Evening star. [volume] (Washington, D.C.) 1854-1972, 1928-02-17
Valuation and Profits.

Nd1Qd t4OA dAQ i 2OntS.
As was expected, criticism Of the pro-
posed traction merger plan, from the
public point Of view. as expressed by a
committee Of the Federation Ct Citizens
Associations. pitches mainly upon the
two points Of capitalization and profit
guarantee Preparations are being
made By that body TO attack the figures
presented b. the corporations in respect
10 valuation. and 10 enter objection 70
the seven per cent stipulation in regard
70 net earnings. Other features Of the
plan are questioned. ana proposal is
made to- the addition c. certain guar
antees Of service
A rapid transit corporation is given
the right 70 use the public streets not
primarily for the sake Of permitting
those who form it 10 make money. but
for the purpose OF atTording service 10
the community It is a public utility.
which Is vested. for perhaps an in5e1-
rite term, in an association Of indi-
vi6uals who sell transportation TO the
people at rates which are regulated by
the community. through officially desis-
mated commissions There are two con-
sioerations in the case that OF the quail
!ty OF service rendered and that Of the
cost TO the users. The quality OF service
and the cost are factors II the financial
equation. Primarily. however. comes
the financial investment upon which
the rate Of net earnings ALLOWABLE. is to
Be based
1t is the duty of the Public Utilities
Commission. il its review of the merger
proposal. to determine, first. whether
the capitalization. or valuation, Of the
combined properties is equitable to the
corporation and to the community. This
Is difficult matter. Many factors enter
into the computation The rights o..
those who have contributed their funds
to the capital OF the individual COM
panies, merger Of which is proposed,
are 70 be considered. Primarily. how
ever. the rights OF the public, q nom
investing partner. are to be borne In
mind. An excessive capitalization or
valuation viii lead 70 excessive rates O!
fare In the future.
That there have been substantial In.
vestmerts. In cash. n the properties OF
the rapid transit corporations is known
That there have been some expansions
Of the capital not based upon actual
values is believed. Whether the pres
ent computation @! values presented for
purposes Of merger viii Withstand the
test o. actuarial scrutiny remains TO be
seen. Upon the Public Utilities Com
mission, in the frs; stage Of the matter,
will depend the answer 70 this question.
For long period there was consid-
cradle difference between the financial
situations Of the two traction cor1pa-
lies One OF them. with larger plant
and potentially larger earning powers,
was handicapped by what the public
believed TO be an excessive capitalize
ton. To enable il 70 earn reasonable
return the rate CT fare FOR the District
affecting both companies. was al
F&eI@EA ~ VOC ASIGAa AA-@N "N~
actively urged as tie only sure means
O. equa!izing u. conditions and per-
hitting & reduction IN the fare rate fol
the benefit Of the public. The disparity
between the companies has nov disap-
pez,ec-
Fare fixing should be based upon cost
Of service. Plus reasonable profit. Cost
OF service includes overhead" as well
Is se.ua! operation cos. Reasonable
profit means profit upon reasonable
valuation. TIA. Is the problem which
u broad terms. Is now presented 10 ths
Public Utilities Commission fcv So!u'
ton, as the basis Of recommendations
70 Congress, which must pass an en-.
sb.sng az. 70 pe.n.i. the merger.