Pumping up the voltage.

The usually somnolent $200 billion utility industry is hardly known for feisty deal-makers in its upper ranks. But Erroll B. Davis Jr., chairman, president, and chief executive of WPL Holdings, is perhaps a signal of things to come: Thoughtful, calm, and cautiously affable, he is resolute about building a market-worthy utility, and that may mean shaking things up a little.

Davis, an alumnus of Ford, Xerox, and the Army, has spent much of his six years as head of this small, Madison, WI-based utility getting ready to woo big industrial customers in neighboring states with his brand of cheaper juice.

Last November, he shook things up a lot for $807 million WPL when he merged the company with two Iowa utilities, Cedar Rapids-based IES Industries and Dubuque-based Interstate Power. When the merger takes effect in 1997, the newly formed corporation, Madison, WI-based Interstate Energy Corp., will rank 34th in revenues among U.S. utilities, with a market capitalization of $2 billion and $4 billion in assets. Of course, this merger is one of a spate of M&As that utilities executives hope will better position their companies for upcoming deregulation - and Davis is no exception.

"We are now competitively poised for the future," Davis explains. "We're putting together three companies that are already low-cost, and we're doing it to provide a platform for growth, to give us the financial staying power to serve customers better."

Structured as a stock swap, the merger was a natural fit both strategically and geographically: All three companies have low electric rates and augment their output by buying wholesale power from other utilities. Two of the three have either no or small investments in capital-intensive nuclear plants. The combined companies' service territory surrounds northern Illinois and poises IEC to go head-to-head with Chicago-based Unicom, which has high rates by industry standards and is strapped with huge investments in nuclear power plants. When the merger is completed, Davis will be president and CEO of IEC; he will add the title of chairman two years later.

Anticipating what the world will look like once utilities begin "retail wheeling" - selling their energy to residential and corporate customers across geographically established boundaries much in the way long-distance telephone companies peddle their services - has put the 51-year-old CEO on the map of forward-thinking utilities executives, one of a new generation of utility free-marketers.

"He's an intelligent executive," allows Bert Kramer, VP at New York-based PaineWebber. "He's done a good, conservative job of preparing WPL for the future."

WPL, a holding company for Wisconsin Power & Light, which supplies electricity, natural gas, or water to 400,000 customers in south-central Wisconsin, is one of the lowest-cost power producers in the country: According to the Edison Electric Institute, a trade group, Wisconsin Power & Light has an average per kilowatt hour cost of 5.33 cents, versus Wisconsin's average of 5.49 cents. The national average is 7.19 cents. Still, Davis has re-engineered its power production plant and instituted a culture of continuous improvement. The merger will reduce costs, saving an estimated $700 million over 10 years, the three companies say, by downsizing the work force by 10 percent from its current total of 6,000.

"Today, getting your costs in line does little more than get you a seat at the table," Davis says. "We've just tried to pull the chair up a little sooner." Future growth, he says, will come from IEC's ability to sell energy-related products globally. "Just what those products are I can't tell you," he says. "But with the combined strength of the three companies' resources and the economies we will achieve, we can invest in R&D and sales in a way a smaller player would not."

Kramer agrees. Under deregulation, "the utilities with high rates will be under pressure to lower rates - the ones with low rates could capture market share, and move into non-utility, energy-related areas to diversify," he says.

Davis' handiwork has taken place against a backdrop of uncertainty, since ultimately slates will decide when and how the industry will be restructured. While residential and corporate consumers will benefit from competition, most industry observers - not to mention utility shareholders - prefer a gradual transition to deregulation, since the least competitive utilities are certain to incur big losses.

"When they talk publicly about it, everyone is on the side of the consumer, just as everyone is on the side of motherhood, apple pie, and God," Davis says. "But there are those who want to retard competition, and they are not in concert with customer interest."

Davis' enthusiasm for an open-market for utilities was no doubt informed by his background in big business. The finance department at Ford, as Davis describes it, was a "tough, competitive atmosphere: 200 MBAs from the top schools, all of whom wanted to be president. I learned there that victory went to those who worked hard. I also learned what it meant to go up against someone really good - in this case, GM - day in and day out."

A self-described workaholic, Davis subscribes to the philosophy that managers work for the people they supervise. He's instituted a 360-degree peer-evaluation program, and believes firmly that supervisors are there "merely to make sure everyone has the tools, training, equipment, insight, and corporate guidance to get their own jobs done."

This egalitarianism, however, cuts two ways: "If the people are trained properly, we expect results," Davis says, his face clouding briefly. "If we don't get them, we assume you don't share our values, and you're better off in another organization."

That same steely conviction colors Davis' opinion of other CEOs. "I tend not to admire a lot of people, because I think everyone is flawed. It's harder to take good and successful companies and keep them successful for long periods of time than it is to come in, slash and burn, cut some cost, pump up the bottom line for a few quarters, announce success, and leave. To be on top and yet be able to energize a company so you'll be even better tomorrow is what I admire most. I'd like to think that's what I'm doing."

RELATED ARTICLE: PROFILE

ERROLL B. DAVIS JR. Chairman, President, and Chief Executive WPL HOLDINGS

Born: Pittsburgh.

Age: 51.

Education: M.B.A., The University of Chicago Graduate School of Business; B.S. (electrical engineering), Carnegie Mellon University.

Family: Wife, Elaine; son, Christopher, 24; daughter, Whitney, 20.

Outside interests: Golf, tennis.

Golf handicap: "Physical. [Laughs]. OK, it's 24. I started late."

Car: "Having worked at Ford, I'm a car guy, and being an anal-compulsive engineer, I want to do quality research on the car I buy. I haven't had the time lately, but I did 11 years ago, and then I bought a 533I BMW. It took me six months of road testing and reading auto magazines.

[Pauses.] I'd love to have the time to buy a new car."