Mr. WEIKEL. None whatsoever, Mr. Chairman. A tax has to be passed along. And as I said in my statement, it ends up being regressive, because we find that there is no significant difference between those with higher incomes and those with lower incomes in terms of the size of their telephone bill. Mr. CABELL. When taxes of that sort are increased or imposed on you or similar operations, is that just a nice gimmick to get around taxing the general public within that jurisdiction, or does this ultimately find its way right back to the general public. Mr. WEIKEL. It has to find its way back, there is no other way to absorb it. Mr. CABELL. Mr. Gude, any questions? Mr. GUDE. Yes. Thank you, Mr. Chairman. Regarding, of the regressive features of the gross receipts tax. presently your customers are already paying the 4 percent sales tax on services. Do you consider the gross receipts tax more regressive than the sales tax? Mr. WEIKEL. I would think they are very comparable. Mr. GUDE. Very comparable? Mr. WEIKEL. Yes. Mr. GUDE. Would there be any way that you could provide a staggering of the rate of the sales tax that you bill the individual user so the impact would be less on the basic user than the heavier user? Mr. WEIKEL. That would be very difficult, because I presume you would want to tax those with higher incomes at a higher rate. Mr. GUDE. Not higher incomes, heavier users. Mr. WEIKEL. Heavier users. Of course, you could do that. But as I said to the Chairman a moment ago, we find that there is very little correlation in the residential market between ability to pay and size of telephone bill. EFFECT OF TAX Mr. GUDE. What would be the impact on the bill of the average residential user of the proposal in this legislation? Mr. WEIKEL. Well, we have about 230,000 residential subscribers in the District. And we figured it was $1.6 million. So, it would be simple mathematics. That would be about $6 a year, I guess. Mr. GUDE. $6 a year. What about your commercial subscribers and other users? Mr. WEIKEL. I don't think I would be able to give you an answer to that, although I am getting some data on that. Mr. GUDE. Wouldn't it be less on the residential subscribers? I misspoke, Mr. Gude. I divided the entire tax by the number of residential subscribers, which of course is incorrect. We have to figure out what proportion falls to residents and what to business and what to government. Mr. GUDE. Can you give me that breakdown? Mr. WEIKEL. I don't have it with me. I would have some difficulty. Mr. GUDE. I think that would be helpful as to what would be the impact on the individual residential user, Mr. Chairman. Mr. CABELL. On the basis of gross receipts it would be directly proportional to the amount of the increase, would it not? Mr. GUDE. He has the heavy commercial users and the large institutional users. Mr. WEIKEL. Mr. Gude, assuming it was spread evenly, it would be 1 percent of the bill approximately. Mr. GUDE. One percent of the bill? Mr. WEIKEL. Yes. And I couldn't estimate the average business customer's bill without going back and getting some data, but it would be substantially higher than the resident's bill. Mr. GUDE. What is the bill of the average residential user? Mr. WEIKEL. I haven't looked at those figures for quite a while, but it used to run a little over $10 a month. I don't know if that is the current figure. Mr. GUDE. So that would be ten cents approximately a month, about $1.20 a year? Mr. WEIKEL. Right. Mr. GUDE. I would appreciate it if you would give us a definite breakdown. But roughly it would be $1.20 a year? Mr. WEIKEL. Very roughly, yes. Mr. CABELL. If you will give us that for the record when you get those figures together I would appreciate it. (See p. 303.) ANTICIPATED D.C. REVENUE FROM RATE INCREASE This question might have been raised, but I didn't catch it. You either are in the process of requesting an increase in rates or have recently been granted one, is that not true? Mr. WEIKEL. Yes. Just the day before yesterday we were authorized to raise our rates about $13.2 million. Mr. CABELL. How much would that raise, on the basis of the present 4% gross receipts tax? The present gross receipts tax is 4 percent? Mr. WEIKEL. Right. That would produce an additional $1.4 million. Mr. CABELL. That would produce an additional $1.4 million? Mr. WEIKEL. Right. Mr. CABELL. Whether this tax increase goes into effect or not, you are still looking at an increase in gross receipts taxes to the districts? Mr. WEIKEL. I am sorry, I misspoke. That is all taxes. To the District it would go up $1.4 million, the gross receipts portion. Mr. CABELL. If the tax is raised. But what I am getting at is that the increase in your rates, which has just been granted, that in itself is going to generate approximately how much. Mr. WEIKEL. I don't know the exact proportion of gross receipts, but all district taxes is $1.4 million. That $13 million would produce another $1.4 million to the District of Columbia. Mr. CABELL. Maybe I haven't made myself clear. But what I am getting at I think you heard Mr. Davis' testimony-the rate increases that have been granted are going to generate an additional $1.8, I believe you said, even if nothing is done to the gross receipts tax rate. Mr. WEIKEL. Right. Mr. CABELL. And that amount that you estimate on your rate increase, with the present gross receipts tax applied, what would be the extra money generated? 