Appeals. In May the company filed an interim rate increase and asked that it take effect by October when the heating season begins. Then in June Washington Gas filed a "full-blown" rate case asking for an 18 percent increase in rates of $17.8 million.
The firm has also flirted with corporate diversification to stabilize earnings. Reichardt offers a rundown of some of the subsidiaries and their problems:
"For many years we tried to develop an underground gas storage field down in Brandywine, Md., and we were blocked politically," Reichardt says, "because people didn't want, under the ground, the storage of natural gas. They felt it was unsafe, which is not true, but nevertheless it was the public perception." Unable to buy storage rights, the company bought 2,500 contiguous acres and finally did get approval to store the gas. However, geologists then discovered the land formation was more complicated than originally thought, which would have made the storage too expensive, and the site was abandoned. Washington Gas went to West Virginia, set up another subsidiary and developed a storage area in an existing gas field. The parent company was unable to find a cash buyer for its 2,500 acres in Brandywine. So it joined forces with a Prince George's County developer and has been trying, unsuccessfully, to get the area rezoned for a new town. Reichardt says the company will not get into the land development business again.
"Back when gas was short in the early '70s, we figured the best way to help ourselves was to go out and find some gas," Reichardt says. "So we organized a gas exploration company, this was Crab Run Gas Co., and we went down in Virginia and purchased leases on 80,000 or so acres in the George Washington National Forest . . . and then later on we branched out into southern Louisiana and now into Oklahoma." Crab Run has found a bit of oil and a little gas. The "investment" in the company, as Reichardt calls, it, has been about $15 million so far. The company has not made any profit. "But the chips are not all in yet," Reichardt says, noting that exploration companies have high initial costs. "We always have high hopes. We're not expanding the operation." The possible rewards, he says, looked good "when we were not growing, and this is what forced us, or lured us, into it in the beginning."
The company has also started "a little insurance program," called Washington Gas Approved Services, Inc. It was established to sell group medical policies to employes and shareholders. Other insurance policies are being test-marketed, but, Reichardt says, "Very frankly, unless these tests show much greater potential than we've experienced before, we're not very anxious to expand this program." The company has made $25,000 or $30,000 a year on it, he says.
"The major acquisition we made was the Davenport Insulation outfit," Reichardt says. That firm, which was bought in 1977, is a regional manufacturer of cellulose insulation and an installer of all types of insulation. When Washington Gas purchased Davenport, glass wool insulation was in short supply and the demand for cellulose insulation was strong. Now all types of insulation are in good supply, and "the Davenport subsidiary is not doing as well as we had expected at this point," Reichardt says. "Last year it turned about $400,000 [profit]. It lost money in the manufacturing end and made money in the installation end. So far this year we have not made a profit. We have hopes of it picking up."
Once upon a time utilities devoted themselves to seeking increased energy consumption. Housing developments offered "Gold Medallion Homes" with heating, cooling and power provided solely by electricity. The power companies promoted them as the best modern living had to offer.
The companies were helped along by manufacturers of consumer appliances. Homes of the '60s and '70s filled up with hair dryers, coffee makers, microwave ovens, instant-on TVs, electric can openers, four-slice toasters that burned away on all four grids even if only one slice of bread was inserted, convenient side-by-side self-defrosting refrigerator-freezers, window-unit air conditioners for homes built without central systems, warming plates for dinner buffets, clock radios in every room, 80-gallon hot water heaters, high-wattage stereo systems that could make the lights dim, washing machines with double hot-rinse cycles, clothes dryers, yogurt makers, corn poppers, electric juicers, garbage disposers, Pot-Scrubber dishwashers, food processors and electric carving knives.
As surely as the two-car family became the symbol of the good life in suburbia, so did a houseful of electric appliances. And not to be left out, the gas companies revived the charm of glowing mantels in the front yard and developed the instant-on gas log fireplace. For traditionalists, gas pipes were added to wood-burning fireplaces for easy starts, and gas-fired grills in backyards sprouted like mushrooms in the forest.
Not surprisingly, Pepco's average Maryland residential customer doubled his use of electricity from 1963 to 1973. In 1940, Vepco's average residential customer used only 1,134 kilowatt hours of electricity a year. But by 1978 the same customer was using 10 times as much electricity -- 11,099 kilowatts a year.
Nevertheless, utility customers across the nation have shown increasing concern about the price of the product. Pepco's average Maryland residential customer has slightly reduced his use of electricity since the Arab oil embargo. In the District, customers last year used only a bit more than they did in 1973. True conservation by customers would probably mean a significant drop in usage. That has not happened. Instead, customers seem to be holding the line -- no growth.
No growth can be good for customers because adding new power plants to meet increased demand has been a major factor in higher bills; If the electric utilities don't grow, their costs of construction and maintenance should stabilize.
The economics that were partly responsible for the mess utilities are now in hit power companies all at once in the beginning of this decade. Vepco, for example, never asked for a residential rate increase from 1950 to 1970, mostly because of engineering successes based on technology.
But then "technology just ran out," Moore says. "They had been extrapolating these things [power plants] so that with the 300-megawatt unit, they said let's go up two-fifths and make it 500. Then they took the 500 and said let's make it 700. And all this time they were having more and more mechanical problems along the way, and there were finally some very serious operating problems and that whole pattern which had helped keep costs down and increase productivity came to a stop when they got up to the 1,000-megawatt unit. And it's still on that level."
