The Washington herald., 1920-02-23
PROPOSED RAIL
BILLANALYZED
Extremely Favorable to
Security Holders In
Present Form.
FREIGHT RATE CLAUSE
Income Guarantee on Total
Investment Construc-
tive Point.


the owners of railroad securities.
Like every law that sets UP a new
order in business or industry, 1t is
likely to develop defects and to
prove disappointing in some ways.
But it will remove the greatest sin
gle obstacle OF the past decade or
more to successful railroad enter
prise; namely, the necessity Of op-
Grating under the multifarious
rules of the Interstate Commerce
Commission and laws Of the various
states, the effect OF which was neg
ative and repressive, rather than
constructive; and will establish a
national policy.
The section of the bill OF greatesr
Significance to investors VIII re-
Quire the Interstate Commerce Com
mission to sanction a system OF
rates which shall yield '.as nearly
as may be" 5is per cent on the ag-
gregate investment of the carriers
in a given region or rate-making
group. and in the discretion of the
commission, an additional u of 1
per cent to be devoted solely to un-
capitalized improvements. The per-
centage named is to stand for two
years after the expiration of the
period OF six months. during which
the roads are TO receive the same
Federal Compensation or standard
return" as was paid to them during
Federal control.
As the existing rate scale. in con-
nection with present day operating
costs. yields considerably less than
per cent on the invested capital
of all tho carriers of the country,
II is obvious that an immediate ad-
vance in freight rates and perhaps
In some Passenger rates is among
the certain results of the proposed
DILL And as IL is equally clear thas
the preparation OF the new sched-
ules by the carriers and their ex-
animation by the commission will
require some months, the bip~ pro-
Nides that for six months fofbwing
the end of Federal control the car
riers shall continue to receive COM
pensation at the same rate at which
they received rental from the gov
ernment during Federal control. In
other words, during the first six
months after the law becomes ef-
fective the railroad corporations to
all intents and purposes will be
managing the roads as agents of
and for the account of the govern
ment.
A word should be said about the
general use of the expression guar
antee' in connection with the rate
and revenue provisions of the bill.
Except for the Federal rental TO
continue for the first six months.
the law Will not guarantee" any
individual road anything. 1t will
not literally speaking, even guar
ahtee an aggregate return of 5E
per cent on the investment. because
the mandate of the commission con-
tains the qualifying phrase "as
nearly as may be-" II rates fixec
Tor the future yield less than the
specified return, the companies will
nave no recourse save to ask for a
revision of rates. Yet the word :
quoted would. in common sense. ms
tlS the commission in testing the
rates by the average yield over a
series OF Two or three years. On
that assumption. we may fairly ex-
pect the commission to offset the
deficit of one year with the surplus
OF another. and so preserve as near
~ constant a level in investment re-
turn as may be had without fire.
quent rate changes.
1t may also be assumed that the
commission will exercise afFirma !.
lively its discretion as to the addi-
tional one-half Of 1 per cent for
non-productiye improvements, and
that therefore the rates will be de-
signed to yield not merely 51b but 6
per cent on the aggregate Invest
ment- The commission has in the
past repeatedly approved the prac-
tice OF applying some portion of in
come to additions and betterments.
Wnlcn do not Immediately earn the
interest on their cost.
A question of no little conse.
quence arises as to what measure of
capital investment, upon which tbs
rate of return is to be calcuIate ted
shall be used The bill SAYS merely
that the commission shall, from
time to time. determine such invest
ment for each carrier. The commits
sion Is now doing just that under
an earlier act, but the work of yaIu-
alton has been going on for six
years, and will not be completed for
two or three years more. Presuu-
ably, the commission will have to
take for rate making purpose the
property investment accounts (cost
Of road and equipment), as they an
pear on the carriers books, per-
haps modifying it's conclusions in
the light OF such facts as are al
ready available from the division of
valuation If it were to allow s ner
cent return on this basis, such re-
turn would be comparable with an
average of 5.31 per cent for the
three years ended June 80, 1917
C"the standard return" of the Fed
eral control act), and with the fol-
lowing percentages for other years
as reported by the Interstate Conn
merce Commissions:
1916. $50 per cent; 1915, AIS per
cent: 1914, 4.12 per cent; 1913, sol
per cent; 1912, 4.6S> per cent; 1911,
4.92 per cent: 1910, 5.6s per cent:
1909. 5.3s per cent; 1908, 4.ss per
cent; 1907, 5.61 per cent.
The individual road Is to be en-
titled TO return of 6 per cent be-
fore 1t begins dividing additional
income with the general contingent
fund. only If 1t is able to make such
a return under a rate adjustment,
which allows all the roads in the
same rate-making territory to OBJ
tain the specified return in the ag-
gregate. However. as the general