Montana labor news., 1945-03-29
FEDERAL POWER
COMMISSION ORDERS
CONTINUED from &c Fivel

so 49,
Banquo's ghost This discussion came
up after a review Of the write-ups On
Great Falls Power company Of
course there is only n way to fix it,
that is, write it down and write the
capital down."
The opinion says that when, in the
instant proceeding, Mr.. Bird was asked
about this letter, he said he was talking
about intangibles concerning which in
surance companies, investment concerns
and banks had for years sought explana-
lions from the company"
In 1929 in a hearing before the Federal
Power commission, Montana Power stat
ed that although its books reflected an
amount of 500, 600, 900 it earned on an
investment equal to only S45, OOO, GOO.
Excess of Cost Over Original Cost
The commission found that Montana
Power, or its predecessors, over a long
period of time had, in arm's-length
transactions, acquired going concerns at
a cost in excess of the original cost of
the underlying properties. The net
amount Of the excess, relating to 80 ac-
QUESTIONS, was established at S. ,086,-
428.48. AS to this, the commission said:
THE amount we are discussing has been
in the accounts a considerable period
of time, some of it as long as AZ years.
without any provision for amortization.
In general, we believe the amount rep
resents payments for elimination of the
threat Of competition, the rounding out
of service areas, and payments for pros
pective earnings, rather than an excess
Of purchase cost over original cost OF
physical facilities. Accordingly, based
upon the evidence in this case, we con
clude that the amount of S5,086, 428 48
does not represent payments for tangible
property now in service"
Consistent with its action in similar
cases heretofore decided the commission
rejected the company's contention that
certain Of the amounts should be
kept in the accounts indefinitely. It
ordered its amortization over a 15-year
period, citing a similar holding in the
Pacific Power and Light company case
which was sustained by the U. S. circuit
court of appeals for the Ninth circuit.
Company Expert Witnesses
Not Persuasive
The opinion criticized company expert
witnesses for taking the position that
transactions between corporations, no
matter how closely related or controlled,
must be treated as normal business deal
ings. These witnesses, the commission
said, looked to the form of what was
done rather than the substance. They
insisted that if the company organizes a
subsidiary corporations and transfers
assets to it which are recorded at in
creased amounts, the result is not a
write-up provided the assets have a
commercial value to support the consid-
Grafton. The commission states that
their theory that the more formal ex-
istence of a new corporate entity regard
less of identity Of ownership, manage
ment and business, is sufficient to sup
port the contention that a new cost has
been incurred, would enable utilities to
convert cost accounting to value ac-
counting by the simple expedient OF
forming a new coronation
In a concurring opinion Chairman
Basil Manley and Vice Chairman Leland
Odds criticized the company accounting
witnesses, declaring their testimony was
in the main, an attempt to support the
claims of their client rather than an ex-
preston of sound accounting principles. -
It clearly appeared from the testimony
of the company witnesses that "as long
as some kind of formal document con-
tanned the pertinent book figures, the
accountants inquiry would be practically
at an end" the %concurring opinion says,
pointing out that cross-examination Of
the company witnesses revealed that
their view inevitably leads them to the
extremes of value a%ccountings,' which
would be contrary to the public interest
for regulated public utilities.
The %concurring opinion warned OF the
effect on investors of the fallacious the
ory that high, earnings entitle a company