Evening star., 1942-10-06
PUG Approves Sale
OF 100000 Shares Of
telephone Stock
Transfer Of $50, ,000. 900
c. & P. Issue to A. T. & T
Voted Unanimously

BY unanimous decision-some-
thing unusual in its recent history
the District Public Utilities Com
mission today approved q petition
by the Chesapeake & Potomac Tel
ephone Co. to issue $50 900 900 OF
common, stock to its parent COM
pany, the American Telephone a.
Telegraph Co., to wipe out an equal
amount of short term loans.
After but several hours of testi-
mony, James H. Flanagan, PUG
chairman, announced that the pc
tition had been granted and that
the decision was unanimous. Greg
ory Hankin, PUG member and
former chairman, said that he con-
Cured, but added that he would
write a concurring opinion to ex-
plain the reasoning involved.
Held Not Stock Dividend.
Mr.. Hankin said the only question
in the case on which there had been
possibilities of disagreement was the
one as to whether the sale Of 800 600
shares OF additional stock, At 500
par, by the c. 81 P. to its parent
company, would constitute q stock
divided in violation of the District
PUG law. He added that on the
basis of facts presented in this case
he was satisfied that circumstances
were different from those in the
recent case of sale of stock of the
Potomac Electric Power Co. lat par
value) to its holding company, the
Washington Railway 81 Electric Co.
In that case, Mr.. Hankin dissented
vigorously from the decision of the
commission majority-Mr. Flanagan
and Engineer Commissioner Charles
w. Kutz.
In the background of the unusual
ly calm hearing today on the C. IL
P. petition there was a question as
to whether the change in the c. IL p.
capital structure by the transfer of
large Indebtedness in loans to ad-
ditional stock holdings by the parent
company would place the local firm
in position to demand a consumer
rate increase. This question was
asked during the hearing this morn
ing, and company spokesmen as
serted that while the resulting
dlmlnutlon in the dividend rate paid
and in the rate of return on the
capital invested might" place the
company In a position to ask for a
rate increase, no such request was
contemplated now or in the near
future.
Debt to A. T. l. T. Cited.
1t was brought out in this con-
nection that the c. IL P. now owes
the A. T. & T. nearly $38, ,OOO, 900 in
per cent 1l-month demand notes
held by the parent concern. Also.
it was brought out that the change
from loans to stock issue would re-
duce interest payments by the C. 81
P. which interest payments are al
lowable as income tax deductions
and that the result would be an in
crease in income tax payments
which would reduce the company's
net operating revenue.
v. A. McElfresh. chief account
ant of the PUG. submitted a report
showing that with approval of the
$50, ,OO0, 900 stock issue the company
earnings per share on common stock
would be reduced from $3.50 to s3.17
and that the rate of return on the
company's investment would be re-
duced from 4.46 per cent to 3.65 Del
cent. Mr.. McElfresh said these re.
ductions would be due mostly to In
creased income taxes to be paic
under the pending new income tai
| law.
When Mr.. Hankin asked about tn.
possibilities Of consumer rate in.
crease. Mr.. McElfresh said q return
of 3.65 per cent was relatively low
compared with the rate of return
the company had been allowed ir
the past, but apparently the com.
mission was impressed with the dec.
laration of company witnesses tha
no petition for rate increase wa!
| CONTEMPLATED.