Evening star., 1944-03-09
PUCIs0Hered Method
For Reducing Rate
Of Return for Pepco
McElfresh Proposes -.
Average Cost Of Capital
Be Used as Yordstick
BY CAMBRIDGE CRIST

The Public Utilities Commission
had before It today one method by
which it may reduce the rate of re-
turn of the Potomac Electric Power
Co. below the present 6 per cent
an adjustment of the return to the
average cost of it's invested capital
V. A. McElfresh, chief accountant
|of the Public Utilities Commission
presented estimates at the annual
rate hearings yesterday showing the
cost OF invested capital, including
depreciation reserves, at 497 per
cent.
This figure Of almost S per cent
was computed on the basis of q
cost of 3.008 per cent on long term
debts; 5.862 per cent on preferred
stock; rs per cent on earned sur
plus; 6 per cent on accrued interest
of active customers deposits, and 4
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, a figure he described as
reasonable at present market con-
ditions." Such a reduction in the
amount for preferred stock would
bring the anual cost of invested
capital to 4.915 per cent, Mr.. Nc
Elfresh said.
Under questioning of 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 per cent, adding that the treat
ment of the rate base and depre-
citation 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, s
Financial Condition Sound.
Mr.. McElfresh testified that In
his view the financial condition Of
Pepco was among the best Of elec-
trio 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 il
the stock had been issued recently y
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
tiop, 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 way Wash
ington residents had of expressing
an opinion in voteless city.
Fderal attorneys expressed their
gratitude to Mr.. Wender for his
explanations, whereupon Assistant
Corporation Counsel Lloyd B. Harri-
son remarked:
Il suppose since all objections are
withdrawn to the resolution, we
might have party"
McElfresh on Stand,
Mr.. McEfresh, 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 6 per cent to So. 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. Meanwhile, cross-ex-
animation of Mr.. McElfresh was to
resume at IN m todov