The herald., 1895-09-15
THE SOUTHERN PACIFIC AND THE STATE
BOARD OF RAILWAY COMMISSIONERS


THE SOUTHERN PACIFIC AND THE STATE
BOARD OF RAILWAY COMMISSIONERS
Day before yesterday the state board of
railway commissioners adopted resolu-
tion reducing the freight rates of the
Southern Pacific com pany in the state of
California on an average of 25 per cent
throughout This, we venture to predict,
Is the most important. and may prove in
Its consequences the most far-reaching,
OF any public proceeding which has been
had in the state of California for many
day.
The telegra phic news indicates that the
bouthern Pacific company Is to appeal to
che courts to restrain the commission
from carrying the reduced rates into ef-
ieot on the ground that such rates will
prevent the company.from earning Ia fair
return upon the capital invested. 1t has
been so .often and SO clearly held by
courts of last resort in the United States
that state boards Of raiir oad coinIniss-
toner's had not the power to reduce rates
of railroad charges to such an extent as
to prevent those corporations from max
ADS q loir iOtuih pun thO IN plodl WulCu
they have:invested in their business, that
the principle may now be considered as
plainly defined and permanently estab-
lished as anything else in the law. But
when the Southern Pacific mpany shall
seek to avail itself of that princi Pile in or
der to defeat the action of the California
com mmissioners the courts of the state will
be called to pass upon another and most
important question before the main
principle can be reached. That ques-
tion will be: What is the amount of
capital actually invested by the Southern
Pacific company? feor's work on rail-
roads shows that the Southern Pacific
company's properties in California are
bonded for an average of something like
$50, 900 per mile, and these bonds are draw
ing from 6 to per cent interest. 1t has
been matter of general knowledge in
California since these lines were first con-
structed that the construction price, as
paid in bonds to the Pacific Improve
ment cumpany and other constructing
corporations in which the principal
Southern Pacific stockholders we're inter-
ested, were :immensely in excess of what
would have been the actual cost in cash
under reasonably economical admins
tration. 1t would appear also from this
that the stock of the Southern Pacif
company now held by various stockhold.
ers represents little or no actual nyest-
ment of capital. If it pe the case, as is
currently believed. that the bonded in
debtedness alone represents more than the
actual cost of its properties, thea the
courts will be called upon to decide
whether or not the rule permitting rail
road company to charge rates giving a
fair return for the capital invested should
be applied, upon the capital invested, as
the same is indicated by outstanding
bonds and stock, or upon the actual cost
in money of the lines when constructed.
If the actual cost should be used as the
standard in estima ating What rates shall be,
1t would probably not leave the Southern
Pacific company the right to charge rates
which will pay the interest upon it's total
bonded Indebtedness. 1t would appear
upon the equities of the case that only
the actual cost should alone be consid-
cred. The well recognized right of the
state to regulate the charges OF public
carriers is founded upon the acknowl-
edged fact tha. the public has in these
great public corporations joint rights
with the immediate proprietors thereof.
Thus, while the proprietor has right to
establish rates which Will secure to him
q fair return upon the amount invested
estimated by markeo rates of interest up-
on sum so large, the public have a right
TO limit charges so that no unnatural re-
turn shall be made upon the investment
at the expense of the persons furnishing
the traffic. 1t would appear, therefore,
that the courts which Will BIZ called upon
to pass upon this matter should consider
that the sum upon which the company
is entitled to have reasonable return is
the actual cost OF the property, or. IN
other words, the actual money invested.
Inasmuch as the actual cost, mile by
mile. OF the property now held bv the
Southern Pacific company In this state is
apparently below the bonded indebted
ness per mile, it is quite probable that
any relief which the courts NAV grant
will not be extended to permit them
to maintain rates which will secure re-
turn upon the fictitious cost. should the
company be held to rates which will pro-
duce merely return on the actual invest
ment, it is hard to see how it will secure
enough from such rates 20 pay the inter-
est upon all of its bonds, which were so
literally issued to the construction COM
panies and by them Distributed to Messrs
Huntington, Stanford, Crocker and Hop
kins, and by those able fnancers distrib-
uted to purchasers of securities in the
bond markets of the world. Should the
company not be permitted to charge rates
which will produce a sufhcien income
TO meet the interest upon all of these
bonds. the result is likely to be most mo.
mentous to the future of the Southern Pa.
cific oom pany.
In addition to this dilemma, that com =
pany will soon have to meet the compe-
tition of the San Joaquin Valley railroad
In what has heretofore been the Southern
Pacific's greatest freight producing terri
tory. 1t has been estimated that econom-
lea methods of construction, together
with the present oheapness in price OF
everything used in railroad building, will
enable that company to construct and
equip their road at an average cost of
~ 900 per mile. 1t is suppos ed that ap-