Evening star., 1934-08-03

The Roosevelt administration has
| embarked upon a plan which, If ap-
piled to all the utilities of the coun-
try, will mean loss Of approximately
$1,000 900, 900 to the security holders
of America.
This is the "yardstick" which the
Federal Government has developed
for dealing with the owners and
creditors of public utility companies
forced out of business by the use of
Federal funds.
The latest case, which no doubt
sets a precedent, is that in which the
Tennessee Valley Authority, Gov
ernment corporation, bought out the
Tennessee Public Service Co. The
latter had to sell or else face the COM
petition of the city of Knoxville,
which had been promised $2,500,0 900
from another Federal Government
corporation, the Public Works Admin
istration, for construction Of NUM-
cipal power plant.
The owners of the private company
were told that the city of Knoxville
wanted to go into the power business
and that the initiative was taken as
consequence of city election. But
it is also a fact that while the city of
Knoxville didn't have good enough
credit to borrow from the r. F. C..
the P. w. A. brushed aside all such
considerations and agreed to lend the
money for new power plant. In the
face of such a threat, the private
company agreed to sell its properties.
oN Contract Is Signed.
1t is interesting to analyze the con-
tract Just signed by the Federal Gov
ernment. For 1t shows that the Gov
ernment paid $285,00 less than the
face value of the bonds and con-
tributed nothing for either the pre-
ferred or common stockholders.
As a result of the transaction, the
preferred and common stockholders
have been left decrepit street rail-
way company worth about $500,0O0
and some cash remaining from earlier
contributions by the stockholders and
from earnings. Were it not for these
two items the preferred stockholders
would have been wiped out altogether.
AS it is, they have assets Of about $40
a share of value left and the common
stockholders have nothing at all.
The preferred stockholders orig
inally paid 500 a share for the in
vestment and it was paying dividends
right along; in fact, Notwithstanding
the depreciation in preferred stocks
generally this particular preferred
stock sold for 90 until the day the
Tennessee Valley Authority began to
talk of competing with the Tennessee
Public Service Co.
The reason the T. v. A. gives is
that it wanted the Knoxville company
to find "yardStick" for the measure
ment of electric power rates. There
are plenty Of municipal power plants
and plenty of accountants who can
tell without much research what cleo
trio power costs are for generation
and distribution. The fact is the
American people pay about $2,000,-
100000 a year for all Lheir fuel and
light, and while rates in some sections
are high, the total cost of electric
light to the householder is a smaller
item than his other costs.
1NO dig LApCnoCSs
The American people, for instance,
pay about $7,5o0,0 90, 900 for food and
50 .000, 900 900 a year for taxes, and it
would be much more in the interest
of the citizen to begin reductions in
those two big items rather than to
add to the tax item, which is exactly
what the Federal Government pro-
poses to do now in order to Subsidize
the various sections Of the country
that want cheaper power.
Naturally the people of Tennessee
are delighted with the idea of cheaper
power rates, but the rest of the coun-
try will have to pay for the subsidy.
Already city councilman who is
chairman of the Power Committee IN
Knoxville boasts that the Government
helped the city acquire property
that is worth twice what was paid"
| for it by the T. v A This confess
sion that the stockholders Of the pri-
vate company were out-traded may
not sit well in the long run, because
some preferred Stockholder is likely to
bring suit in the Federal Court of
Claims to recover the other $50 per
| SllaIG OF NAluG MlpCO OUT Dy I1lG =
v. A, Government corporation.
Some day, too, there will be bills in
troduced for the relief of public utility
stockholders whose investment has
been impaired by the Government,
Just as today Congressman are intro
ducing bills and urging the payment
| Of depoSitors in closed banks.
Huge Responsibility.
All the sums in closed banks amount
to about 81 200, ,0oo. 900. but if the ma
tionsl power policy plan begun in the
Knoxville case is carried out in other
sections of the country, Congress may
| be faced with the problem of rein-
/ bursement for losses of about $1,000
! 900 900. This is on the assumption
that the Federal Government means
to take over q $4,000 900, 900 public
utility industry. pay for the underly-
ing bonds at approximately face value
and leave the preferred and common
stockholders to shift for themselves.
1t VIII be Indignantly denied, per-
haps. that the Federal Government