Evening star. [volume] (Washington, D.C.) 1854-1972, 1940-09-11
Big Pepco Bond Issue
Approved by 5. E. E.
With a Warning
Company Advised to Avoid
Paying Out in Dividends
More Than 1t Earns

The Securities and Exchange Com
mission today approved the applica-
ton of the Potomac IL Electric
Power Co. for permission to issue
and dispose of at private sale $10,-
000,000 of first mortgage bonds, 81
per cent series, due in 1875. The
bonds are to be sold to the Metro
politan and Mutual Life Insurance
Cos, of New York, each to get half
of the issue.
The action of the Federal agency
today cleared all administrative OBJ
StacleS to the issuance of the bonds.
The District Public Utilities Com
mission having formally approved
the application last Friday. To IA
cilitate the action on the applica-
ton. both commissions sat in a
joint meeting on August % to take
testimony.
The Federal agency sounded a
warning to the electric company
concerning its practice in 1888 and
1889 against paying out in common
stock dividends more than the avail
able earnings. 1t indicated that I'M
less this practice is voluntarily modi-
fed the commission will feel COM
PEELED to 60 into the practice when
considering future issues.
Cites Financing Policy.
while, as shown by the earned
surplus figure of P. E. P. Co. for
many years prior to 1888" the Fed
eral Commission said in its formal
opinion. 1T was the policy of
P. E. P. Co. to provide in large meas
ure for plant improvements and ex-
panSion by reinvestment of earn
ings, yet, since 1888. this policy has
been reversed, and it has been the
policy of the management to finance
Improvements and additions 70 the
greatest extent possible, according
to the testimony of P. E. p. Co.'S
president, by new financing. In
fact. recent expansion and improve
mentS have been made almost en-
tirely through the incurrence of debt
and the use of depreciation accruals,
the company having paid out in
common stock dividends during the
years 1888 and 1889 more than the
earnings available during those
years for the payment of such divi-
dendS. Generally speaking, without
consideration of the peculiar condi-
tons which may exist in each par
tcular case, the indefinite continu-
ance of this practice is open to seri-
Gus question as 10 financial sound
ness"
Statement of Costs Required.
The commission tackled a condi-
ton on its order requiring the power
company to file with the commission
a detailed statement or all expenses
in connection with the issuance and
sale of the bonds. This report is
to show the names Of persons or en-
titles to whom the payments were
made, the amounts of the payments.
the accounts charged and a detailed
description of the services rendered
IN connection with the issuance and
sale, The opinion said the company
estimated the expenses would be
Sal 800 Of this amount the invest
n1ent firm of Dillon Read g. Co. is to
receive $4,000 and the law firm of
Sullivan and Cromwell $1,000.
The commission found the price
of the bonds will be S1o8.77, plus
accrued interest, affording a net
yield to the purchasers of 2S5 per
cent.
The proceeds of the bonds. the
commission found, will be used to
maintain Pepco's normal working
capital requirements and to meet
its normal construction expenditures
during the remainder of 1910 and
the whole of l941. 1t would also in
clude costs and expenses incident
to the installation of two 10000
kilowatt turbo-generator units and
related equipment and facilities in
the Buzzards Point plant. One of
these units is to be completed in
the latter part of this year at an
estimated cost Of S4,075 900 and the
other is to be begun in le4l and
estimated to cost approximately
$685., 900.