Jimmy looked sad in the big full-page Vepco ad. The 5-cent price at his lemonade stand had risen to 10 cents. "When someone raises the price of lemons, someone else has to pay more for lemonade," said the text. ". . . That's inflation."

Jimmy and his pals could hardly be more unhappy, however, than the 1.2 million Virginia customers of the giant Virginia Electric and Power Co., which is seeking to impose a 25 per cent $246 million-a-year rate increase on them. Vepco ran the ad in newspapers in an effort to explain why it needs the increase.

Vepco's unprecedented request, if granted, would raise a $40 monthly electric bill to $48.49. In one stroke, the company would get an increase equal to all those that it had during the past two decades combined.

The company's increasing legions of critics are asking however, whether inflation is really the cause of all this or whether Vepco is being run by management that could handle a lemonade stand but cannot control a huge, complex corporation.

Vepco is characterized by a "sleepy managerial environment," according to one management consultant who has closely studied the company's inner workings and who asked not to be indentified. "They've been so used to passing on costs to their customers for decades that there's nothing to keep them sharp."

This consultant said he once was amazed to watch Vepco's top executives respond when an underling mentioned "a crisis that had been going on for a week. No one in the room really knew what he was talking about."

Such allegations bring swift, angry denials from executives of the Richmond-base utility. Vepco executive vice president William W. Berry says that the company's workers are "over-worked and overextended. We've got people in our stations who work hellacious hours.They feel personally critized (when Vepco is attacked) . . . The charges of mismanagement can't be substaniated and they won't be."

However, a management study of Vepco by Theodore Barry & Associates published early this year said the company could save $50 million by sharpening the management - a massive $600 million-a-year effort that critics say is unnecessarily large and that financial analysts say makes Vepco look shaky to Wall Street.

"Vepco's approach to management of power plant programs can best be described as one which is in transition," the Barry report said. ". . . Potential for improving present engineering and construction functions is considerable. . . . The management control of material inventories needs significant improvement . . . Overall, present responsibilities for the finance and accounting functions which support Vepco's construction programs are unclear and fragmented."

The company says that many of these problems - and the myriad others the report mentions - have been corrected but Vepco's critics say they wonder if this is really the case.

During 20 days of hearings on Vepco's rate increase request before the State Corporation Commission, which regulates utility rates in Virginia, Vepco's executives spoke of the company's financial crisis and outlined in dark terms what would happen if the request is not granted.

"It would impair and perhaps destroy, our ability to continue to furnish adequate and reliable electric service in the future," said Vepco president Stanley Ragone. This would mean, he said, economic "disaster" for Virginia.

The enormous stakes in this case stimulated a strong public outcry and have fed the rising politics of energy consumerism in the state.

"Rate increases have far outstripped the rate of inflation," testified Taylor K. Cousins of Virginia Consumer Congress. "Since 1972 Vepco's rates have increased 102 percent. The rate of inflation has been 46 percent. Are we to assume the company does not know this fact?"

Cousins added that he found the ads about Jimmy's lemonade stand "slick and demeaning," and he criticized the company's million dollar-a-year advertising bill that customers ultimately pay.

Inflation is in fact only a surface issue in the enormously complex case on which the commission may make a decision before Christmas.

No less than 20 attorneys representing groups from big business to the everyday residential consumer sat in the SCC courtroom during the hearings, most of them attacking Vepco's managerial efficiency, questioning the need for its huge construction program, and wondering if alternatives energy sources will ever significantly supplement the company's expensive generating plants.

The lawyers raised questions about why ratepayers must pay ever-increasing amounts while investors in the company's stocks and bonds seem assured of guaranteed returns on their investments.

They also questioned Vepco's strong commitment to nuclear generation the subject of heated controversy over safety issues.

There seemed to be no question in anyone's mind that Vepco - a major corporation with assets comparable to those of Xerox and Goodyear - is in financial trouble. Its bonds barely qualify for an A rating (triple-A is best) in New York's financial markets and its stock is selling below book value, which is the actual worth of the shares were the company to liquidale its assets.

All this means that Vepco must pay higher interest rates to attract the capital it needs to pay for power plant construction.

At the same time, it is Vepco's huge construction program that makes many investors wary because they wonder if the company will ever earn an adequate return from the plants in a future full of uncertainty about energy.

Leslie Silverstone, a vice president of the brokerage firm of Dean Whitter of the brokerage firm of Dean Witter Reynolds, Inc., said Vepco needs "this rate increase and another rate increase to really see the light at the end of the tunnel" from an investor's point of view.

During the Richmond hearings the staff of the commission itself questioned whether Vepco needed such a huge increase and whether the company was being run efficiently.

Staff utility specialist James R. Wittine testified that, "The cost of electric service to a residential customer of Vepco is high relative to what other (s) . . . are being charged for electric services in other jurisdictions throughout the United States." Vepco critics have said customers in neighboring Washington and North Carolina are buying power cheaper than many Virginians.

Wittine also testified that he examined the efficiency of nine Vepco generating plants and that in almost all cases the Vepco units did not perform as well as the national average of other generating units.

Berry, the Vepco's executive vice president and one of few senior executives there who some utility analysts regard as modern and forward-looking, conceded in a telephone interview later that the company's position is "difficult to present."

Berry said Vepco suffers from a bad "political climate" in Virginia in which utility companies are increasingly coming under fire.

Why is the big rate increase needed? Berry's answer: inflation, high population growth, increased individual use of electricity, high fuel costs, high financing costs, increased costs of building nuclear plants due to public protest and official licensing delays, and various bookkeeping requirements - all factors that tend to drive up costs.

Specifically, Vepco's revenue request breaks down this way:

$82 to $100 million or more in annual financing costs for the construction of a nuclear unit at North Anna that went into service this summer. Under current rate-making procedures, ratepayers only begin paying these costs after a plant goes into service.

$24 million annually in financing costs for other power plants under construction. Charging customers for construction-work-in-progress (CWIP) even though those customers are not currently benefiting from the plants would require a major policy turn-around by the commission. If has not permitted this practice in the past.

$30 to $40 million or more annually due to a requested change in the "test year" on which the company's revenue returns are based. BY choosing a year in which the company's financial results were relatively bad, an increased rate would have to be paid for the company to earn its authorized percentages of profit.

$13 million annually to pay for an increase to 14 percent on the return the company pays on its common stock.

$8 million to pay increased depreciation on plant.

$8 million to prepay Virginia gross receipts taxes.

$8 million for disposal of spent nuclear fuel.

$4 million for an increase in West Virginia's power export tax. Vepco has 21,000 customers and a power plant in that state.

$16 million in annual write-offs for cancellation of two nuclear power plants that Vepco started to build and then canceled in the face of decreasing demand and extensive licensing delays. This decision was strongly criticized during the hearings by Vepco's critics as a prime example of mismanagement.

Millions more in various bookkeeping changes bring the total request to $246 million, a figure that company executives said during the hearings was already outdated by inflation.