Evening star., 1924-12-31
COVELL EXPLAINS
LIGHT RATE PUZZLE
Gives Figures to Show How
Charge Is Cut in Face OF
Higher Valuation.

Electric Power case several days ago
consumers have been puzzling over
this question. Today Maj. W. h. X
CovelI, who, with Corporation Counsei
Stephens, represented the commission
in the agreement conferences, pre-
pared brief statement explaining
why the lower rate was possible. He
said:
ITO make clear why we can get a
7lh-cent electric light rate with
$32.50O.00O valuation, while in 1914
with a valuation of only s11,OO0,00o
the rate was considerably higher, the
following table is offered: In 1914, the
output of the company was 32,0OO,e00
kilowatt hours; in 1917, 100000
kilowatt hours; in 1920. 100, 100000
kilowatt hours. and in 1924, 14S,00O,
600 kilowatt hours.
Output Greatly Increased.
That is. the output has increased
from 100000 kilowatt hours to
14S.000, 900 kilowatt hours, or 362 per
cent, while the valuation has in
creased only 1873 per cent That Is,
the output per dollar of valuation
has increased from 81 kilowatt hours
to AS kilowatt hours"
Maj. CovelI also issued a statement
today, explaining the difference be-
tween the value Of Sl1,000,0O0 placed
on the power property in 1914 and the
value of S32,500,000 agreed upon in
the settlement. His statement fol-
lows, in part:
In 1916 the Public Utilities Com
mission claimed that no allowances
should be made for increased value
of plant due to the increasing price
level. Subsequent Supreme Court de-
cisions in general and the decision of
the Court of Appeals of the District
Of Columbia in the Potomac Electric
Power Company case in particular
tabHshed the principle that some
allowance must be made for increased
value due to higher price levels. The
fight since this time has been on the
amount to be allowed and hence to
be added to the 1914 value.
Cases Are Listed.
The courts have very generally
held that an amount should be added
to the value of the plant to represent
Going concern value. or the ipcreas-
ed value of going company over the
bare value of a newly erected but idle
plant. The Public Utilities Commits
sion has maintained that no such val
ue should be added. but that this was
already allowed for in the value OF
1914. In public utility cases in other
states the Going concern value al
lowed has usually been from 10 per
cent to 20 per cent of the value OF
the plant:
The following figures show in
round numbers the cost of plant and
other capital items. over which there
was practically no disagreement be-
tween the Public Utilities Commission
and the company value of plant in
1914:
NO depreciation deducted, s11,0S0,-
600.
Actual cost of total additions to
December 81, 1924, S14, $500
Value of Maryland property, $780,
00e.
Material and supplies. $500, 900. Z
Working capital. 100000.
Total, s27,450,000.
ITO this figure, ,etherefore, under the
principles just<stated must be added
two amounts-frst, ant amount repre-
senting the increased value due to
the great rise in prices since 1914,
and, second, an amount representing
the Going concern value.
Wanted $4,000, 600 Added.
The company maintained that at
least s10,00O,000 should be added to
cover the increase in value since
1914. THE assistants to the commits
sion found that If the Bureau of La
index figures were used the net in :
crease would be about s4.55O,0O0.
Under going concern value the
company has claimed that approx
mately a 20 per cent value was not
100 much. In the list of cases where
going concern values were allowed
by other States, prepared for the
court by the Public Utility Commits
sion assistants. the average allowed
was about 12h per cent. Thus the
, maximum figure would be 20 per cent
of s27,450,000 plus s10,000,00O, or
81 600, while 1914 per cent on
$27,450,000 plus s4.550,0OO would be
S4,000,000.
In the compromise the sum cover
ing both these points was only a
little over $1,000, 900. or s35O0 900
less than the sum of the two smaller
figures given ai.ve.
Depreciation Not Deducted.
THE resulting value, s32.500. 900, is
the value of the company, with no
depreciation deducted The question
of depreciation deserves some atten-
tlon. 1t has been strongly maintained
by the commission, and as strongly
combated by the public utilities com
panies in general, that depreciation
reserve accumulated on what Is
known as straight line basis" must
be deducted from the value of the
company TO get the rate base The
commission insists that money paid in
BY consumers in the form of rates
for depreciation of plant must not be
recapitalized and used as a basis for
further rates. Therefore, If it is con-
sfdered as belonging to the company,
II must be deducted from the value
Of the company to get Il base for
rates. If, on the other hand, it be
considered as belonging to the pub.
lie but borrowed by the company,
just like money borrowed from the
bank, it cannot be deducted from the
value of the plant, but the company
must pay interest on ii just as on
other borrowed money, and thus de-
crease the amount to be paid by the
people through the rates for depre-
citation. The commission has been in
clined to favor the latter method, be-
cause ii removes the vexing question
of depreciation reserves from the de-
batable ground.
The commission has, in fact. tried
TO get some of the other utilities to
take up this method, and has tried to
show the companies that, il anything
it is to their advantage The Capital
Fraction Company, however, is the
snly one to use this method up to the
present time. The Potomac Electric
Power Company has accepted this
method, and therefore the $4,000,00C
depreciation reserve will not be de-
uuctde from the value OF the plant,
but the company will pay interest or
this amount"