The Washington herald., 1907-11-07
THURSDAY. NOVEMBER :. 1907.
The Gas company's Petition.


Washington Gaslight Company for an IN
crease Of capital stock is now before the
Supreme Court Of the District. Follow
ing the precedent in the case OF the
Georgetown company. the court will or
der the taking Of testimony to determine
the value of the plant and other assets Of
the corporation as a basis for capitallza-
ton. The hearing in the former case be
fore Auditor Payne was instructive and
the findings upon the evidence well con-
sidered. and it goes without saying that
the hearing on the petition of the larger
corporation Will be even more enlighten-
ing. for IL will uncover for the first time
the actual earnings of a plant that has
'been money-maker from the beginning.
The company is obviously Of the opinion
that its earnings justify a large increase
in the capital stock The Washington
Herald is of the opinion that the earn
lings viii equally justify a lower price of
gas.
Questions as 10 what should or should
not enter into the capitalization of pub
lie service corporation are admittedly diff
cult of settlement In the present in
lstance two OF the most important are:
To what extent should betterments paid
for out OF current earnings be capital
ized, and. should the value Of the fran
chise be capitalized, and. IL so. how
should its capital value be arrived at?
We judge from the statement Of Com
missioner West as well as from the ar
guments OF District counsel in the former
case, that capitalization of either better
nr fraur11fuo mill ha
The vital points in the whole controversy
are just here. for a swollen capitalization
may be made an excuse for maintaining
the price Of gas, just as it was in the
New York gas case. wherein the referee
decided that So-cent gas would be con-
hscatory.
Should the findings of Auditor Payne be
confirmed by the court, a precedent will
have been set for the determination Of
both the questions above outlined. As
TO betterments. Mr.. Payne took into con-
sideration only the actual cash val,-e of
The plant, in its present physical condi-
ton. as determined by experts. refusing.
however, to allow the cash value to be
fixed at the cost Of reproduction Mr..
Payne held that this cash value was a
rightful basis of capitalization. In arriv-
ing at the value of good will, Mr.. PAYNE
adopted the simple method of capltalizing
the earnings at per cent and then de-
Quoting from this capitalization the cost
Of reproduction OF the physical property.
the remainder being set down as the
value Of good will and franchises. BY
this method the value Of the Georgetown
Company's franchise was fixed at Se5 661
AS nothing is known of the real value of
the Washington cOmpany's plant, specu-
Iation as TO the value Of its franchise
computed by this method, is useless. but
y seems probable that, although likely to
be smaller than il would be If determin-
ed arbitrarily It will yet be of sufficient
size to affect materially the question
whether the company can afford to re-
duce the price Of its product and stin
pay a reasonable dividend on its entire
capital stock.
we see no reason however, why a pub
Tic service corporation. in possession OF
a monopoly by grant Of Congress. should
be permitted to capitalize that monopoly
as If ii had tangible value. Legalized
monopoly. Of course. does possess. an i'm
mense value, but II Is a value derived
i-om the community. and It is not good
public policy 10 compel the public 10 pay
dividends on a capitalized franchise
through the higher rates Of service which
such capitalization necessitates. Divi-
dends on franchises ought TO go back to
the community granting The franchise.
either in the form of taxes or of reduced
rates for service. In either case. the
franchise has no capital value to the
monopoly. We trust the District counsel
VIII make a strong effort TO exclude fran
chise value from consideration as a basis
OF capitalization. and that il the effort
1ails. Congress will be asked to ignore
that element in fixing the price of gas.