82-531-72- -11 Mr. WEIKEL. To be sure that I have answered your question exactly, let me say, $1.4 million will be additionally paid to the District of Columbia, as a result of our rate increase. Mr. CABELL. That is exactly what I was getting at. $1.4 million is going to be generated for the benefit of the District. Mr. WEIKEL. Right. Mr. CABELL. Whether or not the 1. percent increase should be imposed? Mr. WEIKEL. Right. Mr. CABELL. And the other would be additional to that? Mr. WEIKEL. Correct. Mr. CABELL. I believe that covers my questioning on this. Mrs. Green? Mrs. GREEN. No questions now. Mr. CABELL. You don't have anything to present, Mr. Steadman? Mr. STEADMAN. No, sir. Mr. CABELL. I thank both of you for coming forward. Mr. Edgar Mellon, Vice President of Finance for Washington Gas Light. STATEMENT OF EDGAR R. MELLON, VICE PRESIDENT, FINANCE, WASHINGTON GAS LIGHT COMPANY Mr. MELLON. Thank you, Mr. Chairman. My name is Edgar R. Mellon. I am Vice President of Finance for the Washington Gas Light Company. Mr. Chairman, this statement of mine is going to be somewhat repetitive, because I suspect that all of us in the utility business are about in the same position. I appreciate the opportunity of being here to comment on the provisions of the bill. Like PEPCO and the telephone company, we are disturbed about the proposed increase of 1. percent in the gross receipts tax. Also like them, just earlier this week we were granted a rate increase, the first one in 14 years in our basic rates in the District of Columbia. That increase which was granted by the Public Service Commission amounted to $1,600,000. We are in a very tenuous earnings situation. We cannot afford to have any dilution of our rate increase. The $1.6 million granted by the Public Service Commission was minimal at best. We are in a tenuous situation in all respects with regards to our earnings. We will have to immedately pass any increase at this time on to our customers. Mr. CABELL. That was 1. What? Mr. MELLON. $1.6 million, sir. Now, this proposed increase of 1 percent in the gross receipts tax rate would almost immediately have the impact of reducing our rate increase by $400,000 before we can even collect it. While we were granted the increase on August 2, the hearings on the rates themselves have not even been held, and it will be some time in September before we can even start collecting these higher rates. EFFECT OF TAX So as I said a moment ago, we in effect will have a 25 percent reduction in our rate increase if the $400,000 additional tax is levied at this time. And as you well know, in Section 302 of the bill the tax increase is to be related to the taxes for the prior fiscal period, which ended June 30, 1972, so they would be immediately payable if this tax is enacted. We have one other peculiar situation which relates to us, in that we face rather serious problems in the years immediately ahead. Unlike both the telephone company and the electric industry, due to the shortage of natural gas we have had to curtail all growth. So for the next several years we expect to be in a no growth situation. And until this gas supply situation is alleviated, we will not be able to increase revenues or earnings through increased sales. The rate increases recently obtained in Maryland, Virginia and the District are barely adequate to restore the financial integrity of the company which has been adversely affected by inflation, inadequate rates, et cetera. So as a result of this proposal, we feel that there is no course left to our company, should this increase in gross receipts be approved, but to immediately go to the District of Columbia and ask for a compensatory increase in our rates. This is somewhat repetitive. But we are in the same situation basically as PEPCO, except that we do not have any opportunity for growth. Now, the $1.6 million at the present gross receipts tax rate would add about $64,000 annually to our gross receipts, even if nothing is done. Correspondingly, it would add about the same amount in the sales tax, because the sales tax rate is 4 percent, and it is passed on directly to the customers, and as your revenues increase, so does the sales tax in crease. So, as I see it, you have about an $800,000 increase-well, you have got $400,000 in sales tax increase and $64,000 in the gross receipts tax without doing anything. (The full statement of Mr. Mellon follows:) PREPARED STATEMENT BY EDGAR R. MELLON ON BEHALF OF WASHINGTON GAS LIGHT COMPANY My name is Edgar R. Mellon, and I am Vice President-Finance of the Washington Gas Light Company (“WGLCO”). WGLCO is a gas distribution company which serves the District of Columbia and surrounding areas in Virginia and Maryland which