Evening star., 1943-11-09
PUC Orders
.S135,416 Cut
In Gas Rates
Effective Nov. 1o
Unless Company
Asks Reconsideration

the balance of 81, 500 to be adjusted
in the following year. Domestic
users receive the largest share of
the reduction-$115,O40 CONNER
cial and industrial consumers will
share the next largest saving, which
amounts to $15,8l9.
Rate Of Return Reduced.
The commission reduced the rate
of return from 65 per cent to SITS
per cent This is the first time since
the adoption Of the sliding ar
in 1885, with the firm
that the primary rate of return has
been an issue in the annual hear
ings.
The decision was two to one, with
Chairman James A. Flanagan and
Engineer Commissioner Charles w.
Kutz composing the majority and
Gregory Hankin dissenting. He did
not disapprove the entire decision,
however.
The PUG this year allowed as de-
ductions from operating expenses for
rate-making purposes all taxes ex-
cept excess profit taxes. Last year
the commission allowed only income
taxes calculated at the rate OF 81
per cent
Explains Rate Change.
In explaining this change the COM
mission pointed out that in previous
years the rate of return was not an
issue. 1t stated:
TT has been previously pointed
out that in two recent cases the
commission has disallowed excess
profits taxes and Federal income
taxes in excess Of 81 per cent -
and that the determination OF the
commissions witness of the amount
available for decrease in rates under
the sliding-scale arrangement con-
forms to those decisions. 1t was
also pointed out that in those cases
the rate Of return was not an issue
and that the effect of such exclu-
sion of taxes was to reduce the re-
turn Of the common stock holder.
However, since in this proceeding
it has been determined that the pri-
mary rate OF return permitted under
the provisions OF the sliding scale
shall be reduced
the deduction of all taxes, with the
exception of the Federal excess
profits taxes has been allowed. ."
Argues for Lower Rate.
Mr.. Hankin, in a 78-page dissent
argued that rates should be reduced
by 81 ZOO, 900. and that the rate Of
return should be 81 per cent.
The rate base representing actual
cost OF the property, upon which a
fair return should be allowed. plus
working capital in the sum OF ST.
258,704, should be $24,637 ,329, not
$50, 0,6l3,738 as found by the commits
sion," Mr.. Hankin said, adding:
by allowing the company to shift
practically all income taxes to the
consumers, the commission, in effect,
places Congress in the position of
exempting the utility from the pay
ment of income taxes, and, at the
same time, Of imposing a sales tax
on the consumer OF gas service. This.
in my judgment. is in excess of the
commission authority"
Mr.. Hankin said that the tl35 900
reduction actually meant allowing
a return of ~ per cent on a prudent
rate base plus working
capital, after allowance of all in
come taxes, both normal and war
taxes (but not excess profit taxes :"
He went on to say that by shifting
the company's tax burden to the
consumers. the latter must pay an
amount equal to 2.S per cent of the
company's prudent investment rate
base, and the total charge on the
public is 10 per cent of such rate
base. This, in my judgment, is not
in conformity with the law"
Flanasan's Statement.
Chairman Flanagan, in a state
ment releasing the decision. said, TT
is unique in that it includes in its
consideration of cost of capital the
allowable return on common stock
equity He said the commission
had found the composite annual
cost of all capital to be So per cent"
and that it allowed Q per cent as
a fair and reasonable allowance on
common stock equity"
1T is the opinion of the commits
SION" the majority decision stated,
that the cost-of-capital approach
to a determination of fair rate
of return is particularly we'll ada pied
to the sliding scale arrangement in
effect in the District.
This arrangement provides for an
annual review of the results of
operations of utilities, which per-
mits, as changing conditions war
rant, prompt adjustment of rates
without violent fluctuations. Cost
of capital is vital element in the
conduct of a utility business, and
it is important and helpful to both
investors and consumers to have at
hand the means by which prompt
recognition may be given to any
substantial change which directly
affects the operation of the utility"
The commission is convinced, :"
the decision said at another point,
that return based upon this al
lowance (524) will enable the COM
pany (under efficient and economi-
cal management insofar as its
investment in the District of Column
bia is concerned, to meet all OF its
capital obligations and to provide
an amount available for the COM
mon stockholders sufficient to pay
reasonable dividends and to permit
the retention of a reasonable amount
OF earnings in surplus, thus enabling
it to maintain and support its credit
and to raise the money necessary
for the proper discharge of its pub
lie duties"
DR.. Rettolioto to Speak
The District branch of the Ameri-
~