Evening star., 1943-04-29
The SIidinq-ScuIe Issue


The SIiding-ScoIe Issue
AS the Public Utilities Commission
plans to examine, through public
hearings, the merits of the sliding
scale plan by which electric power
rates have been determined in Wash
ington since 1925, there should be
thorough understanding of the
fundamental difference of opinion
which divides the commission, as
between the dissenting minority
member, Mr.. Hankin, and the ma
jority, composed of Chairman Flana-
gan and Colonel Kutz.
Commissioner Hankin used one
hundred and thirteen pages to ex-
press his dissent, and his views are
not easily condensed But his con-
ception OF how the consent decree of
1924, embodying the sliding scale
plan, should have been interpreted
In 1925 and in the years since then is
indicated in this paragraph:
The decree was based on the theory
that the company was entitled to earn
the allowed rate of return (71 per cent
IN 1925 and no more. 1t recognized, of
course, that in the computation of rates
for the succeeding year it may not be
possible to arrive at the proper amount
to the penny. Therefore, it was provided
that II, because of economical operations
or growth in business the company
earned more than the rate prescribed,
then. instead Of requiring the company
to return all of the excessive profits, the
decree provided that only one-half of the
excessive profits be returned to the rate
payers, deducted from the lawful earn
ings during the next year.
In other words, the commission
would fix rates for the coming year
to prevent earnings in excess of the
lawful rate of return, and, if by
accident or good fortune the earn
ings did exceed this rate, one-half
the excess would, the next year, be
applied in rate reduction.
r Every Public Utilities Commission
since 1925 has taken an entirely
different view, which is that the
company was to be given an incen-
tive to exceed the fixed rate of return
by being permitted to retain that
excess. The public, on the other
hand, benefited when the company
exceeded the fixed rate to the extent
that half Of the excess was reflected
in rate reduction in the ensuing year.
The company, in short, was urged
to make money on the theory that
the more it made, the lower the rates
to the public would be. If the COM
pany earned an excessive amount,
then the rate of return would be re-
duced, and since 1885 it has been
reduced-to 7 per cent in 1888, to
612 per cent in 1896 and to the pres
ent per cent in 1898.
The language of section 4 of the
consent decree seemed to warrant
this latter Interpretation:
If the rates hereafter yield more than
712 per cent return on $32 500 900 plus
actual cost of future additions undepre-
ciated but weighted during period of
any one year, one-half of said excess
shall be used in a reduction of rates = -:
that Is to say, by way of example, If the
rate for any one year should amount to
100000 over and above IA per cent on
the base ascertained as aforesaid, then
the rates for the succeeding year to be
charged the public shall be automatically
reduced by the filing of new rate sched-
ules to absorb the $4,000 of such excess
during such year.
There is a difference here, not
merely in the Interpretation of
decree, but in philosophy. Commits
sioner Hankin plainly regards earn
ings in excess of fixed rate of return
as money unlawfully taken from the
rate payers, and every device of
public regulation should be exercised
to prevent such contingency. But
everybody else has viewed the con-
sent decree as in the nature of
prof1t-sharing bargain, under which
the company and the public would
benefit when the rate of return was
exceeded. The commission majority
concludes that the results of this
bargain have been unparalleled
elsewhere in the country" Under
the plan, rates which were above the
national average in 1925 dropped
below the national average rates
during 1929 and have been con-
sistently lower ever since. ="
But perhaps the main point is
that there would have been no con-
sent decree in 1924 had Mr.. Hankin's
views prevailed at that time. For
the company undoubtedly would
have declined to accept those views.
In other words, some eighteen years
after the bargain was made, Com
missioner Hankin is attacking all his
former colleagues who served on the
commission for not having accepted
theory which would have prevented
the bargain in the first place.