Evening star., 1935-03-19
Holding Companies and
Depreciation Reserves

To the Editor Of The Star:
Your Holding Companies" editorial
Is indeed q Star editoriali AS its
sequel. perhaps you will make clear
the fact that the public even now
owns not less than so per cent OF
all electric, telephone and railroad
utilities. and therefore possess ample
rights to go per cent Of the votes In
any stockholders meetings of such
organizations. The present public's
ownership in such utilities centers in
the depreciation reserve, which Is
public money, and which Is now In the
hands Of the holding companies, but
from the beginning should have been
deposited in the public treasures as
accrued.
The depreciation now amounts to
about 60 per cent of the original
cost, or prudent investment of the
properties, and has rested at about
that figure for some time. It Is now
realized, and even admitted in public
hearings, that the depreciation re.
serves of the above-named services
have come to their mean tide, and nc
concern need be expressed as to its
ever getting much over or under the
so per cent level so long as the prop
critics continue as going concerns and
so long as the depreciation fund Is
fortified by insurance on the prop
critics.
The rates charged for services in
clude the taking from the public OF
a sum each year for the purpose OF
restoring to the investor his invest
ment, or, in lieu of that, to replace
the property and start the cycle over
again. Until it is so used. the fund
belongs to the public. But 1t is left
in the hands of the arrangements of
the utilities. The public is careless
like that, and the managements have
assumed ownership in the fund. The
interest it earns, which is enough to
double itself every IS years, should
be paid into the public treasury, but
it goes to the stockholders as divi-
dends. Or the fund is invested in
plant engagements, the earnings of
which should go into the public
treasury, but instead more stock is
issued to the public (widows and
orphans) and the new earnings are
diverted as dividends.
There is another possible handy
use for this depreciation fund.
holding company is organized and
acquires control Of utility having its
so per cent reserve fund. Since con-
troll is secured of the utility, control
is gained over the depreciation fund
1t might very we'll be taken to pur-
chase control of another utility, which
in turn also has a substantial depre-
citation fund accrued, and that fund
may be used to buy control of still
another utility, and so on.
If the depreciation fund of all
utilities were placed in the public
treasury, where it belongs, it would
just about Offset three-fourths of the
public debt, and the public debt should
be enlarged each year in the same
ratio as the utilities must enlarge
their physical plants by true invest
ment, and depreciation is accrued
thereon. Then the original investors,
and the new investors creating the
enlargements to the plants, may look
to the depreciation deposits in the
same light as we regard the minor
bonds our Government is now offer
ing us.
That is to say, the money is there
If we actually need it, no more and
no less, regardless of the stock mar
ket's nervous system.
As matters now stand, We hope that
the utilities still have the depreciation
fund we deposited with them, but
much has happened to such things in
the last five years, and none of us
has ever seen published accounting
of those funds, beyond a blank state
ment that the books show such funds
amount to about so per cent of the
original investment. This is the accrual
by the book.
Let us admit this. According to the
books OF accrual, the public now owns
so per cent of all established utilities.
Sixty per cent of the stockholder's
voting rights also.
Well. let us forget it then, and con-
tinue our Indignation over our traffic
troubles and parking spots, while the
widows and orphans and very aged
citizens follow where the holding COM
panies may lead them. r. H. HARSH