Evening star., 1948-06-08
Deficit May Stall
Expansion Plan,
Pepco Declares
OfficiuI Tells Hearing
Rates Must Rise to
Attract New Capital
By J. A. O'Leory, Jr.

Attract New Capitol
By J. A. o'Leoy, Jr.
A Potomac Electric Power Co. Of
ficial told the Public Utilities Com
today that the company will
be unable to finance its $50 500 600
f1ve-year expansion program unless
the downward trend in earnings is
halted.
r. Roy Dunn. company vice presi-
dent and treasurer, took the stand at
the second day of PUG hearings on
Pepco's application for rate in
creases that would add 10 cents a
week to the average consumers elec-
trio bill.
Mr.. Dunn declared that the COM
pany Is definitely not" in a position
to attract new capital for financing
its expansion plan because of it's
deficient earning power.
"The level of Pepco's earnings
must be such as will enable the
company to attain and maintain a
credit position which will attract
the required additional capital on
sound terms" he said.
Operating Income Declined.
"Pepco cannot attain this addi-
tional capital unless the downward
trend of it's earnings Is promptly
arrested and the trend reversed"
Mr.. Dunn added. He pointed out
the decline in the company's oper-
ating income over the past FIVE
years as compared to its increase
IN utility plant investments.
"It is unfortunate that the in
creased demand for electric service
follows period OF continued down.
ward trend in earning power" Mr..
Dunn said. This demand. he added,
necessitates obtaining substantial
amounts Of additional capital If the
demand Is to be met.
He said substantial increase in
the company's earning power is re-
quired if its credit Is to be i'm
proved and investors risks kept at
minimum.
Banker Cites Disturbing Trend"
He said the company earned at
the rate of 3.57 per cent last year
as compared with the national util-
ity average of 4.98 per cent.
The second witness today was Ed
ward Hopkinson, jr, partner of
the Philadelphia investment bank
ing firm of Drexel & Co., who had
made a study of Pepco's financial
structure.
Mr.. Hopkinson testified that he
found the downward trend of the
company's earnings very disturb
ing" and added that until the trend
is reversed, I do not believe it could
do any equity financing which it
requires"
He said the utility industry in gen.
eral is being squeezed between ris-
ing costs of operation and its more
or less flxed-rate structure. He
characterized Pepcos situation as
much more serious" than that of
the electric industry as whole.
Assistant Due to Testify.
Another witness who may take the
stand today to testify for the higher
electric rates is Fischer S. Black,
assistant to the Pepco president. Mr..
Black is expected to limit his testi-
mony to explaining the proposed
rate schedule.
Pepco seeks the increase on two
principal grounds: That 1t is los
ing money because of increased
fuel and other costs and that it is
not making enough money to finance
its required expansion.
Witnesses yesterday testified Pepco
will have to spend about $86, 500 900
in the next five years to keep up
service to present patrons and pro-
vide service for new customers.
James Francis Reilly. company at
torney. described the company's A.
nancial situation variously as "seri-
ous' and critical
Rising Costs Cited.
Charles L. Carr, assistant con-
troller Of the company, yesterday
told the PUG that Pepco continued
to find itself adversely affected by
spiraling costs, the end of which, he
said, is not yet in sight.
1.-The cost of fuel has continued
to advance at an alarming rate"
Mr.. Carr testified, land the costs
of labor, material and other ex-
penses also continue to rise"
He pointed out the company
suffered deficiency of more than
100000 below the basic rate of re-
turn of 51z per cent in 1947 and
that relief is necessary this year in
view of the continued rise in costs.
Pepco wants the month
average increase to become effec-
tive July /