Business: Peace from Potomac?

When jumping-jackish little Mayor LaGuardia popped a scheme to put New York City into the power business last month, there were three loud repercussions. President Roosevelt invested a local rate wrangle with national significance by egging the Mayor on with promises of PWA cash. Consolidated Gas Co. promptly halved its dividend to $1. And Chairman Floyd Leslie Carlisle of Consolidated evidenced a pronounced change of heart toward the city and its citizens.

A cut in the Consolidated dividend was merely an act of prudence, for the great company’s tax bill for 1935 in New York City promised to amount to 22¢ of each dollar of revenue as against 18¢ last year, 11¢ in 1929. But Mr. Carlisle’s new attitude was something that could never have been predicted. It was another major victory for what has now become a prime New Deal utility policy—Regulation-by-Agitation.

Offering to postpone action for higher rates designed to offset soaring taxes, Mr. Carlisle proposed that the electrical subsidiaries of Consolidated Gas adopt the so-called Washington Plan for progressive rate reductions, with an immediate cut as a starter.

If for no other reason than the fact that for a decade it has not once aroused the wrath of congressmen it serves, Potomac Electric Power Co. deserves the handsome compliment lately paid it by the New York State Power Authority. That body called it “an outstanding case of successful private operation of a public utility.” Before it subscribed to the Washington Plan in 1924, Potomac Electric was a constant thorn in the side of Congressional utility baiters, who very nearly succeeded in passing a bill to dam the Potomac River above Washington and sell public power to public servants. They even gained the support of the Washington Chamber of Commerce and Secretary of Commerce Herbert Hoover.

After the Senate passed the measure without a dissenting vote and sent it to the House, Potomac Electric suddenly came to terms with the District of Columbia’s public utilities commission. All rate and valuation litigation which had clogged the courts for years was dismissed and a consent decree was entered embodying the Washington Plan. Under that plan the company and the commission agreed on an arbitrary rate base; the company was entitled to a return of 7½%; any profits above that figure were to be divided 50-50 between the company and Washingtonians in the form of rate reductions.

This simple formula for peace on the Potomac was devised by no long-headed powerman but an Army engineer serving as assistant to the District of Columbia’s Engineering Commissioner. Head of his class (1911) at West Point, Major William E. R. Covell based his plan on somewhat similar experiments in sliding-scale returns made as far back as 1876 by Britain’s London Gas Light & Coke Co.

Before Major Covell’s idea was adopted the maximum domestic rate in Washington was 10¢ per k. w. h. Reduced every year since, the maximum rate is now 3.9¢—lowest in any U. S. city of 100,000 population or more. Potomac Electric’s return has averaged 10%.

In 1932, in an action which was roundly condemned as a moral violation of the Plan’s permanent character, Potomac Electric’s rate of return was reduced by the Public Service Commission from 7½% to 7% and the company’s share of the excess profits pared down.

Today Major Covell is stationed in the Canal Zone but his plan has suddenly become a Wall Street byword. Having announced his admiration for the Washington Plan, Mr. Carlisle last week mailed an open letter to Mayor LaGuardia offering to arbitrate the disputed New York City power contracts as a necessary preliminary to a meeting of minds on rates, valuations and required legislation.

His Honor was not impressed by Mr. Carlisle’s co-operative spirit. “There is nothing here to indicate that Mrs. LaGuardia can cook the family Easter dinner at less cost,” he grumbled. Asked if he favored the Washington Plan in theory, the short, swart Mayor parried politically: “I must first see how it will affect Mrs. O’Flaherty, Mrs. Feinstein, Mrs. Pellegrino and Mrs. Jones. The hand that turns the electric switch is the hand that will determine the rates.”

Mr. LaGuardia’s counter proposal was an immediate 20% reduction as evidence of Mr. Carlisle’s good faith. Caustic though it was, the Mayor’s reply by no means closed the door to further palaver.

Meantime another and a far different Washington plan was raising the hair of every powerman in the land. That was President Roosevelt’s plan for badgering utility holding companies out of existence. In his press conferences lately the President has been stressing his distinction between operating companies, which he generally praises, and holding companies, which he invariably damns. Particularly irritating to the President is the phrase “widows and orphans,” which is constantly used by powermen in any discussion of the possible effects of New Deal policies on utility securities.

Last week President Roosevelt fired a broadside of facts & figures to confound the “widow-&-orphan” argument. Releasing a special survey made by the Federal Power Commission, he pointed out that the six biggest New York life insurance companies had placed only 9% of their assets in utility securities, that 15 other insurance companies averaged less than 10%, that New York State savings banks averaged less than 3%. Furthermore, the utility bonds of 51 big insurance companies showed an aggregate increase in value since 1929 of $109,000,000. Adding that prime utility operating bonds were now selling at the highest level in 15 years, the President said he wished that all financial pictures looked as good as that.