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Little, if any, consideration was given capitalization. (1917, C 391 ; 1917, D 543.)

If it appear that the security issues of a company are in excess of the fair value of the property, no weight whatever is attached to securities. (1917, C 391 ; 1917, D 546; 1918, A 161.)

The district court said: “We reject entirely- the whole subject of capitalization, stocks, and bonds. We fail to see how it can have any pertinence." (1919, L 133.)

“No importance can be attached to stocks and bonds.” (1919, E 209.)

Value of stocks and bonds can have no weight in valuation of utility owned by several associated corporations. '(1925, B 773; U. S. Dist. Ct.)


"The courts have uniformly refused to consider stocks and bonds as controlling or that they have great weight.” (1926, A 6.)


Capitalization rejected as having no pertinence.

(1925, F 161.)


Capitalization is given but “slight consideration.” (1920, F 49, 108.)

The commission refused to adopt respondent's suggestion that the bonded indebtedness was to be taken as the minimum property valuation. (1923, E 816.)


Capitalization is “not worthy” of consideration. (1918, C 246.)
Subject of capitalization rejected as having no pertinence. (1918, E 98.)

If it appear that the security issues of a company are in excess of the fair value of the property, no weight whatever is attached to securities. (1919, D 286.)

Commission fixes valuation without reference to amount of security issues. (1919, E 95.)


If it appears that the security issues of a company are in excess of the fair value of the property, no weight whatever is attached to securities. (1919, D 915.)

Where securities are issued with governmental approval they were accorded some weight when the rate making value then found compares favorably per mile of road with that of like companies. (1919, D 777.)

Little (if any) consideration given capitalization, although in this jurisdiction the controlling theory is investment cost. (1923, E 634.)


“ Very little consideration should be given to capital stock, bonds, or rates." Capitalization receives the “least consideration.” (Spokane v. Washington Water P. Co.)



The Federal Interstate Commerce Commission has generally rejected capitalization as a rate base. As early as 1898, in Grain Shippers Association v. Illinois Central Railroad Co. (8 I. C. C. 158), the commission said:

“ The mere capital account of a railroad does not furnish a conclusive basis by which to adjust the amount of its earnings, for the reason, among others, that the capitalization

does not represent the actual amount of money invested in the properties, nor the actual value of the properties themselves from any standpoint.”

Another case decided by the Interstate Commerce Commission is In re Express Rates, etc. (24 I. C. C. 380), decided in 1912. There, it was stated that, speaking of capitalization :

To allow return upon this basis would put a premium on mere bookkeeping methods which have no foundation other than the capricious policy of its owners. There is no sacredness in the stated amount of the capital stock of any company. When the courts speak of a return upon capital of a public utility, they mean a return upon investment.

" The investor in a railroad, an express company, or a telegraph company should be compensated for the sacrifice that he has made and not paid a premium because of the manner in which he chooses to state his financial condition or his expectations.”

THE O'FALLON CASE As is well known, for several years the Interstate Commerce Commission has, under the direction of Congress, been making valuations of the property of carriers devoted to transportation uses. The commission has made a final valuation of the St. Louis & O'Fallon Railroad Co., and this case is now pending in the courts with the intention of making it a test case on this very important subject.

In making the valuation in this case, the Interstate Commerce Commission wholly disregarded the question of outstanding capitalization, but did make a searching investigation as to the amount of money actually invested in the property and it decided the case upon what is known as the prudent investment theory as against the cost of reproduction theory. The decision of the Interstate Commerce Commission in this case has thus far been upheld by the district and circuit court of appeals, but without passing upon the correctness of the theory pursued by the commission. The matter in issue in that case is only whether the cost of reproduction theory or the prudent investment theory shall be followed. Whichever theory may be adopted, the outstanding capitalization will be ignored.


From the above, it can be clearly seen that the courts, the Interstate Commerce Commission and the State public utility commissions for many years have ignored capitalization as a factor of any consequence in the rate structure. The attempt is always made to fix the rate base in accordance with the value of the properties and not upon the basis of the evidences of their ownership. What the rate making bodies determine is fair value of property which is almost universally acknowledged not to be reflected by capital issues.

Senator WHEELER. Mr. Chairman, have we heard all of the lobbyists now who want to be heard ?

