A Dim Bulb Brightens

The tongue of Harvard Business School Professor Andrew Brimmer was firmly in cheek last week as he greeted leaders of the nation's power companies gathered in Denver for the annual meeting of the Edison Electric Institute. "So nice to see you," said he, "now that you are feeling better." The salutation drew grim laughter. Utilities are indeed in better financial shape than they were a year or so ago, but their situation is still not exactly healthy.

In 1973 and 1974 a doubling of fuel costs and a slowdown in power demand caused by energy conservation and recession hit the industry with a jolting one-two punch. Demand for electric power, which normally increases 7% annually, showed no growth at all last year. Fuel costs for many utilities rose faster than state regulatory agencies would let the power companies boost their rates. New issues of stock in utility companies became almost impossible to sell after New York's Consolidated Edison omitted its 45-c--per-share dividend for the second quarter of 1974. To raise the capital that it constantly needs to maintain and expand power grids, the industry had to borrow at interest rates as high as 12% on bond issues and bank loans.

Now the financial bind has loosened. Despite howls from customers, regulators are permitting bigger rate increases more rapidly. During this year's first quarter, investor-owned utilities won approval for hikes totaling $1 billion a year, almost half as much as they got during all of 1974. Interest rates have come down to about 9.5% on good-quality bond issues by utilities and even less on their bank loans. Power demand is rising again, though it is only 2% ahead of last year's rate. A group of 75 utilities that recorded an aggregate profit increase of only 3% during 1974 enjoyed an earnings rise of almost 18% in the first quarter of this year.

Bare Glimmer. But the long-term outlook is far from bright. Bond interest rates are still high by any historic standards, and utilities will be saddled for years with the cost of payments on loans secured at 1974's lofty rates. Profits have improved partly because utilities have cut borrowing and construction costs by pulling back expansion plans. As of early this year, cancellations or postponements had trimmed the prospective generating capacity of nuclear power plants on utilities' drawing boards by about 65%, and the projected capacity of non-nuclear plants by around 40%. The cutbacks could leave the industry short of capacity and lead to brownouts or even blackouts once power demand rises strongly again.

Despite the improvement in utility finances, executives at the Denver meeting could not cite a single canceled project that has been reinstated. And even if all the projects were rescheduled, they would represent the barest glimmer of the nation's power needs. Over the next 15 years, according to some estimates, utilities ought to invest a staggering $750 billion in new plants. No one seems to have much idea how they can raise the money. W. Donham Crawford, president of the Edison Institute, notes that most utility stocks are still selling for less than book value, a situation that scarcely tempts investors.

Some Government help may be forthcoming. President Ford is considering proposals from his Labor-Management Committee that would, among other things, grant utilities a higher investment tax credit than the 10% that they and other industries now get, permit utilities to reduce tax bills by taking accelerated depreciation write-offs on pollution-control equipment, and help them to win still more rate increases by figuring construction costs more quickly into their rate base.

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