Evening star., 1946-03-15
Flanagan Hits
FWAChargeson
Pepco Profits
PUG Chairman Calls
tombstone Testimony
Entirely False

IAiC uUllC OGlllIltS commission,
today sharply attacked Alan john
stone, general counsel for the Fed
eral Works Agency, for having
accused the PUG of permitting the
Potomac Electric Power Co. to levy
excessive charges and to make
exorbitant profits.
TeStifying before the Harris Utili-
ties Subcommittee of the House
District Committee on the plan pro-
posed by the Washington Railway &
Electric Co., owner of Pepco, to dis
solve, Mr.. Flanagan declared the
Johnstone testimony Wednesday
was entirely inaccurate all the way
through"
The subcommittee, headed by
Representative Harris, Democrat, of
Arkansas, after dipping briefly into
the Johnstone charges at the
request of Representative Smith,
Democrat, of Virginia, concluded
that the court rather than the
legislative group was the proper
forum for debate over the rate and
profit issues.
Next Session Thursday.
Another session was scheduled for
next Thursday to receive state
ment from Attorney General Tom
Clark. The Justice Department is
representing FWA in its appeal
from the 1914 Pepco rate order
issued by the PUG.
It was not indicated, however,
how deeply the Attorney General
would go into the rate and profit
issues in view of the attitude on
them taken today by Chairman
Harris, Mr., Smith and Represent
ative Dirksen, Republican, of Illinois.
Mr.. Smith said he was disturbed
over Mr.. Johnstone's testimony
which indicated, if correct, that
Wreco had received dividends of
81 ,576 500 within 18 months on 10000
additional shares of Pepco stock
bought by Wreco in 1912 in order
to supply Pepco with needed working
capital. That is over so per cent,
and, If true. is shocking" said Mr..
Smith. IF it is true, we ought to
know how it comes about and if not
correct the statement should not
be allowed to stand in the record
unchallenged"
Flanagan Resents Statements.
Mr.. Flanagan, taking the stand
to reply, said he deeply resented"
the statements by Mr.. Johnstone
not only because they were incorrect
but because they reflected on the
integrity Of men of high standing
and ability who had served in the
past on the Utilities Commission.
He stressed that power rates and
profits cannot be related to the par
value of company's stock, but
rather to the actual investments
made by the company in its plant
and services. This position, he
added, is supported by "all the
courts that I know Of"
Since Wresco is the sole owner of
the power company, he said, the
PUG did not have to appraise the
value of the 10000 shares of Pepco
stock sold to Wreco.
Had Wreco owned but half of
Pepco, he continued, then the PUG
would have had the responsibility
OF appraising the value of the stock
sold, but this was not the case, he
SaVS Wraen Gao mn nm
Mr.. Johnstone had testified that
between 1925 and 1912 Wreco had
received 42,195 900 in cash diyi-
dends on its stock. After Mr.. Flan-
agan had declared profits should not
be measured against stock par value
ana that Pepco customers had re-
celved great benefits in rate reduc-
tons under the sliding-scale plan.
ne reminded the subcommittee Mr.,
Johnstone's contentious had been
made all through the rate case and
now were before the court on the
appeal.
Mr.. Smith interjected, Then II
don't know that We ought to mess
with that!' Mr.. Flanagan
agreed.
Mr.. Johnstone stressed that the
Attorney General had appealed the
PUG case, adding, Il do not claim to
be lnfallible. I might be wrong, but
II though so I wouldn't be here"
The Wreco dissolution plan was
proposed in response to an order by
the Securities and Exchange Com
that Wreco, as a holding
company for Pepco and other sub
salaries, must dissolve. A bill toI
permit exemptions from the La
Toilette "Antimerger" Act for this
purpose was proposed because it was
found the Wreco plan could not
De carried out without apparently
running into provisions of the La
Toilette act. This forbids stock
dividends and the use of the funds
of one corporation to buy the assets
of another corporation.
The North American Co., which
controls Wreco and through it Pep
20, as we'll as the Capital Transit
Co., also is under an SEC order to
iivest itself of local utility controls.