Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-05-21
O'FALLON DECISION
HELD UNLIKELY TO
AFFECT D. c. LINES
Cost of Reproduction at Pre-
vaiIing Price Always Used =
in Fixing Value.
CAPITAL TRACTION CASE
BELIEVED TOUCHED UPON
Utilities Experts Think Question,
Ruled on by Appeals Court,
Can Be Reopened.

The decision of the United States
| Supreme Court in the st. Louis &
OFallon Railroad case is not expected
| to result in any substantial change in
the valuation of public utility properties
| for rate making purposes in the Dis
| trict, according to opinions expressed
by authorities on local utility questions.
| The cost of reproduction at prevail
ing prices, which the court held should
be only an element in valuation, 1t was
| pointed out, always has been used as
the dominant factor by the Public
Utilities Commission in determining the
value of Washingtons utilities. Where
the decision will have its most pro-
nounced effect, it was said, will be on
the courts whose decisions have been
more favorable to the utility companies
in all disputes over valuations made by
the commission.
Lower Value Held Possible.
The Capital Traction valuation case
is one which the utilities experts be-
| lieve can be reopened under the ORAL
lon decision and lower value probably
| established. In this case, it was eX-
planned. the Court of Appeals recog-
nized the cost of reproduction as the
only mea sure of determining the value
of the company.
After cursory examination of the
| O'Fallon decision, Ralph B. Flehafty,
peoples counsel before the commission,
| explained that in his opinion, the court
| had done nothing more than to reamrm
several of its former decisions on valu-
alton and the principle laid down In
! the Smyth- Ames and ot1er often quoted
cases.
THE Supreme Court" he declared.
"never has said that the reproduction
cost is the only element to be taken
| into consideration. What 1t has said is
! that the cost of reproduction, historical
or book cost, the general condition OF
| the property, service that 1t renders to
the public, and the value of that serv-
ice, all are elements which should be
| taken into consideration. The court
also has recognized that depreciation
should be considered and deducted from
the value otherwise obtained by appli-
cation of the different elements"
Says They Applied.
Mr.. Fleharty pointed out that while
| the utilities commission followed no
| prescribed formula in fixing the value
| of the local corporations, the reproduc-
ton cost theory had been applied per-
haps as the dominant element. For
| instance, he explained that the COM
missions original valuations were based
on the cost of reproduction in 1914,
| during an era of low prices, and brought
I'D to date in 1919 with the additions
and betterments taken at book cost,
which did not allow any enhancement
/ in value.
The Court of Appeals in the Potomac
| Electric Power Co. case, however, he
explained, ruled that the commission
had committed an error prejudicial to
! the power company by finding the re-
production value as of 1914, rather than
| in 1919, and thereby had deprived the
company of an increase in value over
| that five-year period. This case was
taken to the United States Supreme
| Court, but it refused to take jurlsdic-
| ton, and the decision of the Court of
Appeals became final and binding.
In the Capital Traction Co. case
which had been held up pending de-
cision in the power company case, the
court, Mr.. F'leharty explained, brought
the 1914 values as found by the COM
mission up to date by applying the
principles laid down in the power COM
pany case.
Other Gases Cited.
with respect to the Potomac Electric
| Power and Capital Traction Co.'S" Mr..
| Fleharty said I'VE have court valua-
! tions which are in accord with the prin-
ciples laid down by the Court of APP
peals of the District and the United
States Supreme Court.
In the cases of Washington Railway
! r. Pfrip "a Ch Crenr0e-
town Gas Light and Chesapeake 81 Po-
| tomac Telephone Companies, however,
| the valuation is carried on the commits
sion'S records in accordance with the
findings of the commission, which found
! the 1914 values and brought them up
to date through additions and better
ments. These cases are still pending in
| the courts and have never been carried
! to conclusion"
Mr. Fleharty pointed out that in the
recent revaluation proceedings before
| the commission in the gas company
case, he was proceeding along the gen.
eral lines of applying the principles laid
down by the Supreme Court-the con-
sideration of all elements, and not the
cost Of reproduction alone.
Blaine Merger Discussed.
| While the O'Fallon decision is con-
of the So-called prudent investment
theory as the only method of valuation.
| the utility experts do not believe 1t
will eliminate the Blaine amendment
| from consideration i'll the local transit
merger resolution III Congress. The
Blaine plan follows the prudent invest
ment theory, which is based on the
actual money invested in utility. Sen
ator Blaines proposal. if adopted, it
was said. would become part of the
merger agreement and would therefore
| be safe from adverse court rulings, such
| as the O'Fallon case.