Evening star., 1944-03-09
Pepco Hearing
Studies Cost Of
Invested Capital
Accountant Is Asked
About Estimate
Of 4.97 Per Cent

marry " bOOLll, special counsel
for the Procurement Division of the
Treasury, today continued his cross
examination of v. A. McElfresh.
chief accountant Of the Public Utili-
ties Commission, on estimates Of the
annual cost Of invested capital Of
the Potomac Electric Power Co.
Mr.. McElfresh presented estimates
at the annual rate hearings yester-
day placing the cost Of invested cap
ital, including depreciation reserves,
at 4.97 per cent. An adjustment of
the rate Of return to the average
cost Of invested capital would be one
method by which the PUG might
reduce Pepco's rate of return below
the present allowable per cent.
The 497 per cent figure was COM
puted on the basis of a cost
.of 3.008 per cent on long-term
debts; 1852 per cent on preferred
stock; rs per cent on earned sur
plus; 6 per cent on accrued interest
of active customers deposits, and 1
per cent on depreciation reserves, as
required by the sliding-scale agree
ment.
Reduction proposed.
Mr.. McElfresh then made COM
putations on the basis of reducing
the return on preferred stock to S
per cent, figure he described as
reasonable at present market con-
ditions" Such reduction In the
amount for preferred stock would
bring the anual cost of invested
capital to 4915 per cent, Mr.. Me-
Elfresh said.
Under questioning by Harry r.
Booth, special counsel for the pro-
curement division of the Treasury
Department, Mr.. McElfresh empha-
sized that he was not saying the
rate of return should be reduced
TO S per cent, adding that the treat
ment Of the rate base and depre-
ciation must also be considered"
Most Of yesterdays hearing was
taken up with comparisons Of the
cost of investments of Pepco with
other large utilities, as we'll as COM
parison of the yield Of utility
securities.
Financial Condition Sound.
Mr.. McElfresh testified that In
his view the financial condition Of
Pepco was among the best of elec-
/ tric utilities in the country. It's
long-term debt Is financed at very
low cost. It's preferred stock Is
financed at higher cost than If
the stock had been issued recently"
The accountants testimony was
interrupted to permit Harry S.
Wender, president of the Federation
of Citizens Associations, to take the
witness stand. He said he wished
to explain to Federal attorneys the
nature and function Of the fedora.
ton. whose resolution in behalf OF
the sliding-scale was criticized yes
terday by lawyers of the procure-
ment division and Federal Works
Agency.
| Mr.. Wender declared that the
Federation was the only organiza-
ton through which Washington
residents had of expressing an opin-
ion in voteless city. Federal at
torneys expressed their gratitude to
Mr.. Wender for his explanations,
whereupon Assistant Corporation.
Counsel Lloyd B. Harrison remarked:
Il suppose since all objections are
withdrawn to the resolution, we
might have party"
McElfresh on Stand.
Mr.. McElfresh, who was on the
stand the better part of the day,
said he thought the cost of invested
capital was "a primary element in
arriving at the rate of return" S. r..
Bowen, attorney for Pepco, said he
felt "the commission should view the
rate of return as a means Of fulfill
ing the needs of the company to
weather storms under all condi-
tions."
In last years Washington Gas
Light Co. case it was recalled that
the commission reduced the rate
OF return from per cent to 5A per
cent, having found that the annual
cost OF its invested capital was So
per cent.
The commission has completed its
testimony on computing the rate
base and rate of return and will not
go forward on depreciation until
next week.