Evening star., 1928-12-06
DRASTIC CHANGES
IN MERGER URGED
Senate'S Expert FIatIy Re-
jects $4,000, 900 Valuation,
0. KID by Efficiency Bureau.
Continued From Fourth Page.)

| but probably they mean that the new
company may fix the rates of fare to
be charged until the net income derived
therefrom shall exceed the reasonable
rate of return, whatever that rate may
oe fixed by the commission or the courts,
except that all charges for transfers
between street railway lines in the Dis
trict of Columbia shall be abolished as
soon as the agreement has been ap-
proved and the necessary legislation
enacted.
so far as the agreement is con-
! cerned, there may be charges for trans
fers from street cars to bus and vice
versa"
Report questions whether the Public
Utilities Commission would have any
power or discretion over fares and trans
fer charges until the company has earn
ed a reasonable rate of return.
Questions also the power of the Pub
lie Utilities Commission over service if
the company is not earning reasonable
rate of return.
The decisions in the Capital Trac-
ton case have been analyzed and in
my opinion the decisions of the courts
do not constitute a final or sacred rul-
ing, except and until revaluation is
made by the commission. and, If nee
eSSary, the matter is again passed upon
by the courts.
Modification Is Seen.
Further, in my opinion. as already
stated, if the matter is completely, ade-
quately and properly presented to the
courts. the valuation which they have
fixed will be considerably modified.
1T is even clearer that If the Wash
St1c Dnf o, afrin ~
an adjudication as to the value of its
property on complete, up-to-date and
properly presented record. the value
of its property will not be found to
be $36,000,000"
Report, arguing against inclusion of
rate-base of $50,000 900 in agreement,
says: IF the companies or their stock
holders are sure of their legal position,
there is no need for concern merely
because the two systems are brought
under the control and management of
one company. If. however, htere is any
doubt of the ability of the companies
to obtain from the courts valuation
Of $50,000,000 or more and to maintain
1t for 10 years the companies
will be in stronger position when
Congress has approved the contract"
Report questions whether prices upon
which present valuations by reproduc-
ton method are based will remain as
high as now. Whether prices will in
crease or decrease or remain stationary
is gamble. Is it wise for public au-
thorities to tie to a 10-year program
which involves a forecast of price
trends? Further, If it is fair that cur
rent prices should now be an important
factor in determining values should not
Irt ho f0 ir1nr
and required to assume the loss due to
declining values?
Calls Value Optimistic.
lone must be extremely optimistic to
hold out the expectation that the value
of the present property of the two street
railway systems in Washington will ex-
ceed $50,000,00O.
I'm the light of the preceding discus
sion of the rate base clauses of the
agreement, I suggest that they be elimi-
mated and that the commission be left
with the general power of regulating
fares without limitation or restriction in
the contract. The commission will then
be in position to deal with the question
of increased fares when it arises under
the conditions that then obtain and
subject whatever provisions may be es-
tablished by law and by the rulings of
the courts.
"Unificatiion has been brought about
In scores of cases without any attempt
to delimit or expand the powers of the
companies upon the one hand and of
the regulatory bodies upon the other.
Il can see no reason why, in all fair
ness to all of the parties affected by
unification in Washington, there is any
necessity for variation from the usual
method which has been found so gen.
orally satisfactory elsewhere. The pub
lie and the companies will be benefited
by unification wholly apart from any
change in their status as to valuation
and rate making, and it seems unneces-
sary to bring in a subject which has
been and will be the topic of such great
differences of opinion as to the value
of the property"
Differences Pointed Out.
Report says it is impossible to fore
cast accurately savings that will be
affected by unified operation and points
out the great differences between esti-
mates of various experts and authorities.
"At one extreme, there are the state
ments of certain officials that the re-
duction in operating expenses due to
unification alone will not be very large.
At the other extreme, is the estimate
of Mr.. Hansel, who pictures reduction
in operating expenses and taxes
amounting to $2.377, 900. which is over
Is per cent of the total expenses and
taxes of the two companies. Between
these two extremes there are the esti-
mates of Mr. BibbinS, MeSSrS. McClel
Ian and Junkersfeld. and MesSrs Bar
tholomew and associates. These three
have been made at various times for
the North American Co. Mr.. Bibbins
estimates the savings at $84l 900;
Messrs Mcclellan and Junkersfeld at
varying amounts, depending upon GER
tain conditions, but somewhat over
81 .O0O. 900 in each case, and MesSrs.
Bartholomew and associates at 1858, 900"
Report points out that Mr.. HansePs
estimate made on different basis than
the others.
Income Cut Is Seen.
Report, after discussing various saw
ings likely under unification, AS well as
losses of gross revenue. states;
"Upon the basis of the preceding
ANALYSIS the gross revenues of the new
company would be $260.000 less than
in 1927. and net income, $2592, 900,
after deducting the taxes charged in
1927. These changes will cause certain
alterations in taxes. The net
effect of these changes would be to
reduce the net income to $2,537 900.
This amount would represent re-
turn upon a rate base of $4,000, 900
| of less than 81 per cent; and if in
+ order to earn the net income set forth
above it would be necessary to add to
| the rate base, which is quite likely, this
percentage of return would be reduced
| to less than per cent.
1.-THE agreement does not fix the rate
of return, but leaves the rate to be de-
I termined by the commission with ap-
neal to the courts. At a 6 per cent
rate the new company would be en-
titled to an increase In its net income
of $463, 900; at a 7 per cent rate an
| increase of $963,000 (or a total net in
come of the new company of $780,