The CHAIRMAN. Well, these gentlemen present are all pretty heavily interested in this matter, and we have given all sides an opportunity to present, somewhat briefly, their views. Senator Walsh, you may proceed at your pleasure. STATEMENT OF HON. THOMAS J. WALSH, A SENATOR IN THE


Senator WALSH of Montana. Mr. Chairman, I want to offer for the record an article which came to me through the mails this morning touching the amount of electrical energy that passes from one State to another, based on the best information that I could secure. When I inquired into the matter a year ago I understood it was about 5 per cent, but a recent study shows it is over 9 per cent. I am unable to say whether that means that the original estimates were erroneous and too low, or whether the amount is constantly increasing. I apprehend that the latter is probably the true explanation, because as these various plants in the different States get tied up and under the same control the energy is passed more freely from one State to another, and all agree that the quantity of energy that does pass State lines will in the future constantly increase :

82732—28—PT 47


After a nation-wide survey, a report of which has just been issued, the bureau of business research of Harvard University has uncovered the fact that more than 9 per cent of all energy generated by electricity crosses State lines. A study to secure complete and unbiased information on interstate power was undertaken as a part of the Harvard Business School's general research program for the purpose of providing information for use in teaching, but findings are published for what information they may provide the economic public.

This publication is entitled "Interstate Transmission of Electric Light and Power Companies in 1926.” It was found by a study of figures and facts from the electric light and power companies engaged in interstate transmission of electricity that the total of such power sent across State lines aggregated 6,171,530,837 kilowatt-hours in 1926. This is approximately 9.06 per cent of the total of power, or 68,145,217,000 kilowatt-hours, generated in the United States.

Of all interstate power 26.28 per cent involved no change of ownership. In 1926, 152, or 33.6 per cent, were placed in operation during 1924, 1925, and 1926. (From Boston Transcript, January 19 or 20, 1928), article entitled Electrical uses for industry and homes show gain.”

There was put into the record by Senator Lenroot a few days ago an editorial by the New York World, to which I desire to advert presently. But the World seems to have been called upon to make something in the nature of an explanation of its previous editorial, and another editorial appears in the issue of January 24. I ask that this be incorporated in the record :

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The Interstate Commerce Committee of the Senate is to wind up its hearings this week on Senator Walsh's proposal for a power trust investigation, and there are reports from Washington that if the proposal is to be adopted it must be radically changed. There are also reports from Washington that if the power companies succeed in blocking the investigation, or in making it innocuous, their next fight will be to prevent any congressional action at Muscle Shoals and Boulder Dam.

In our own opinion Muscle Shoals and Boulder Dam are more important than the Walsh investigation. We say this because here are two enormously valuable properties belonging to the people of the United States which ought not to be alienated, but which should be retained, not only for their own value but as an experiment in public ownership and public operation. Senator Walsh, we believe, would tackle something far more real and far more worth while for the future of power regulation in this country by demanding action at Muscle Shoals and Boulder Dam than by devoting his abilities to a somewhat remote and vague inquiry into the whole realm of public utilities. We do not, however, wish to be understood as opposing this inquiry. We regard it as relatively less important than legislation for Boulder Dam or Muscle Shoals, but it might justify itself.

We are aware, meantime, that action at Muscle Shoals and Boulder Dam is opposed by the same powerful lobby that opposes the Walsh investigation. And if the only way to obtain action at Muscle Shoals and Boulder Dam is to defeat this lobby with a sweeping investigation all along the line, then let us have the investigation.

For three years the power people have held a club over Congress and forbidden it to act at Muscle Shoals and Boulder Dam. If this session of Congress does nothing else, let it prove whether the power lobby or Congress is to write the power policy of the United States.

There are two things in the original World article to which I desire to advert:

First. That Senator Walsh seems to be afraid of big units or enterprises; and

Second. That there has been no popular demand for this investigation.

In the first place, Mr. Chairman, I desire to say that that is a very common kind of argument by the apologists for monopoly, to say that we need big industries in this country, and that the country is not afraid of big industries. In that, Mr. Chairman, I fully concur. The fact that an industry is a great big one does not appall me a bit; Indeed, our conditions require that industry be carried on by capital in large amounts. I have no apprehension at all, indeed I feel proud of the fact that Mr. Ford, for instance, has developed a great enterprise, representing millions and probably hundreds of millions of capital. That is not what I complain about at all. What I complain about is the amalgamation, the combination, the putting together of a unit located here, there, and elsewhere, serving a local community, together in one big unit. Here is somebody who has constructed an electric-light plant in one city, and somebody else in another city, and still somebody else in another place, and I have no fault to find with that; but what I desire to have investigated is the condition which presents itself here, where local communities with their own capital have built their local enterprises, and then after it is a demonstrated success, to have someone else come in and consolidate the whole of them, even enterprises in 20 different States.

