Evening star., 1954-10-31

Not In 20 years has a utility ''rhu-
barb been kicked up to match the
current one over the Dixon Yates
power proposal. So much partisan
fur has been flying that it has been
difficult for the outsider to get a
clear view Of the basic proposal and
the issues stemming from it.
In a nutshell:
The problem arises because the
Atomic Energy Commission is using
considerable chunk of the power
generated by IVA. power which
might be going to satisfy the in
creased need of Twas other Gus
toners. To alleviate this situation
Edgar II. Dixon, president of Middle
South Utilities, Inc, and Eugene A.
Yates, chairman Of the Southern
Co., have proposed a plan to the
Government whereby they would
construct new power plant at West
Memphis, Ark, across the Missis-
sippi from the IVA distribution
area. The 100000 kilowatts gener-
ated by the new plant would be fed
to iva to replace energy 1t now
provides the Acc at Paducah, KY.
The plan involves a 25-year
(extra-long term contract between
the Acc and Dixon-Yates. The lat
ter would raise money to build the
$107 million plant and Uncle Sam
would pay reported $20,746, 800 a
year for the power.
Admittedly, if the needed power
increase were obtained by expanding
IVA, the annual cost would be about
$3.5 million less. But a Federal
construction outlay of $100 million
would have to be provided at once.
Two broad questions arise:
Q Is the Dixon-Yates plan really
"out of bounds" when measured
against accepted Government busl-
ness standards?
. Is the Dixon-Yates contract le-
gal? While the contract itself has
not been made public, enough of it
has been released by the Govern
ment and the parties involved to
provide some basis for evaluation.
|. Price of Power
When the first Dixon-Yates con-
tract was proposed it was doubted
If Acc could negotiate power con-
tracts which involved third parties
for such long period. The question
has been settled by the Atomic En-
ergy Act of 1854. recently passed,
which pointedly gives this authoriza-
ton.
The real problem apt to arise from
the length of the agreement is a
more subtle one. 1t stems from the
fact that the Atomic Energy Act
contains no provision regulating
costs while the IVA, under it's law,
must distribute power at the lowest
possible rates and still be self
supporting,
Since the Dixon-Yates proposal
may require additional IVA funds
for power transmission with result
ing higher costs to IVA customers,
it is possible that consumer suits
may eventually be brought on the
grounds that the Dixon-Yates con-
tract conflicts with the public policy
set up to govern IVA. Such a case
could prove critical.
z. Rate of Return
It is charged that the contract
provides per cent annual return,
which is far above the norm. AS
stated, this is misleading. The key
question is: Return on how much?
Most utility regulations provide
for only a or 6 per cent return
on the total capital invested. But
the equity of the utility company
usually amounts to about half the
total. Dixon-YateS, however, con-
template putting up only $5.5 million
of their own money and borrowing
the other $101.5 million at about 3l2
per cent. Their plan estimates an
annual return of $495,0 after in
terest and taxes.
If the actual return were more or
less the gain or loss would be
shared equally by the government.
1t can scarcely be denied that this
is a generous return on the con-
tractors investment. The risk pro-
visions are somewhat unusual.
3. Method of Contracting
The Dixon-Yates contract, though
not yet final, has been negotiated
without advertising for bids-a pro-
cedure usually required for Gov
ernment contracts.
But there are exceptions in &C