Evening star., 1948-02-20
Revised Pepco
Sliding Scale
Put in Effect
PUC's New PIun
Provides Refunds in
Good Profit Years

The long-heralded plan, which
has its trial run in this calender
year, is named unofflcially for Its
deviser. v. A. McElfresh, the PUC.'s
executive accountant and auditor.
Officially it is called the modified
sliding scale plan" But the original
sliding-scale arrangement of Pepcos
finances, first adopted in 1925, has
been subjected to SO thorough a
lifting in this latest version
that it is now almost unrecognizable.
The change, becoming effective
by PUG order this morning, theoreti-
callv does not affect the mathe-
matics of the division of Pepco's
profits with consumers. The change
is in the mechanics of the process.
The new system is designed to pre-
vent, so far as possible in the future,
unnecessary f1uctuations-particu-
larly increases-in the rates con-
sumers pay for electric power.
Provides for Cash Refunds.
For these consumers, specifically,
1t means that, in good years they will
get cash refunds from the company
instead of rate reductions.
In lean years, 1t means the COM
pany will bring its return to reas-
enable level by drawing on a reserve
funds or deferred credit account
"a sort of insurance equity on
which the consumer has paid the
premium.
In the McElfresh plan, as in the
previous sliding-scale arrangement,
PUG sets this reasonable levep' OF
return at 51a per cent of the COM
pany's deprecated investment. BY
establishing the new formula, PUG
brushed aside the power company's
complaint that the 5la per cent
figure is "upreasonably low"
Before the McElfresh plan was
adopted, Pepco kept in any year all
of what it earned above the 51a
per cent level. But the next year,
PUG lowered the rates charged by
the company to a point which would
return one half of this excess profit
to the customer.
If the power company's earnings
were less than 5l2 per cent OF its
investment in any year, the idea
was that PUG would raise these
rates to a point which would bring
the company's' return to the ap-
proved level.
Eliminates PrOtracted Hearings.
Hitherto, adjusting the power
rates each year has forced the COM
pany to waste time in extensive
bookkeeping and statistical opera
tions and has involved both Pepco
and PUG In protracted annual rate
hearings.
Under the new formula, If the
company's earnings in one year are
more than the 512 per cent basic
return, the customer gets his share
of that excess in rebate applied
to his December bill If Pepco's
earnings are under the basic rate
Pepco takes enough out of the de
ferred credit account" to bring It's
return up to the 512 per cent level.
The rebate system established In
the McElfresh plan applies only te
private and regular commercial con-
sumers. 1t does not apply to few
concerns which receive power from
, Pepco on a contract basis.
The amount of the rebate which
customers receive in good years de-
pends on the condition of the de.
ferred credit account. The system
functions so as to keep the amount
in this account between 3 and pei
cent of the power company's annua
gross income. If the company con-
tinues to gross about $4,000, 900 8
wear, as it has of late. this means
the reserve account is to contain al
least 100000.
S713,500 i'm Account.
The reserve account starts under
the McElfresh plan with about
$713500 which the company has
been holding in special accounts as
reserve, or as basis for possible
future customer rebates. To this
fund, each year that 1t falls below
8 per cent of the company's gross
annual return, will be added one
tenth of the company's returns fol
September of that year. taken from
the customers half of the years ex-
cess profits. The fund also is fed by
'breakage" money, left over in good
years after the consumer has re-
ceived his rebate in multiples OF
per cent of his September bill.
L. 5Nty IN
deal for the consumer. it is the fact
that he is required to put all the
money into the reserve fund on
which the company feeds in lean
years. PUG contends 1t is right for
him to pay the premium on the
company's insurance, since he is the
ultimate beneficiary. because in this
way He is spared rate increase.
PUC's position Is that the COM
pany should not be asked to con-
tribute to the reserve fund from
It's share of the excess profits be-
cause it needs the full so per cent
as incentive"
Door Open for Increase.
IT, under the new arrangement
the reserve account should drop be-
low per cent of any years gross
income, PUG indicates that will be
grounds for consideration of the
possibility of a rate increase. Simi-
larly, if the account goes over
per cent in any year, that will be
grounds for considering rate de-
crease and a refund to the Gus
toners of some of the money they
have put into the account.
Assuming the company makes q
profit above 51a per cent of its in
vestment this year, here is how the
amount of the refund a customer
gets in December will be computed
If the deferred credit account i:
in proper shape. the company total.
up its excess profit and divides il
in two. Half of this profit then /.
distributed to the customers anc
the division among them is proper.
tionate to the relative size of theil
September bills, figured to the next
lowest multiple of per cent.
Church to Hear TdIk
Henry Lee Spencer, jr., Wash.