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the Board of Railroad Commissioners "for the purpose of supplying itself with working capital." Under the above act the Boston and Worcester Street Railway Company was authorized to issue shares to the par value of $102,000 for working capital. The decision of the Board does not state the basis of the allowance for working capital. Based on the returns of the company for the year ending December 30, 1909, the allowance was approximately 5% of the share capital and the share capital amounted to approximately one-half of the total capitalization (shares and bonds).

The New York Public Service Commission, Second District, In re Application of the Rochester, Corning, Elmira Traction Company, 1 P. S. C. 2d D. (N. Y.) 166, 176, decided March 30, 1908, states that upon an application for capitalization of a newly organized railroad company the Commission will make an allowance for a proper amount of working capital. The Commission says: "The operation of the company can be conducted with far greater efficiency, more to the satisfaction of the public and with better results to the stockholders if it has at all times in its treasury a working capital sufficient and adequate to meet the requirements of the road."

§ 342. Working capital as estimated for tax purposes in Great Britain.

Under the tax laws of Great Britain, taxes are assessed on the rental value of real property. As gas and water undertakings are not usually held on a tenancy, the rental value has to be found by assuming a hypothetical tenant and inferring the rent from the available evidence. This involves among other things an estimate of the structural

2 Petition of the Boston and Worcester Street Railway Company, decided February 18, 1910. 42d Annual Report of the Railroad Commissioners, p. 102.

value of the works and also an estimate of the tenant's capital necessary for the conduct of the business. The amount of working capital required is based on operating expenses during the estimated period elapsing before current receipts will meet current expenditures, less the estimated amount of receipts during such period. In England, gas bills are rendered quarterly and it is estimated that it is some six weeks or two months after the end of the quarter before money received from day to day is sufficient to meet expenditures. Capital must therefore be provided to meet the excess of expenditure over receipts for a period of four and one-half or five months. But although ordinary gas bills are rendered quarterly, there are considerable sums received during the quarter from prepayment meters, sale of residuals and bills rendered at shorter intervals as is the case when a consumer moves from one house to another. An amount is added for the estimated amount of taxes that may be required to be paid during this period. No allowance is, however, made for a payment of interest or dividends. In addition there is a small allowance added to cover minimum cash balance in bank. The assumption upon which the tenant's capital is based is that the whole of it will be required at one time even though that time be short. Consequently, it is deemed necessary to provide a minimum cash balance as this is often a requirement made by the bank as a condition of keeping the account. To the above is also added the stock of coal, residuals, and stores on hand.3

$343. Wisconsin Railroad Commission, 1910-1911.

The case of State Journal Printing Co. v. Madison Gas

3 Rating of gas and water undertakings, by Arthur Valon, published in the Journal of Gas Lighting, London, February 21, 28, March 7, 14 and 28, 1911. See particularly p. 517, February 21st and p. 669, March 7th.

and Electric Co., 4 W. R. C. R. 501, 551, decided March 8, 1910, involves the valuation of a gas and electric plant for rate purposes. In its opinion in this case the Wisconsin. Railroad Commission discusses the allowance for working capital in part as follows:

That stocks and supplies and cash in sufficient amounts to insure economical and safe operation of the plant are proper items to be included in the working capital, is clear. This, in a sense, might also be true of bills receivable, except in such cases where they are offset by bills payable. The mechanism and nature of modern industry are such that the bills can not be collected on the delivery of the goods, and hence thirty and even sixty days' time for payment of bills are usually regarded as cash sales. The effect of this is, that bills and accounts receivable, and bills and accounts payable, to a considerable extent tend to offset each other, and that the former, for this reason, may not be an essential part of the working capital. Gas in the holder and gas and current delivered but not billed would, in this case, seem to be items that belong with earnings and operating expenses rather than in the capital account. For a company so situated as the one in question here, the essential items in working capital would seem to consist of stores and supplies and cash on hand. . . . The company obtains its revenues from the gas and the electric current it manufactures and sells. It collects those revenues from its customers very promptly about the 10th of each month. Its outlays consist of the cost of producing, delivering and selling this gas and electric current, or of the cost of fuel, material for repairs and renewals, certain other supplies of various kinds, the wages of the labor it employs in the operation, repairs and renewals of its plant, the salaries of its clerks and officers, taxes, interest and profits on the investment. Coal is the principal material that is used in the production of gas and electric current, and is also in most cases the largest single item of expense. Inquiries upon this point indicate that, when storage and handling are taken into consideration, coal can be contracted for in larger quantities and paid for about

