Evening star., 1945-01-24
u. 5. Says Pepeo
Rate Is Based
On High Profits
Court Requested
To Deny Returns
On Such Funds

Inv obitSo NoobCo boSdy
quested a judicial ruling that utili-
ties be denied a rate return on
accumulations of unreasonable"
profits in the Potomac Electric
Power Co. rate case In District
Court.
Marvin Taylor of the Department
of Justice, former Boston attor-
ney, did not define reasonable
profits but he set out to show
visiting Justice J. Foster Symes OF
Colorado, who is hearing the case,
that Pepco's profits have been un-
reasonable under the sliding scale
rate system in effect since 1925. Mr..
Taylor began his arguments late
yesterday and continued today.
He cited tables to show that for
13 years after the plan went into
effect Pepco's earnings on the par
value of the common stock had
never been less than 43 per cent
a year and had gone as high as 70
per cent. The average, he said, was
81 per cent.
Return on Common 1917.
He used another computation to
show that the money actually in
vested in the common stock had
earned from lis to 200 per cent in
the same period. The average, he
said. was 161 per cent.
Still another table cited showed
that common-stock dividends paid
from these profits had never been
less than IA per cent, had risen to
a 65 per cent high in 1887, 1888 and
1889, and had averaged 38 per cent.
Computed in the actual investment
in common stock, he said, these divi-
dends had ranged from a low of 81
per cent to a high of 173 per cent
and that the average of the divi-
dends was 10l per cent. This money.
he said, had gone to Washington
Railway g. Electric Co., which owns
Pepco in entirety, and had gone on
in large part to the North American
Co, which owns SO per cent Of
WRECOs common stock
The difference between the earn
ings and the dividends, he said, went
into Pepco's surplus which now is
carried at S29, 9,000, 900. This has been
invested in new property and equip
ment, he said. The public should
not have to pay profit on this
value of the company's property. he
said, because it already had paid
for it in rates which had brought
the company more than the fair
rntIlrY,r cot lxr f1pa u.
yond reasonable" surplus. he
said, this should not be carried in
the valuation on which the rates
are computed.
S1,000,000 Reduction Fought.
! The rate case was brought about
by the company's plea to the court
to set aside a Public Utility Com
mission order that the company 8
rates should be reduced by 1000 900
effective last March /.
The United States Government
lis in the case as Pepco's largest
customer, paying the company
s6,000,00 year, about one-fourth
of its gross revenue. Failing to get
the commission to eliminate the
companys $4,000 900 surplus from
the valuation on which a fair re-
turn" is computed. it intervened in
the review of the order by the
court.
4, Denial of a rate return on ac-
cumulated excess profit, according
to the Governments estimates,
would force rate reduction of more
than 100000 or about a Is per
cent cut in the Governments and
householders' light bills.
Should the Government win its
contention in the appeal of this
case to the Court of Appeals and
the Supreme Court it would have a
national effect of lowering light
rates and would sharply effect the
value of utility securities which
total $4,000, 600, 900, it was said.
! Mr.. Taylor attacked the commits
sion's ruling that:
The elimination of earned surplus
or undistributed earnings from in
vested capital finds no support in
reason or law"
He cited the language of statutes
to support his contention.
During recess Mr.. Taylor agreed
that it would be correct to state that
the Government is trying to get a
new ruling from the courts amplify-
ing the recent Supreme Court rate
decision in Federal Power Commits
sion against Hope Natural Gas Co.
The Hope case decision of last
year was that it makes no difference
how the regulating commission ar
rives at the rate fixed as long as
the result is fair and reasonable.
The Government seeks to add q
ruling to the new field of rate max
ing opened by that decision. The
ruling it desires is that it is not
fair and reasonable to include in
the rate-making computation prop.
!. erty paid for by earnings in excess
of the fair return" set by the
regulating commission.