The next suggestion was, that there has been a lack of interest in this investigation. I venture to say, Mr. Chairman, and I think it will be concurred in by every member of this committee, that during my 15 years' experience in the Senate I have never known an application for an investigation into any subject to elicit the amount of interest which this application has, both for and against.

I took pains at the beginning to put in the record, from the Washington Star, the comments of the public press upon this matter, the heading of which declared that the press generally expressed themselves favorable to an investigation. I did not put in the vast amount of letters that I have received upon this subject, Mr. Chairman, and do not propose to do so now, but there are one or two that just came to my desk within the last few days which I desire to submit Here is one from the State of Arkansas:




Washington, D. C. MY DEAR SENATOR : I noticed in the papers where you are chairman of the Committee of Resolutions for a sweeping investigation into the financial affairs of the public utilities.

Senator WALSH of Montana. I am sure that I do not want to usurp the powers of the chairman of this committee.

The CHAIRMAN. Oh! You need not worry about that.
Senator Walsh of Montana. I continue reading the letter.

For your information, I wish to state there was a party from Chicago who came here and bought our gas company out and paid them $3,000,000 and before they paid it, they issued $3,000,000 of bonds, sold it and paid for the property; then issued over $1,000,000 of stock. They are selling the stock now for $15 a share. That will give them $1,500,000 and besides I suppose drawing a good big salary.

The physical property they purchased is not worth the money they paid for it but the income upon the property will pay interest on a larger amount than they paid for. They will be able to pay interest on the bonds as long as the gas lasts. Should the gas give out and should they neglect to continue to develop, the bond holder will be the sucker.

As a citizen, in my opinion an investigation is necessary, if it does not do anything else but check it.

The public utilities have been going wild. They are taking the money from the public in two ways-selling watered stocks and then turning around and charging them more for gas. That is hitting them on both sides, right and left. They are paying enormous prices for property, but not with their own individual money but from the money that they get from the public.

While I realize they have plenty of money to fight it, and it may take years before Congress can do anything, but I believe they will do one good thing and that is check them from continuing the abuse.

It is a joke of the country the way they are doing, and if Congress doesn't put a stop to it and if they are allowed to continue the abuse, you are going to drive the public in time to revolution. It may not be in sight. It may not be in my lifetime and I hope it will not, but it is coming. There is bound to be a reaction.

Prior to President Roosevelt's election the money power was in the saddle, and when President Roosevelt began the insurance investigation and for years thereafter the money power weakened and weakened until the labor came in power, and when the labor came in power they became insane with prosperity. Then they began to weaken and they continued to weaken until the money power came back in the saddle and they are now still in it.

So it shows there are reactions going and coming, and the reaction for the capital is bound to come. Very truly yours,

(Signed) I. H. NAKDIMEN. These transactions will be a sufficient answer to the statement which is made that the investments in these properties and the value of them far exceed the securities issued. Here is a letter from Bennettsville, S. C.:


Bennettsville, 8. O., January 18, 1928. Hon. Thos. J. WALSH,

Senator from Montana, Washington, D. C. DEAR SIR: We notice the stand you have taken with reference to the public utilities delivering electric service to the various cities and localities throughout the country and we want to assure you that we feel you have shown a very patriotic and a very timely spirit to a sadly neglected phase of our National growth.

So very few intelligent people realize to what an extent our vast resources are quietly slipping into the hands of a few monopolistic centers and how each day more and more small industries will be compelled to pay what ever tolls may be exacted of them if they survive.

If some one who has power to investigate does not turn the real true light on some of the deals that are being put through to whip the little fellows into line, we fear the electric industry will be a curse instead of the blessing that it should be.

If other communities have had the same chance to learn of the methods pursued as we have, when the “powers ” want to get your electric plants and franchises they have a very interesting story to tell.

The efforts you are exerting in the electric utility investigation will be highly appreciated by many a community from whom you may never hear, but your good work will bear fruit if it is not blocked by the big fellows in the industry who are already expressing indignation. Yours truly,

BENNETTSVILLE ELECTRIC & WATER PLANT. (Signed) E. C. MORRISON, Manager. I had a letter a short while ago from Mr. Frank Putnam. I will say that Mr. Putnam was for something like 10 years associated with one of the great big companies. He made a trip out to the Pacific coast for the purpose of ascertaining the extent to which electrical energy was used for heating purposes out there and in the Rocky

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