At about the same time, people marched in the streets to proclaim Earth Day. "The environmental movement descended on us first with the Environmental Protection Act," Moore says. "That made coal more expensive to burn, because you had to put on precipitators to take more of the particulate matter out of the air and you get into some really squirrelly economics when you start talking about precipitators and stacks at coal-burning stations.
"A precipitator that will take out 99.2 percent of the fly ash costs maybe $12 million and one that takes out 99.8 percent costs maybe $50 million. And at that time everybody said it's worth it."
In 1970 the Mine Safety Act was passed, legislation Moore says jacked up the price of coal so much that utility companies began converting coal-burning stations to oil-fired plants. Crude oil was selling for a paltry $3 a barrel, and oil had an environmental edge over coal.
But by the time many plants were converted to oil, the Arabs had embargoed their crude. Pepco actually installed oil burners in coal-fired plants that never got fired up because the price of oil tripled before work was completed. Pepco went back to coal. Meanwhile, nuclear power began to look better and better.
Finally, with all the conversions to oil and back to coal to pay for, and with the heavy cost of environmental control, not to mention the start-up costs of new nuclear plants, utilities were hit by soaring interest rates.
The ultimate blow came in the first quarter of 1974 when the Consolidated Edison Co., the nation's largest utility, omitted its usual dividend. The price of utility stocks everywhere tumbled, terrifying their owners.
The story of utility executives who feel squeezed by inflation, regulation, Arabs and a technological promise that went poof up the smokestack is not just the story of the other side of the fence. The executives themselves feel that consumers are rightfully outraged. But consumers do not necessarily wear white hats, and utility executives do not necessarily dress in black. This is a story of the American dilemma of the 1980s -- in a nation of joggers, who is really willing to walk to the grocery store?
Consumers say they are dying from pollutants in the air. Utilities insist the price of environmental safeguards is out of touch with reality. Consumers say the utilities must be mismanaged, that there is a flaw in the system somewhere. But a 1977 Ernst & Ernst review of Pepco's management commissioned by the District's Public Service Commission called that utility "an exceptionally well-managed company" that could serve in many respects "as a model for management of a medium-to-large-sized electric utility."
There is, as that report and others have noted, much room for improvement, but the balance maintained between keeping costs down and providing service is so delicate that if all of Vepco's 1.2 million customers were simultaneously to start up their coffeemakers while their dishwashers were running, the kids were watching TV, the lights were on and dinner was cooking in the oven, a colossal blackout could be triggered.
The conflict between the convenience and reliability consumers want and what they want to pay for it is not unresolvable, but the solutions may be less attractive than those of the 1960s.
There is, for example, the serious experiment Vepco is now carrying out in what is called peak load management. It is really controlled blackouts. At about 4 p.m. each summer afternoon, with air conditioners running, dinners getting started, clothes in the washer and businesses running full tilt, power demands soar. At other times of the day and year power plants sit idle at enormous waste and expense. So utilities such as Vepco and Pepco are thinking about selectively blacking out certain appliances at peak periods.
"By remote control, you're going to find electric companies probably running people's hot water heaters [and air conditioners and other major appliances] and doing this at a substantially lower rate, which will make it attractive to the customer," Moore says. The blackouts might last for a few minutes or a few hours and could be rotated among small service areas.
There is also the idea of meters which record peak period usage. Under a system already proposed by Vepco to the Virginia Corporation Commission, customers would be charged a premium when power is used between the hours of 10 a.m. and 10 p.m.
Another method of dealing with peak power is the pumped storage facility. Pepco, which doesn't have Vepco's mountains in its service area to use for pumped storage, is drilling a hole in the ground in Maryland. The idea is to pump water up from an underground lake to a surface lake at night when power is plentiful and then to let it fall back through turbines in the hole, thus creating power for peak use. There is even some talk at Pepco of doing this with compressed air instead of water.
But all the ideas that utilities come up with may not get us over the hump that electric hot-air ovens and electric outdoor barbecue grills demand of the system. Fusion and solar power may solve the problem eventually, but Thompson estimates fusion will not be feasible until about 60 years from now. Until then there is the hump, and the hump will be expensive.
Even T. Justin Moore Jr. knows about that. The $155,000-a-year chief executive has an electric barbecue grill in his backyard given to him by friends. "When I turn that thing on I can almost see the meter jump off the house . . . I'm the only guy who can cook $8 hamburgers on energy charge alone." His monthly electric bills from Vepco run about $100, without electric heat. He chose not to have electric heat installed -- "so I can bitch about fuel oil." CAPTION: Cover photo, The Men You Love To Hate. Gloria Marconi's soft sculptures of T. Justin Moore, Jr., Paul E. Reichardt and W. Reid Thompson, by John Burwell.; Picture 1, No signs indicate this new Richmond building is Vepco's headquarters.; Picture 2, Pepco's mammoth coal-fired plant at Morgantown, Md.; Pictures 3 through 5, From the chief executive officers of the Washington area's energy utilities: T. Justin Moore Jr., Vepco; W. Reid Thompson, Pepco; Paul E. Reichardt, Washington Gas Light.; Picture 6, At Vepco's twin North Anna nuclear plants, unit 1 is running well, but licensing of unit 2, which is ready to start up, has been delayed by the Nuclear Regulatory Commission pending study of the Three Mile Island accident. Vepco estimates that its nuclear plants cost $170 to $230 million less to operate last year than comparable oil or coal plants, including the cost of building the plants. by Rhoda Baer