Evening star., 1942-04-10
Sale Of Pepco Stock
To Holding Company
Taken Under Study
Hearing Opens Today
On Cos Light Compony's
Contemplated Issue
BY DON s. WARREN.

Members of the Public Utilities
Commission today were considerine
what answer to make to the petition
by the Potomac Electric Power Co
for permission to sell to its holding
company, the Washington Railway
& Electric Co., at Sl00 par value
|. 10000 shares of Pepco common
stock as one means of raising funds
for expansion needs.
Hearings on the issue, in which
there were numerous hotly debated
questions, were concluded late yes
terday, but the commission Is not
expected to announce a decision un-
til after the transcript of the hear
lngs has been received and studied
There are some indications, however
that the commission will not be
unanimous in its findings.
The commission will open hearings
at 2 o'clock this afternoon on the re-
cent application by the Washing
ton Gas Light Co. for permission to
sell 10000 shares of IS cumulative
preferred stock at not less than 500
per share and to pay underwriters a
commission of not more than SO a
share. On this case the commission
has directed special attention to
questions whether the issue Is in
public interest, whether the COM
petitive bidding rule should be
waived. whether the proposed issue
is suitable to the capital structure
ard earnings of the company,
whether the terms are reasonable
and what conditions should be i'm
posed on the proposed issue in the
light of future financing require
ments Of the company.
Hanken Presses Question.
Gregory Hankin, commission chair
man. sought by questioning through
out yesterdays hearing to demon
strate that the proposed Pepco
stock issue to its parent company
would constitute stock dividend"
such as is outlawed by congressional
act and whether the interests of
consumers. investors or the general
public would be adversely affected
but with Indifferent success.
Two members Of the commission's
staff took the stand and both said
the proposed stock issue seem to
be desirable and proper. while dis
cussing generalities. They were E.
v. McEfresh, the commissions chief
accountant, and w. C. Swain, newly
appointed financial analyst, whose
appointment was recommended by
Mr.. Hankin
Under questioning by Mr.. Hankin,
Mr.. McElfresh agreed that the pro-
posed stock sale by Pepco to wreco
showed "some of the characteristics
Of a stock dividend" but he re-
Trained from going so far as to label
the proposed issue as stock divi-
dend." In fact, he asserted in the
beginning that he could see no
objection to the proposed stock
issue. He explained. also, that from
the accounting point of view,
stock dividend" would be the dis
tribution to stockholders @. addi-
tional shares of stock without con-
sideration" and involving a charge
to surplus. He made no suggestion
the proposed issue fell within these
categories.
Somewhat similar views were
voiced by Mr.. Swain during a long
discussion of hypothetical questions
about utility financing. in which he
said he could not see that the con-
Sumers or investors would be af-
fected adversely.
Ownership Question Raised.
Mr.. Hankin then propounded a
long hypothetical question as to
whether the public would be ad-
versely affected If the proposed stock
sale were approved but if the courts
or the commission or some agency
ruled illegal and void the ownership
by the North American Co.. giant
holding company. Of 345 per cent of
the common stock in Wreco, and
therefore If returns now paid to the
North American were withheld and
therefore made possible a reduction
IN consumer rates charged to Gus
toners of Pepco. Mr.. Swain. said
yes" the public therefore would be
affected, if such actions were taken.
Company spokeSmen repeatedly
denied that the proposed stock sale
would constitute an illegal stock
dividend" and also that the North
American issue was really a per-
tlnent part of the issue.
At the end of the hearing, S. r.
Bowen, veteran counsel to Pepco
and Wreco. told the commission he
had thought the question of the
legality of the North American
ownership of Wreco stock "had been
laid to rest" years ago He advised
the agency that not only had con-
gressional committees explored the
facts years ago. without adverse
action, but also that an Injunction
case had been taken to District
Court, in 1928, which resulted in
victory for the companies, on a
motion to dismiss the case. He
volunteered to supply copies of the
petition, the companies answer and
the court decision, and Chairman
Hankin said he would be glad If he
supplied them.
Mr.. Bowen recited that the 1928