together comprise the Washington metropolitan area. I appreciate this opportunity to comment on certain provisions of II.R. 15965. The purpose of WGLCO's appearing here today is to point out the impact of Sections 302 and 305 of H.R. 15965 on the Company and its customers. Section 302 provides that the tax rate on gross receipts of gas, electric, and telephone companies would increase from 4% to 5%. Section 305 provides that the higher rate would be applicable to the gross receipts of such utility companies for the year ending June 30, 1972, and for each succeeding year ending on the thirtieth of June. For the year ended June 30, 1972, WGLCO's taxable gross receipts in the District of Columbia amounted to $38,071,931. The tax payable on that amount at the present 4% rate is $1,522,877. At the proposed 5% rate the tax would be $1,903,597, an increase of $380,720, or 25%. In July 1971, WGLCO filed an application with the Public Service Commission of the District of Columbia ("Commission") for an increase in gas rates based on a test year ended December 31, 1970. On January 17, 1972, WGLCO amended its application by changing the test year to a year ending September 30, 1971. After extensive hearings, the Commission on June 26, 1972 granted an interim surcharge of 2.50% effective June 29, 1972 on WGLCO's present rates, pending the issuance of a final order. On August 2, 1972, the Commission authorized WGLCO to file rate schedules which would produce a $1.6 million annual increase (4.13%) in District of Columbia revenues. The increase authorized by the Commission is based on an allowable return of 8.23% on WGLCO's rate base as of September 30, 1971. The Commission directed WGLCO to file new rate schdeules by August 11, 1972 and set a public hearing date relative thereto on September 1, 1972. Although WGLCO is collecting the interim surcharge, the full amount of the authorized rate increase cannot become effective until sometime after September 1, 1972. WGLCO's basic retail rates in the District of Columbia have not been increased since 1958, fourteen years ago, and the recently authorized increase is minimal, at best-56% of the amount requested by WGLCO. Consequently, any increase in cost (such as the proposed increase in gross receipts taxes) not taken into account in the rate proceeding just concluded will have an adverse effect on WGLCO's ability to render adequate service and thus will immediately require further rate increases to be borne by its customers. If the proposed increase in the tax rate on gross receipts had been in effect during the test year used by the Commission in the recent rate proceeding, approximately $400,000 of annual revenues, in addition to the $1.6 million granted. would have been required to produce the same rate of return. The impact of the proposed gross receipts tax increase is thus apparent-before the full rate increase can become effective it would be reduced by $400,000, or 25%. WGLCO faces serious problems in the years immediately ahead. Due to the shortage of natural gas it became necessary in the early part of this year to cease taking on any new customers in order to protect the gas supply for its present customers. Until the gas supply situation is alleviated, WGLCO will not be able to increase revenues and earnings through increased sales. Recent rate increases granted by the Maryland, Virginia, and District of Columbia regulatory authorities were based on 1971 cost levels and were barely adequate to restore the financial integrity of the Company, which had been adversely affected by poor earnings. As a result, any significant increase in cost will have to be passed on to customers through higher rates for gas service as soon as practicable. If the proposed increase in the tax rate on gross receipts becomes effective as set forth in H.R. 15965. WGLCO would have no alternative but to immediately apply to the Public Service Commission of the District of Columbia for a rate increase equal to the increase in gross receipts taxes. ANTICIPATED D.C. REVENUES FROM RATE INCREASES Mr. CABELL. From the testimony given by you and your colleagues in the utilities business, it appears that the revenues to be produced to the District of Columbia through the existing 4 percent gross receipts tax will be increased just as soon as the rates go into effect-and correct me if the figures that I am going to quote here are in error in that wayPEPCO would generate $1.8 million in additional revenues on today's gross receipts rate; C&P will generate $1.4 million through the increased rates, which means increased gross revenues; and the Washington Gas Light Company would generate an additional $64,000, giving a total of $3,264,000 that is in sight from those three utilities. Mr. MELLON. Yes, sir. Mr. CABELL. I believe that there is a representative of the District Department of Finance and Revenue in the audience, isn't that correct? Mr. LUCAS. Yes, Mr. Chairman. Mr. CABELL. Would you mind coming forward at this moment for some questions, please, sir? Would you identify yourself for the record? |