Evening star. [volume] (Washington, D.C.) 1854-1972, 1930-01-09
BALTIMORE CASE
HELD UNLIKELY TO
AFFECT FARE HERE
Little Aid for Transit Lines
Plea for Increase Is Seen
in Court Decision.
WEST EXPLAINS RULING
SETTING 7.44 RETURN
Depreciation Measure Set Up by
Verdict Is Considered Great
Weapon for Carriers.

WaShington'S two street railway COM
panies will not be aided materially in
their fight in the courts for higher
fare by the recent decision of the ST.
preme Court allowing the United Rail-
ways e. Electric Co. of Baltimore re-
turn of 7.44 per cent on its valuation
it was predicted today by Vernon E.
West, principal assistant corporation
counsel.
Mr.. West who is representing the
Public Utilities Commission in the pres
ent fare case, pointed out that the
principles laid down by the Supreme
Court in the Baltimore case are the
same as those In earlier decisions. ex-
cept that the rate of return was IN
creased to 7.44 per cent. This rate,
however, he explained, was applied to
the facts in the Baltimore case only, the
court taking the position that a def
mite rule for determining rate of re-
turn could not be laid down which will
apply uniformly to all sorts of utilities
because of radical differences in condi-
tions.
did Not Fix Fair Return"
"The Supreme Court did not say abb
solutely what is a fair return" said
Mr. West. "It held that any rate
lower than 7.44 per cent in the United
Railways case would be confiScatory
while at the same time indicating that
a rate of rs per cent or even per cent
might be necessary to avoid confisca-
ton"
The District courts in the past have
held that a rate of per cent is fair,
and Mr.. West does not see in the latest
Supreme Court decision any precedent
for increasing that rate. particularly in
view of the decline in interest rates.
The crucial feature of the Supreme
Court decision, according to utility ex-
perts, is the rule set up for determin-
ing depreciation. which discards the
original cost basis in favor of present
value. The utility experts regard this
as the greatest weapon put in the hands
of the railroads and all other utilities
to obtain higher rates. although Mr..
important factor In Washingtons fare
case, since the street railways. he said.
do not appear to be concerned with
depreciation.
Different Rule Held Illogical.
The court held that since the rate
base of public utility Is present value
it would be illogical to adopt a differ
ent rule of depreciation. It further
held that determination of the allow
ance for depreciation upon the basis of
original cost is unsatisfactory. since the
purpose of the depreciation charge is to
compensate the utility for property con-
sumed in service: and If values have
advanced since building the railway
an allowance for depreciation based
upon original cost would be insufficient
to maintain the road at the same level
of efficiency for public service.
l. -
operating costs, utility experts explain
that under the Supreme Court ruling,
consumers who may have used the serv-
ice when construction costs were rel
atively low would be required to pay
the utility for the loss of property worn
out in service with enough in addition
to enable 1t to replace the property
at an advanced price for the service of
future customers. In other words, these
experts maintain, the present genera
ton will pay for improvements and
more efficient service to benefit the
coming generation.
Illustration Is Given.
AS an illustration, it was pointed out,
a street car costing $4,000 with life
of 20 years is deprecated at the rate
of $500 year. the company at the
end of its useful life having recovered
the amount to replace the car Under
the Supreme Court decision, however. it
was explained. the company would esti-
mate the cost of replacing that car 20
years hence, which. in view of improve
ments in construction and other chang
ing conditions probably would raise the
cost of car to $4,000. Thus the COM
pany would retire $3.50 year as the
depreciation.
The purpose of providing a reserve
for depreciation. however, according to
the experts, is not necessarily to provide
sufficient funds for replacing the prop
srty As it ceases to be useful, but rather
the purpose is to hold in the business,
out Of earnings obtained during the use
fulness of certain properties. sufficient
amount to protect the utility from loss
when it becomes necessary to abandon
he property. The depreciation reserve,
IL also was explained, is not for the pur-
pose of providing any additional capital
where it may be required to replace
original property with better or more
expensive property, and to use the de-
probation for such purpose would
mean that in the end. the plant account
would bear very little relation to the
actual historical cost of the property in
existence at any time.