Evening star., 1939-12-31
Need Dictates Outlay
Of 900 Millions
In Coming Year
Average KiIowott-Hour
Rote Drops Below
AGENT Level
By EDWARD b. HUBBARD,
cambridge Associates Writer.

the industry tried 10 SlueIIdCk VIC
great depression by pouring $780,
600, 900 into new equipment. Present
projects are dictated by necessity,
not by economic theory.
Following the pattern of other
successful industries, utilities have
continued to lower the price OF their
product so that the market may be
widened. The average rate per kilo-
watt hour for domestic service has
now dropped below the Accent level,
and many communities where power
generation on a large scale is eco
nomical have increased average use
to we'll over 100 kilowatt hours per
month.
The fact that the potential use is
almost unlimited is demonstrated by
an experimental area in Seattle,
where extremely low rates have built
consumption up to more than 400
kilowatt hours per month. This usu-
ally represents lighting, refrigerator
and miscellaneous appliances, cook
ing and auxiliary space heating. Do
mestic hot water calls for up to 100
kilowatt hours per month for each
member of the family; is usually
heated at specified hours and stored
for later use.
Growth Facilitates Refunding.
Growth of the industry has been
gratifying. Without such growth the
refunding programs of recent years
would have been impossible; the de-
mands of regulatory commissions
would have been burdensome in the
extreme. Requirements of the Hold
ing Company Act would have been
almost as destructive as its earlier
nickname, death sentence" Per-
sistent increases in net income have
made it possible to reduce interest
burdens of operating companies and
build up the incomes and asset pro-
lection for the holding companies.
Simpliflcation of holding company
capital structures is much easier
when a fresh start can be made,
retiring all previous debt.
Federal, State and municipal COM
petition with utility companies has
definitely passed the crest of its
growth. The economies of public
operation, it has been shown, are
not as great as proponents claimed.
After allowing for the tax saving
and the reduction in interest cost
because of public guarantees, the
difference was not impressive. and
governing units were faced with the
problem of taxing something else.
Legislative Trend Favorable.
Furthermore, municipal ventures
have a way of expanding without
consideration of the economies,
which makes the guaranty more
than q potential liability. A recent
survey of State legislation affecting
public utilities during 1899, covering
68 enactments in 27 States, revealed
that % favorable enactments were
made, IL unfavorable and 27 which
could only be interpreted as neutral
In effect. Not only was the total OF
legislation considerably smaller than
In recent years, but also decided
trend toward greater consideration
for utilities was discernible.
Pressure of the S. E. C. has abated
sufficiently for that body to begin to
be concerned over accumulations of
arrears on preferred stocks. Financ-
ing of expansion cannot be con-
Quoted entirely through issuing
bonds and debentures; a cushion of
equity financing is necessary to pro-
vide an excess earning power over
fixed charges No very good chances
Of success for stock financing can be
held forth while substantial pro-
portion of preferred stock now out
standing has failed to meet its divi-
dend requirements. In some cases,
accumulations are small and can
be cleared up in a short time, but
many preferred stocks have heavy
arrears, and must resort to recapi-
talization. The S. E. c. apparently
feels that the future course of util-
ity profits Is now sufficiently estab-
lished to warrant readjustment of
preferred dividend requirements. OF
course, the longer such measures are
put off, the more it will take to sat-
isfy holders, providing earnings i'm
prove in the interim.
S. E. C. and Holding Companies.
While the s. E. c. is encouraging
the RESUMPTION of dividends on
stocks of some companies, it is
strictly reviewing payments of both
dividends and interest to holding
companies. Payments are being
challenged whenever there is reason
to believe that impairment of capital
results. A prominent case involves
the payment of interest on indebted
ness said to be incurred by a COM
pany in order to pay dividends when
earnings were not sufficient there
for. The ruling issued in this par
ticular case was that since earnings
In the period covered were sufficient
for the payment of interest, no ban
could be issued on payments.
The implication of the decision,
however, was that the payment
could not have been made had it not
been earned, regardless of the COM
pany's financial condition. If this Is
true, several utility holdings COM
panies are now skating on thin ice;
may be forced into receivership
while still technically solvent.
Consultations Forecast.
It Is likely that the year now OPEN
ing will see the completion of several
plans of consolidation of holding
companies. The S. E. c. has let it be
known that reasonable delays will be
tolerated, but that the programs
shall be completed with all possible
dispatch. Many transfers Of prop
erty will be necessary, and where
satisfactory bargains cannot be con-
cluded between two holding COM
panies, some other means will have
to be employed, such as temporary
operation under a voting trust, or
distribution of the securities Of the
operating property to stockholders
OF its holding company.
Meanwhile, the downward pro-