Evening star., 1949-12-02

The Public Utilities Commission
will resume hearings December 13
on the Chesapeake & Potomac
Telephone Co.'S request for a l3
per cent rate increase for tele-
phone users here.
The hearings were recessed late
yesterday, following several days
of cross-examination of company
officials by Federal Government
attorneys and Special Assistant
Corporation Counsel Lloyd B..
Harrison. The company contends,
with support of its parent organ
ization, the American Telephone &
Telegraph. Co., that it needs So
200,0 in additional revenue to
preserve a sound financial struc-
ture.
Yesterdays session was largely
devoted to attempts by attorneys
representing the Federal Bureau
of Supply-C. g. P.'s largest single
customer-to change the financial
arrangements between c. & P. and
it's parent organization. .
Conservative Policy.
These efforts were summarized
by David A.. Kosh, public utility
chief for the bureau for himself
and by Attorney John j. Kirby:
1.-THE major point we tried to
make was that the 1920s (when
A. T. g. T. adopted a policy of fl
nancing with 80 per cent debt and
10 per cent proceeds from sale OF
common stock are not compa-
rable with the present.
1--WE think that the capital
structure they want to maintain is
too conservative and is not neces-
sary in view of the low cost now
of borrowing. We have made no
point that they should discontinue
the 50 dividend per share on
A. T. g. T. common stock. All We
say is that it would be easier to
continue to pay SO with a higher
debt ratio than the 80 per cent
that their policy dictates. If the
parent company would accept a
higher debt ratio, rates in Wash
ington could be lower"
nv Earnings Required.
Mr.. Kosh was referring to the
fact that the A. T. & T. collects
all earnings from its subsidiary
companies throughout the Nation
and pays 50 a share to its stock
holders. Only A. T. g. T. stock
reaches the public; no stock of the
subsidiaries is sold to outsiders
Further, A. T. g. T. requires its
subsidiaries to earn 712 per cent
on net investment annually and
has presented testimony to the
effect that c. & P. must net $5.-
600 900 year to fulfill its obliga-
tions to the Nationwide system
of which it is a part.
I Mr.. Kirby stressed that 81 per
cent bond interest is cheaper than
50, or 7 per cent dividends. He
urged that A. r. & T. finance it.
self with so per cent borrowed
money and SO per cent equity capt.
tai from stock sales.
In reply to the Government
representatives position. D. R. Bel
cher, treasurer of A. T. & T., re-
piled: It recognize that costs are
lower now than they were in the
l920s and have made allowance
for that throughout this nearing
in all my testimony.
Would Avoid Heavy Debt.
But low borrowing costs are not
in any sense a Justification for
loading our company with debt.
There is one certainty about debts.
They have to be repaid. Sound
management avoids going too
deeply into debt.
Prom the history of our busi-
ness, conclude that, over the
long pull, a one-third debt ratio
is appropriate and a so per cent
ratio is inappropriate. Our COM
pany would have been in rot
water in the great depression if
we had entered it with a so per
cent debt ratio. The same is true
of the postwar period, when equity
capital could not be raised" 4
Company witnesses will take the
stand again for cross-exanlination
when the hearing is resumed.
Then will follow direct testimony
on the rate increase request by v.
A. McElfresh, PUG executive ac-
countant and auditor. ~