Evening star., 1941-11-30
Power Concerns Face
Smaller Profits as
Taxes Climb
Drastic New S. {. 6.
Policies Threaten
Holding Firms
Special Dispatch to The Star.

NEW YORK, Nov. 29.-Con-
comitant with the defense boom,
electric power output in 194l Is
soaring through record high ground
to an indicated 10000 100000 kilo-
watt hours, or a gain Of nearly Is
/ per cent over the 1910 total, ac-
| cording to a survey by the Standard
&, Poor's Corp.
After allowing for transmission
losses, sales probably enjoyed a
| somewhat greater rise to peak
around $4,000, 100000 kilovatt hours
/ However, since the bulk of the sales
gain is represented by larger TAX
lngs OF industrial customers at low
| rates. the rise in revenues is indi-
Gated at something under per
cent.
Although fuel prices and wage
rates have been rising, the industry
! generally has held costs within rea-
sonably good control Hence. it has
been possible to translate a fair
portitn Of the revenue gains into
improved profits before taxes. Indi-
cations are that the electric power
| industry as a whole showed a rise
OF around per cent In earnings
before taxes during l94l. However.
with the overall tax burden I'D by
an estimated % per cent from 1910,
and with little in the way of i'm
portant refunding savings recently
accomplished. final net income after
all taxes is expected to be of by
about 7 per cent.
1912 Slackening Expected.
Present indications point to
much smaller rise in industrial ac-
tlvlty for 1912 than in 194l, This
Will be felt by the electric power
industry in the form of a definite
slackening in the rate Of sales gains.
particularly in the industrial divi-
sion. Residential sales gains will
PROBABLY taper as the year pro-
crosses; in early months consump-
ton Will be boosted by the tre-
mendous appliance sales made in
l94l, but the subsequent shortage
OF appliances created BY defense
priorities will be reflected in later
year-to-year comparisons.
Since much of the prospective
sales gain will again occur in the
loW-rate industrial division. the rice
IN revenues will be comparatively
small. In any event. revenue gains
under the most favorable circum-
stances would appear barely ade-
quate to cover anticipated cost in
creases, so that final net income
Will be reduced in proportion to
further increases in Federal taxes
Holding Companies Hit.
More rigid S. E. c. regulation of
dividend payments by subsidiaries
under section IL (c) Of the Holding
Company Act is of unfavorable i'm
port to many holding companies.
The commission, in the case of
Pennsylvania Power g. Light has
brought out the existence of some
s46,O00,000 of write-ups and has
ordered the company to confine
common dividends to Is per cent
OF available earnings for the time
being. Ultimately. 1t will be neces-
sary for the parent, National Power
& Light, to make a substantial ad-
ditional investment in the situa-
ton to protect its equity.
New S. E. c. policies were even
more sharply defined In the case
of Virginia Public Service, subsi-
diary Of General Gas a. Electric
Corp, in the Associated Gas IL
Electric System Here the commits
sion rejected the company's own
refinancing plan and insisted upon
a complete recapitalization OF the
company with mortgage debt OF no
more than so per cent Of net plant
assets, adjusted to reflect the elimi-
nation Of write-ups and establish
ment of proper depreciation, with
serial debt no more than 10 per
cent Of net plant assets and pre-
ferred stock no more than IS per
cent. 1t 81 significant that General
Gas & Electric will recover rela-
lively little from its investment in
the present common.
From these instances, it is ap-
parent that in many situations, flow
Of dividend income from subsi-
diaries to parent is definitely sub
ject to interruption. Also, q neces-
sary prelude to liquidation OF hold
Ing company investments In subsi-
diaries will be rigorous revamping
Of capital strultures of subsidiaries.