Driven to merge

Other expenses have been trimmed as well. Pepco shaved $555 million from its construction budget in the past two years and refinanced $1.1 billion in debt since interest rates began to dip three years ago.

But what has really differentiated Pepco from other East Coast power concerns is its ability to produce electricity at a lower cost than most competitors. Pepco's six fossil-fuel generating plants, scattered throughout Prince George's, Montgomery and Charles counties and Washington, consistently rank among the top 10 generating facilities in the country for efficiency.

"Pepco is a better low-cost provider of power than BGE is right now," said Ronald S. Tanner, a utility industry analyst with Legg Mason Wood Walker Inc., the Baltimore investment firm. "I can't believe the merged company won't adopt some of their techniques to save money."

In addition, Pepco is set apart by its highly residential/commercial customer base and its unique No. 1 customer -- Uncle Sam. The federal government accounts for 20 percent of the utility's business -- a fact that is both a blessing and a curse, analysts say.

The blessing is that the government has been not only a stable but also an expanding customer for years; the curse is that such a big chunk of its revenue is threatened by the Republican-dominated Congress' stated goal of shrinking government.

And Pepco courts the federal government assiduously, with accommodations such as free energy audits, $4 million in rebates since 1991 for upgrades to more energy-efficient equipment and other studies aimed at saving the feds money.

"They treat us like the big customer that we are," said Steven R. Williford, chief of maintenance and energy for the U.S. General Services Administration region, which includes Washington. "They always try to accommodate us."

The primary reason for the doting service is to protect Pepco's largest customer from other utilities anxious to take advantage of changing laws through long-term, wholesale contracts. Pepco, in fact, is negotiating its own long-term deal to secure the GSA, Mr. Williford said.

Rate requests criticized

But if Pepco bends over backwards for the government, that's often not the case with consumers, critics say.

Residential customers and the D.C. People's Counsel -- a government-sponsored citizens advocate -- have reportedly hammered Pepco for seeking what they consider exorbitant rate increases.

Most recently, the D.C. Public Service Commission in late June awarded Pepco a 4 percent rate increase, shy of the 9 percent the company sought but worth $28 million a year.

"They rarely get everything they want," said Mr. Crockett, the D.C. PSC official. "Rate increases are an emotional issue, though, and it's the nature of a litigious atmosphere like a rate case that attracts strong feelings by opponents."

To illustrate the point, between 1991 and 1994 Pepco received approval for rate increases of $83 million, a fraction of the total amount requested.

Elizabeth A. Noel, People's Counsel for the District, declined to comment on her feelings about Pepco, other than to say she has "concerns about the implications of the merger in regards to depriving rather than suppling District residents with alternatives for electricity."

To dissipate the acrimony caused by rate cases, Pepco has donated time, energy and money to the community. As BGE does in Baltimore, Pepco represents one of the largest charitable contributors to various Washington organizations, including the YMCA, the United Way and area schools such as Washington's Dunbar High, a pre-engineering school where Pepco provides scholarships and directs mentoring programs.

Help for poorer customers

Additionally, Pepco implemented a program in 1982 to discount a portion of low-income residents' electric bills by 25 percent. Some 14,000 Pepco customers now participate, said Nancy S. Moses, a Pepco vice president and spokeswoman.

Pepco's biggest philanthropic contribution, however, began in 1987, when it created a group known as Action to Rehabilitate Community Housing. Since then, the nonprofit group has bought dozens of houses and upgraded them with other charities, and weatherized nearly 20,000 homes.

ARCH, which Pepco spun off last year but continues to fund with a $1 million annual donation, also has trained more than 600 unskilled adults to rehabilitate housing.

Although there are plans to shift the headquarters to the Annapolis area when the $2.9 billion merger with BGE is completed by March 1997, Mr. Derrick insists that Pepco will continue to be a strong member of the Washington establishment.

Pepco has also managed to patch up past differences with its work force.

"We have a very problem-solving-oriented relationship," said Jim Hunter, president of the International Brotherhood of Electrical Workers Local 1900, which represents Pepco employees. "If there's a problem, we sit down and talk about it, and they give business reasons for why the view it as a problem. We both