as delivered, or monthly, on terms that are about as favorable as any that can be had. In fact, such transactions are usually regarded in about the same light as ordinary cash deals. Other supplies can probably be bought on thirty days on practically a cash basis. Wages and salaries are ordinarily paid monthly and about the time the bills for the gas and current sold are collected, or can be so paid. Taxes, interest and profits are not likely to be paid oftener than in one or two annual installments. The receipts, taken as a whole, are about one-third greater than that part of the expenses which, when considered together, it would be of any advantage to the plants to pay as often as once a month.

These facts are significant. They show that the company is in a position where it is practicable for it to meet at least the greater proportion of its current outlays from its current receipts, or to meet these outlays on a basis that is practically the equivalent of cash transactions. They make it clear that the conditions under which the business of this company is or can be done, are such that there is a very close relation between the collection of its receipts and the payment of its expenses, so close, in fact, that there ought to be little or no trouble in a reasonably uniform adjustment of the one to the other. There are, of course, certain items of the expenses, such as renewals and repairs, particularly in case of accidents, that may be much heavier at some periods than at others and which can, therefore, be more economically met when there are ample funds on hand. It is also a fact that, with a liberal amount of quick assets available, new extensions to the plants may be more cheaply constructed than otherwise, and this for the reason that temporarily it may be more economical to use working capital for such purposes than to meet the cost by regular loans or by the sales of new securities. There may also be other circumstances under which it is profitable to the plant to be fortified by an ample working capital. But, upon considering the facts thus presented, one can not help but feel that the respondent claimed a greater amount for this purpose than that which is required for operating the plants and conducting their business as a whole, with a rea

sonable degree of economy, effectiveness and safety. In fact, it appears to us that a working capital of even less than 15 per cent. of the amount derived from the sales of gas and current or of from $45,000 to $50,000, is fully adequate under present conditions.

In the above case the total working capital allowed was $49,674, of which amount $30,130 consisted of stores and supplies. This amount covered working capital for both the gas and the electric lighting business. The allowance for the gas business alone was $23,855, of which $14,924 was for stores and supplies and the balance, $8,931, for additional working capital. The amount of gas sold amounted in 1908 to 116,354,000 cubic feet. This allowance amounted, therefore, to about 20 cents per thousand cubic feet of gas sold. The Commission fixed a rate for gas varying from 90 cents net to $1.15 net. The case of City of Beloit v. Beloit Water, Gas and Electric Company, 7 W. R. C. R. 187, 242, 378, decided July 19, 1911, is also a rate case. The Commission allowed a total of about $40,000 for working capital, including stores and supplies on hand amounting to $25,259. The opinion does not state on what basis this allowance is made but includes a statement showing current assets and current liabilities and then states that: "The revenues from the gas and electric consumers are collected monthly, being payable on or before the tenth of the month following the month for which the bill is rendered. The water rates, under the flat rate system in use in Beloit, are payable quarterly and in advance, a penalty being added in case of payments which are not promptly made."

In re Application of La Crosse Gas and Electric Company for authority to increase its rates, 8 W. R. C. R. 138, 187, decided November 17, 1911, the Commission allows $35,000 for working capital, which amount includes stores and supplies on hand valued at $13,947. In this case the

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