Daily Kennebec journal. [microfilm reel] (Augusta, Me.) 1870-1975, 1916-04-22
THE PUBLIC UTILITIES
ON WATERED STOCK

In denying the privilege of issuing
"watered stock" the members Of the
public utilities commission, Hon. Ben
jamin F. Cleaves Of Biddeford, Hon.
William B. Shelton of Lewiston and
Hon. Charles w. Mullen of Bangor,
in the second volume Of their annual
report made public Friday, speak as
follows:
But we see no reason why when a
new utility is being financed and all
stockholders have an opportunity to
come in on the same terms, the GER
tificates of, stock should not mean pre-
cisely what they say; in other words,
should not speak the exact truth.
No one is then deceived. No one is
in doubt. The subscribing stakeholder
knows that he has discharged his en-
tire liability, once for all time, subse-
quent purchaser knows that the cor
poration has received full value for
the certificate he purchases. The
public knows that the corporation has
received so much real value. The ac-
tual value of the assets Of the utility
thus keeps pace with the book value
so far as the business foresight and
capacity Of it's promoters and mana
gers can make it.
ION the other hand, if the stock is
sold at less than par, the balance
sheet OF the corporation is likely to
be misleading from the start. book
keeping liability in excess of actual
value is created, and some fiction usu-
ally practised to make the assets and
liabilities balance. This may, or may
not, be overcome in time by success
ful MANAGEMENT and conservative
practices in the payment Of dividends.
"In the meantime the stock changes
hands. Persons are induced to pur-
chase on the supposition that the real
assets are equal to the book assets
Then. if a question of rates arises ana
is adjusted. as it must be on the
actual value Of the plant, such stocF-
holders are likely to realize Tor the
first time that their stock does not
represent what it purports to repre-
sent.
This practice has accounted in large
measure for serious losses to lnnocehl
stockholders, and, if persistent in no"
that rates and charges are subject 10
regulation, is likely to be even more
disastrous.
Certificates Of common stock in pub
lie utility corporations should mean
what they say If corporation Is
nromoted for legitimate business
nothing is gained by certifying that
nerson who has actually paid less tnan
s,oo into the treasury has paid IN 1uli
FOR 800 certificate. If 1t Is promoted
for stock-selling purposes, such GER
+iecate NAV aid in imposition upon
tho nnblic. We believe that In the long
r,,r this policy (requiring stock to be
paid in fulD will secure the pest re-
suits"
such is to be the policy Of the com
mission as set forth in the report III
that section dealing with the issue o.
certificates. The report quotes from
different decisions made by the con-
mission, explaining the prlhcipios
which will govern it.
One Of the early bond issues
which came before the commission
raised the question as to wnether
bonds might be issued to reimburse
the treasury of corporation for cap
ital expenditures previously MADE anu
Maid for out Of funds on hand me
decision quote in the report set 1orth
the language Of the statute dennlnS
the purposes for which bonds might be
issued. and after stating that the New
york public Service Commission had
held under statutory language pre-
cisely like ours that such an issue
cannot be permitted. adopts the more
liberal view, as follows:
1T a utility expends money from its
surplus for. the acquisition of new
properties, or for extensions and bet
terments, which it apparently does
not then need as working capital. with
no present intention Of replacing 1t
except from earnings, and later, under
changed conditions or business depres-
sion. seeks to restore it in this man
ner. we doubt very much II authority
legally could be granted.
when, however. during the course