Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-09-29
new RATE-MAK|NG
METHOD USED IN
VALU|NG BUS LINE
Utilities Body Action Against
W: N. & A. Fare Raise. can
other Car Merger Warning"
FOLLOWS PRINCIPLES
IN o'fALLoN CASE
Original Cost and Reproduction
Costs Less Depreciation Two
Cardinal Elements.

An entirely new and modern method
Of valuation for rate-making purposes
has been adopted by the Public Utilities
Commission, it was disclosed yesterday
in a formal order issued by the COM
mission. fixing the fair value on the
Washington, Marlboro and Annapolis
Bus Line and denying Its application
for an increased fare. .''',
Theories never before used in eval-
uating District utility properties are
involved in the commissions new
method, which is expected to have Q
far-reaching effect on all future valua-
ton cases. Applied to the various
utility properties. 1t was predicted. a
lower valuation than now exists prob
ably would result. !.
Since a revaluation of the car COM
panies is one Of the weapons In the
hands of the commission with which to
forestall the move for higher fares. the
new method Of valuation took on added
significance. In utility circles 1t was
looked upon as another warning to the
companies TO renew merger negotiations
on q serious basis. The valuation set-up
follows closely the principles laid down
by the Supreme Court In recent valua-
ton cases, one Of which was the widely
discussed st. Louis and OTallon case,
although 1t alone was not q dominant
factor. It is comparable, 1t was pointed
out, to the formula used by the Inter-
state Commerce Commission in making
base valuations Of steam railroads.
Two Cardinal Elements.
Original or historical cost and repro
duction cost less depreciation are the
two cardinal elements In the commits
sion's new system Of arriving, at fair
value. Reproduction costs. however,
are tempered by the use of second
hand prices where property used and
useful in the public service was pur-
chased secondhand.
The allowance for intangibles is held
down to q minimum under the commits
sion's new valuation procedure. In the
treatment of oyerheads the items are
based on the actual showing of records,
while working capital Is limited to the
actual necessities Of the company being
valued.
Radically, the new method differs
from the fair value formula used by the
former commissions In arriving ut the
valuations on utility properties evalu-
ated in the past. In former cases strict
reproduction cost was the principal ele-
ment. and in one notable case, that of
the Capital Traction Co., where the
commissions valuation was adjudicated
by the court, no deduction was made
for depreciation. Little or no attention
was given to original cost by former
commissions. which also made heavier
allowances for intangibles as well as
arbitrary allowances for working capital.
In fixing the value OF the bus line
the commission deprecated all physical
property except land, applied current
secondhand prices in determining the
reproduction value of property pur-
chased second-han and reduced ma
terially the company's claim on such
vital items as working capital and
The total value fixed on the. COM
pany's property il $66,419. but since
only one-twelfth Of 1t is used in the
District the commission determined its
value in the District for rate-makinR
purposes amounted to $7,958. On the
basis of this valuation, it held the pres
ent rate Of fare of IS cents cash or 10
tokens for 81 produces q reasonable
rate Of return. The company had asked
the commission to raise the fare to four
tokens for so cents.
First Bus Line Valued.
The Marlboro line Is the FIRST motor
bus line ever valued by the Public Utili-
ties Commission. The former commits
sion undertook an inventory Of the
Washington Rapid Transit Co, but 1t
was never completed.
The commissions decision to value
the Marlboro line was made in July,
when it took under consideration an
application of the owners to make per-
manent fare of four tokens for SO
6A vAwA ReSSt -
temporary period. The valuation hear
ingS were held several weeks ago, at
which an agreement was reached be-
tween the company and the commits
sion'S engineering bureau as to quanti-
ties and unit prices on the properties
involved with the exception of bus
the company purchased second hand
and on which It claimed q new, value.
In the formal order the, commission
held that in determining the reproduc-
ton cost Of properties purchased second
applied and thus accepted its engineer
ing bureaus used value on the bus In
| appraising the property. The company
also commended it should be allowed
$1,000 for cash working capital, that
| figure being an average months oper-
ating expenses, but the commission
found that $4,000 would be a reason
able allowance. The evidence, the COM
mission said. showed that the company
receives cash from operations con.
siderable period in advance and the due
date of bills payable as well as other
matters relative to the company's re-
| Quirements for cash working capital
and that $4,000 would be an adequate
allowance. -
An intangible item of $4,000 for 60.
| ing concern value was reduced by the
commission to $500. THE commits.
sion," the order read, latter. reviewing
| all of the evidence presented and taking
| into consideration the manner In which
| the properties have been valued, find.
| that q reasonable allowance for all othel
values and elements Of value, including
going value, in so far as 1t has not beer
| allowed for In the build-up Of the valu.
alton Of the physical properties. Il
$500"