Douglas daily dispatch., 1927-11-06
7 WO BILLION
BOOST IN RATES
IS Up TO COURT
BY RODNEY BUTCHER.
NEA Service Writer

the 6nClre european war debt had
been saddled upon us and that, with
high interest rates, we would have to
pay some $2,OOO,00O.0OO a year forever
and ever
Well, probably we would holler.
Yet with hardly holler, the coun-
try is confronted today with a prob
lem, the solution of which includes the
possibility that we might have to p;(
the $2,000,000,0OO in increased rates to
railroad, telephone companies, gas and
electric light concerns, street car
lines and other public utilities.
The fact that this tremendous sock
to the family pocketbook, which would
theoretically take $1,000 from the head
of every family in the United States,
would not be likely to be imposed by
the utilities is some consolation. But
the belief that we would be spared the
full burden rests only on the likeli-
hood that the national business struc-
ture would crack under the strain
And if the railroads and other utili-
ties are granted the contention which
they have taken to the courts, it is
assumed by experts here that they
would come as near to the two billion
dollar sock as they safely could and
that in any event, all regulation Of
public service rates would end auto
matically The QUESTION is one. OF
whether the utilities are entitled to
the boost
All this is seen by members of the
interstate commerce commission and
other expertsa as they fight outs the
question of Valuing the railroads for
purposes of rate making. There fol-
lows an attempt to outline the prin-
cipal facts of a situation which has
been obScured by millions of words
piled high in supreme court decisions,
interstate commission hearings, and
reports, and various other records and
proceedings.
Under the law, railroads are per-
mitted to earn up to per cent on
their valuation as fixed by the I. G. c..
Half of the excess above per cent
goes to the government for fund to
aid weak railroads and the other half
goes to the railroads
The big question is that of fixing
the valuation of the railroads for rate
making purposes, and it is this queS-
ton which the supreme court is ex-
pected to decide when it gets the test
case involved in the appeal of the st.
Louis & OFallon railroad from the
valuation fixed by the I. G. G.
The T. G. c. has adopted a base esti-
mated to give the railroads a. return
on from 10 to 20 per cent more than
the estimated original investment,
whereas the railroads insist on the re-
production value plus minor additions
such as for "goi1g value
The cost valuation of the American
railroads, according to l. G. G. esti-
mates, is about $4,000, ,OO0,O00. 1t is es-
tinnated that the railroad theory would
place this figure at about $33, 3,000,000,-
900, although the Wall Street Journal
has placed it at 55 billions. If the
railroad theory is accepted. the rail-
roads would be permitted to increase
their rates so as to receive s per cent
on the additional 10 billion dollars.
If the principle spread to the other
utilities as clear supreme court de-
cision would spread it, the extra burd-
en- would be boosted to more than $780,
900 100000, according to Commissioner
j. B. Eastman, and at per cent the
increased cost which could be passed
on to the consumer would be around
$4,000 600 0OO In many instances it
would provide an excuse to double
freight, gas or electric light rates.
In 1918 the I. C. G. was instructed by
congress to make valuations of the
railroads. In making them, the COM
mission estimated original cost on the
basis of 1914 prices striking an aver
age for the 10 years previous, as it was
impossible to learn the original amount
OF investment in most cases. Then the
commission estimated depreciation
and deducted it. 1t estimated the val
ue of the railroads land holdings by
land alongside and added that. Final
1y it considered the condition OF the
road, added. about per cent for good
measure and called that the valua-
ton.
But because prices have gone sky
high since 1914, the railroads contend
that they should benefit and be al
lowed earnings on what it would cost
to reproduce them at present prices.
This is the, contention of the railroads
in the O'Fallon case.
One of the supreme court decisions
which the l. c. C. says must be for
ever borne in mind was that of Day
ton-Goose Creek railway VS.. U. S.,
holding that:
"By an investment in business
dedicated to the public service the
owner must recognize that, as COM
pared with investment in private busi-
ness he cannot expect either high or
speculative profits but that his obli-
cation limits him to only fair or rea-
sonable profit"
Previously, the court had held that
a railroad was a public highway and
that a railroad corporation is created
for public purposes and performs a
function of the state.
Public utility regulations are based
continued on Page Three)