Catharsis Time Again at Con Ed

New York's Consolidated Edison would be a very special enterprise even if it were not the nation's largest utility, serving more customers (9.0 million) and producing more revenues ($2.9 billion) than any other. As the company that almost everyone living in and around the Big Apple loves to hate, it supplies more than just gas, steam and the costliest electricity in the country. Con Ed's softspoken, Wisconsin-bred chairman, Charles Luce, 60, himself says that the big firm also provides ''a tremendous catharsis for the pent-up tensions of the city. If we didn't have a Con Ed, we'd have to invent it."

After New York's big blackout last week--in many respects a replay of the 1965 power shutdown that darkened eight states in the Northeast--that old Con Ed catharsis began working overtime. Federal, state and local agencies launched investigations of the power failure. Politicians and editorial writers howled over the fact that only three days before the city went dark, Con Ed's $200,000-a-year chairman had said he could "guarantee" that the chances of another blackout were remote. New York Mayor Abraham Beame summarily convicted Con Ed's management of "gross negligence," if not something "far more serious."

Can Con Ed really be as poorly run as its detractors say it is? The company has always been a tempting target, partly because of its very size. Besides being New York City's biggest taxpayer ($471 million last year) and second largest private employer (25,371 workers), it operates a vast power system comprising 118,000 miles of overhead and underground wires, cables, gas mains and steam pipes, as well as 15 generating plants and battalions of maintenance crews that seem to be forever tearing up city streets. When Luce was brought in to run the company in 1967--two years after the first big blackout--Con Ed was being badgered by civic leaders and its own 254,000 shareholders to overhaul a stodgy, ingrown management that appeared to operate as if it were part of the city bureaucracy.

A lawyer by training, Luce had had limited experience with utilities. He was administrator of an Oregon power company in the 1960s and later showed managerial talent as an Under Secretary of the Interior during the Johnson years. He seemed to possess the kind of even-keeled candor needed to deal with irate customers and fretful stockholders.

Testy Relations. Luce started off briskly enough. He revamped virtually the entire 55-member top-management team at Con Ed, bringing in many new executives from the outside. He ordered a variety of improvements to reduce chances of future system-wide blackouts, and encouraged natural-gas conservation. To better the company's testy relations with its customers, he scrapped the gratuitous DIG WE MUST signs that work crews used to place at their street excavations, emphasized pollution-control efforts and set up special offices to handle complaints.

Yet some more fundamental problems were left to fester. Pressed through the 1960s by rising demand for power, but unable to build new facilities because of opposition from environmentalists, the company carried nonexistent reserve-generating capacity on its books, and more or less hoped for the best. When Luce took over, two new plants were under construction and plans were under way to develop a hydroelectric facility atop Storm King Mountain on the Hudson River. Though all three projects were supposed to be on line by mid-1972, it took the new chairman nearly a year to realize that the target dates were wildly unrealistic. By then, costs were soaring and the environmental lobby was pummeling the Storm King project in the courts.

By the spring of 1974, the whipsaw effect of recession and rising costs--particularly for oil, which fuels 80% of Con Ed's generating capacity--left the company strapped. Realizing that it could not afford to complete its two new generating plants, let alone begin construction at Storm King--even if environmental objections were overcome--Con Ed sold the two plants to the state power authority. Most dramatic of all, the company skipped its regular 450 quarterly dividend. From a high of $26 in

1973, Con Ed stock plunged to $6 a share, and the company gave every appearance of being a financial basket case, rather like the city it served.

But since then Con Ed's situation has brightened considerably. The company now operates on a comfortable profit margin, thanks to $678 million in rate increases won in the past 2% years. (Con Ed's electricity rate, now 10.10 per kilowatt-hour, has doubled since 1972 and is 17% above the national average.) More important, the $600 million brought in by sale of the two generating plants eliminated the need to borrow for improvements for some time. The $1 billion or so that the company plans to spend on new plant and equipment over the next three years will be financed entirely out of earnings; this will leave sufficient money in the Con Ed till to continue paying quarterly dividends, which were resumed after the 1974 hiatus and were raised to 500 a share in January. Additionally, a program to collect delinquent accounts more quickly has cut down the time of the average unpaid bill from 59 days in 1973 to a present tolerable level of slightly more than a month. These changes have helped bring about a sharp earnings turnaround: Con Ed's net income rose by 55% last year, to $301.4 million, al--though revenues grew by only 18%, to $2.9 billion. With Con Ed shares now at about $23 and the company in strong shape financially, some Wall Street brokers are again recommending the stock.

Load Factor. Con Ed's biggest headache is shared by most of its customers--coping in Gotham. Unlike nearly all other major power companies, Con Ed has largely residential and commercial customers. The firm has no base of industrial consumers to keep drawing electricity when everyone else goes home for the evening or shuts off household appliances before going to bed. As a result, Con Ed must keep substantial generating capacity in reserve for peak periods but cannot fully use the costly facilities required for this the rest of the time. Con Ed's load factor--the ratio of average output to installed capacity--is under 50%, compared with Detroit Edison's 65.5% and Boston Edison's 58.7%. With almost three-fourths of its transmission lines underground, Con Ed has higher maintenance costs than any other utility. City clean-air regulations prohibit the company from burning not just coal but even cheap high-sulfur crude oil, adding yet another cost that most other utilities do not have to bear.

More than a few industry analysts are critical of the company's inability to deal more imaginatively with its problems. Says one: "Utility companies just don't get creative managers because the business is hemmed in by government regulators and the task of producing electricity is rather straightforward and boring. There just aren't any truly creative businessmen in the field, least of all at Con Ed." Last week's blackout will not make it any easier for the Con Ed management to prove that assessment too harsh.

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