Omaha daily bee., 1911-01-08

was earned upon the OASIS OF the Oio rates
These results seem TO completely sustain
the contention OF the shippers that In
creases in the eastern rates are entirely
unnecessary
The advances made by the railroads in
Western Trunk Line territory we're not
! important in and Of themselves, but the
/ executives Of those lines made II clear
! that II was their intention to follow these
advances with others that would augment
| their revenues materially, II the commits
sion approved the first figures submitted.
| The theory Of the western roads was
much the same as that finally adopted
/ by the eastern roads, viz: That their OPP
| Grating expenses we're increasing with
/ greater relative rapidity than their gross
| earnings, and that they must augment
] their gross earnings materially in order
| TO pay their dividends and fixed charges
and create the amount of surplus that
| they considered necessary to preserve
| their credit The principal western roads
presented an elaborate theory of fair re-
| turn, based partly upon the evidence Of
| Vice President May of Price, Waterhouse
q Co., and partly upon the theory that
! they were entitled to capitalize their sur
plus earnings that had been put back into
| the property. Mr.. Mays theory was that
| fair return included not only present div
! idends, but the right to returns upon
! the investment from the beginning
of the company's history. In other words,
II the Santa Fe road passed it's dividends
/ during several bad years 1t was entitled to
add the amount of those passed dividends
| to It's present dividends so that the aver
age would equal fair return for all the
years of its existence. The other theory
was put forward by the Burlington and
! Northwestern. The Burlington claimed
that It had a right to a fair return upon
] 127,OOOOOO Of surplus reinvested in its
property, and the Northwestern showing
indicated a claim to earn returns upon
nearly s6OOOO,OOO Of surplus income rein
vested in the same manner.
The Burlington road laid great stress
upon the evidence of it's general manager,
Mr. Ward, that the property would cost
! $3.50, 100000 to reproduce. Included in this
estimate was $l60OOO,O00 land value. Mr..
Ward testified that he based this value
upon an ascertained actual value Of sur
| rounding property, which was multiplied
by three upon the theory that II cost
railroad three times the value of sur
rounding property to obtain land for its
use. The fair inference from Mr.. Wards
testimony was that he had applied this
multiple OF three throughout. When the
Burlington was confronted with the fact
that the cost to the railroads Of terminal
property In four large cities was as fol-
lows:
Omaha, $50 per cent Of adjoining land
Minneapolis, 16O per cent of adjoining
! land.
ST. Paul, 175 per cent of adjoining land
| Duluth, lb per cent Of adjoining land.
and that the use of the multiple of $50
supported by these figures cut Wards
value estimate In two. Mr.. Ward was put
back on the stand and modified his first
testimony materially. He corrected hts
evidence by the statement that he had not
used a multiple of three uniformly but
only with reference to farm lands The
value per acre upon which he supported
his estimate Of farm lands were so far out
of line with actual values, even admitting
the correctness of his multiple of g. that
IL is not anticipated that the commission
will pay much attention to that estimate
as a basis for the claim Of fair return.
The underlying theory OF the testimony
OF all the western railroads seemed TO be
that the commission ought to accept with
out question their statements Of the
amount Of their operating expenses, and
not to go behind those statements dealing
only with the net revenues left after de-
Quoting these operating expenses from the
gross revenues II the testimony Of the
railroads themselves showed no abnormal
or unusual conditions as to the amount
of their operating expenses, their position
in this respect would not be open to Sc
rious question. Counsel for the shippers,
however, made an exhaustive analysis of
the operating expenses of the principal
western railroads upon the theory that the
fro. -, "a
controlled by the Atchison, Topeka &
Santa Fe. Chicago, Burlington & Quincy,
Chicago a Northwestern aud Chicago, NIL
waukee Il st. Paul railways, and that the
commission must decide the case with
reference to the showing made by those
four roads because of their commanding
position and because OF the fact that they
were generally admitted to be capitalized
with reasonable fairness and to be hon
estly and ably managed.
This analysis showed an unprecedented
increase in operating expenses under the
heads OF maintenance OF way, structures
and equipment. The testimony of the exc
eutives of three of these roads had been to
tho effect that their properties had been
kept up from year to year IN such shape
that they were better at the end Of each
year than they had been the preceding
year. Notwithstanding this fact. their
maintenance expenses were very largely
increased during the fiscal year ending
! 1910 The increases showed most clearly
in those items which could be most readily
} controlled by the fiat Of management. No
claim was made by the shippers that these
accounts had been deliberately padded for
the purpose OF increasing operating ex-
penses. Tho theory presented for the con-
= sideration OF the commission was that, II
the judgment Of the management had re-
suited in the contracting Of unusually heavy
, maintenance expenses during the fiscal
} year 1910, that fact should not be made
! the basis Tor advancing rates in order to
+ augment gross earnings. As an in
o. stance Of the large expenditures
! Tor maintenance there was the
[ case OF the tie renewal account OF the
santa lie. This account showed that the
Santa Re company had expended SS50,tJ
, more In 1910 than In 1903 for renewals Of
, ties, but had laid 0ooOoO less ties in 1870
and had reported to the commission tina,
ha NJ ffa ~ int Of